BEFORE THE STATE TAX COMMISSION OF UTAH
v. : INFORMAL DECISION
AUDITING DIVISION OF THE : Appeal No. 87-1026
STATE TAX COMMISSION OF UTAH, )
STATEMENT OF CASE
This matter came before the Utah State Tax Commission for an Informal hearing on XXXXX. James E. Harward, Hearing Officer, heard the matter for the Tax Commission. XXXXX appeared representing the Petitioner. XXXXX appeared representing the Respondent.
This case centers around an interpretation of Utah Code Ann. §59-2-1321(3) which provides "any person required to collect, truthfully account for, and pay over the sales, use, or withholding tax imposed by law who willfully (a) fails to collect the tax, (b) fails to truthfully account for and pay over the tax, or (c) attempts in any manner to evade or defeat any tax, the payment of the tax shall, in addition to other penalties provided by the law, be liable to a penalty equal to the total amount of the tax evaded, and not collected, not accounted for, or not paid over." The Utah Code Ann. in the same section further defines willfully.
[T]he following shall be non exclusive prima facia evidence that a person who that has willfully failed to collect, truthfully account for, or pay over, sales, use, or withholding tax imposed by law:
(a) A finding that the person charged with the responsibility of collecting, accounting for, or paying over sales, use, or withholding or corporate franchise tax have a made a voluntary conscious and intentional decision to (i) prefer other creditors over the state government, or (ii) utilized the tax monies for personal purchases
(b) finding that the person or persons charged with the responsibility of collecting or accounting or paying over any such tax recklessly disregarded obvious or known risks which resulted in the failure to collect, account for or pay over the tax.
(c) The finding that the person charged with the responsibility of collecting or paying over any such tax failed to investigate or correct mismanagement having notice that any such tax was not or is not being collected, accounted for or paid over as provided by law, and (d) the finding of bad motive or specific intent to defraud the government or deprive it of revenues unnecessary in establishing willfulness under this section. The Tax Commission, in making its decision in this matter, has found the following facts to be dispositive:
1. The Petitioner, XXXXX, was the president, owner, and operator of XXXXX. As the owner, president, and operator of the business, he ran a decentralized business organization which placed authority and responsibility in various department heads. Those departments consisted of sales, maintenance, hardware and software and an accountant.
2. The accountants responsibilities were to maintain the books and records, to do all payroll functions and tax responsibilities including the filing of reports and returns and seeing that they were paid.
3. The Petitioner, XXXXX, signed all checks XXXXX.
4. The Petitioner learned sometime in early XXXXX, that the returns were not being filed with the IRS and with the State Tax Commission of Utah. Immediately upon learning that the returns and payments had not been made, the Petitioner confronted the accountant whose responsibility it was to take care of those returns and the payments for the taxes. An outside accountant was hired and brought in to do the books and reconstruct the income for the purpose of filing the proper returns.
5. In XXXXX, the returns were prepared and filed. In XXXXX, bankruptcy was filed on behalf of the corporation because of the huge amounts of money which were not paid timely and properly.
6. The total outstanding liability for the tax is $$$$$. This is a corrected figure after the Respondent a acknowledged the improper inclusion of monthly estimates of $$$$$. After subtracting the improper amounts, the balance remaining is that set out above.
7. Prior to filing bankruptcy and after discovering the problem, the Petitioner worked diligently with an outside accounting firm, and with the accountant's replacement to see that the returns were filed. During this period of time, the Petitioner also suffered a heart attack which caused him severe problems and hospitalized him for a period of time during this course of events.
8. After filing bankruptcy all payments made under the plan of bankruptcy and the liquidation were done with the approval of the bankruptcy court, and it is presumed with notice given to the Tax Commission.
The Tax Commission finds that there was no evidence which would show that there was a conscious or intentional decision to prefer other creditors over the state government or to use the tax money for personal purposes. Further the Tax Commission finds no evidence of a reckless disregard for obvious or known risks which resulted in the failure to collect, account for, or pay over the taxes. It appears that there is some negligent behavior on behalf of the accountant, but however, there is no evidence which would indicate that any conduct was reckless or a reckless disregard of obvious or known risks. The Tax Commission finds that all attempts were made to investigate and to correct the problem after notice that the tax was due.
The Tax Commission is persuaded that the Petitioner took every reasonable and prudent precaution and step necessary in the investigation and the correction of the problem once he was notified of it. There is insufficient evidence before the Tax Commission to find any fault with the Petitioner in failing to adequately supervise and manage the accountant. Therefore, the Commission is unable to find any willful conduct which would subject the Petitioner to the provisions of §59-2-1321(3).
DECISION AND ORDER
Based upon the foregoing, it is the Decision and Order of the Utah State Tax Commission that the assessment against Petitioner be rescinded, and that the petition of XXXXX be granted.
DATED this 20 day of October, 1987.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis