BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX
Petitioner, :
v. : INFORMAL DECISION
AUDITING
DIVISION OF THE : Appeal No. 87-1026
STATE TAX
COMMISSION OF UTAH, )
Respondent. :
_____________________________________
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.
DISCUSSION
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
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner
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