BEFORE THE STATE TAX COMMISSION OF UTAH
v. : INFORMAL DECISION
COLLECTION DIVISION OF THE : Appeal No. 87-1119 & 1120
STATE TAX COMMISSION OF UTAH, ) Account Nos. XXXXX
STATEMENT OF CASE
This is an Appeal to the Utah State Tax Commission from a decision of the Collection Division of the Utah State Tax Commission (Respondent) to assess a penalty against Petitioner as an individual in the amount of the total of the sales taxes and withholding taxes assessed against XXXXX for the last XXXXX. An informal hearing was held on XXXXX, in the offices of the Utah State Tax Commission. David J. Angerhofer, Hearing Officer, heard the matter for the Commission. XXXXX, Attorney at Law, represented the Petitioner. XXXXX, Special Assistant Attorney General, represented the Respondent.
Petitioner stated that XXXXX was formed in XXXXX and filed Chapter 11 bankruptcy in XXXXX. The plan was confirmed in XXXXX. Part of the plan was that XXXXX would merge with XXXXX. Pursuant to the plan the Tax Commission accepted promissory notes representing tax arrears for all periods in question except the XXXXX. These promissory notes are in the amount of $$$$$ for 60 payments at 10 percent per annum, the first payment to commence on XXXXX. Petitioner was President of XXXXX, until XXXXX, at which time he resigned.
Petitioner stated that the Tax Commission may not assess a penalty against the principal of a corporation as an individual. The Utah Code does not include the principal of a Corporation in the definition of a "person" as contrasted with the IRS Code which does include a principal of a corporation in the definition of "person."
Respondent stated that Utah Code Ann. §59-2-1321(3) (1953) faithfully follows §6672 of the IRS Code. Respondent asserted that Petitioner demonstrated a reckless disregard when Petitioner resigned from the corporation. Petitioner should have partially paid over the money prior to his resignation.
The Tax Commission finds that Utah Code Ann.59-2-1321(3) (1953) applies to the principal of a corporation in his individual capacity. A personal penalty may properly be assessed against Petitioner provided that the elements of Section 59-2-1321 have been met: Petitioner must have been a "responsible person" for the periods in question and he must have willfully failed to collect, truthfully account for and pay over the tax before the personal penalty may be assessed.
The Tax Commission finds that Petitioner is not liable for a penalty in the amount of the sales tax due and owing for the XXXXX or for a penalty in the amount of the withholding tax due and owing for the XXXXX. Petitioner resigned prior to the due date of these returns and was not a "responsible person" for the purpose of Section 59-2-1321. Petitioner resigned on or about XXXXX, and was responsible to collect and truthfully account for the funds since his resignation occurred after the end of the quarter. Testimony indicates that he had collected and accounted for the funds. Petitioner would have been responsible to pay over the tax since his resignation occurred in the time frame between the end of the quarter and the statutory due date except for the fact that Petitioner was forced out of the company. He did not voluntarily resign just before the due date with the intent of escaping liability for the first quarter taxes.
The Tax Commission also finds the Petitioner not liable for a penalty in the amount of the sales tax due and owing for the last three quarters of XXXXX and the XXXXX. These periods were covered by the promissory notes the promissory notes were accepted by the Tax Commission pursuant to the plan of reorganization. Since the first payment was not due until after Petitioner resigned and since this resignation was not voluntary, Petitioner was not in a position to insure that payment would be made. He cannot be held liable.
DECISION AND ORDER
Based on the foregoing, it is the Decision and Order of the Utah State Tax Commission that the penalty in the amount of the sales taxes for XXXXX be abated. The penalty in the amount of the withholding tax for the XXXXX is also abated.
The Collection Division of the Utah State Tax Commission is hereby ordered to adjust its records in accordance with this Decision.
DATED this 1 day of October, 1988.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis