The IRS May Collect the Tax Debt of a Company’s Predecessor from the Successor Corporation, when the Successor Corporation Is Essentially the alter ego of Its Predecessor

When an Illinois Corporation went out of business on March 12, 2009 without paying all of its payroll taxes, a successor corporation began operating in the same physical location. The successor corporation purchased all of its predecessor’s assets, hired its employees, used its website and phone number and pursued the same line of business. In addition, the president of the predecessor corporation continued to play a leading role in the successor corporation. The IRS treated the successor corporation as the continuation of the predecessor and levied $400,000 of the successor corporation’s assets. The Seventh Circuit relied on the state law and affirmed the district court’s ruling which had concluded that the successor corporation was the continuation of the predecessor’s business operations. The 7th Circuit issued its ruling on December 16, 2016 in Eriem Surgical Inc. v. U.S.; 7th Circuit; No....

United States Tax Court Holds Defect in Notice of Deficiency Issued by the IRS Doesn’t Invalidate It

On February 2, 2017 U.S. Tax Court ruled in favor of the IRS and held that the court could exercise jurisdiction over a case involving a defective notice of deficiency. On his 2014 tax return, taxpayer claimed a refundable credit under the Internal Revenue Code § 36B. The IRS disagreed and issued a notice of deficiency which erroneously showed zero liability on its first page. The IRS notice, however included a computations page which showed a decrease in the amount of the credit but mistakenly stated that no tax was due. The issue was whether the taxpayer could reasonably rely on such a defective notice as to whether he owed any taxes. The tax court held that it could exercise jurisdiction over the case because under the circumstances, a reasonable taxpayer could infer from the IRS notice that he owed taxes. Tax court held that when the IRS notice is ambiguous about the existence of tax deficiency, the party seeking to establish the court’s jurisdiction carried the burden of proving that the IRS had determined a tax deficiency and the taxpayer wasn’t misled by the defective IRS notice. 148 T.C. No....

Incompetence or Malfeasance of a Taxpayer’s Accountant Does not Result in the IRS’s Forgiveness of Tax Penalties

In December 2015 the Unites States Court of Appeals for the 6th Circuit in Maurice S. Vaughn v. U.S. (No. 14-3858) ruled that a taxpayer whose accountant had embezzled his funds resulting in large penalties for late tax payment was not eligible for waiver of those penalties. Taxpayer who was a major league baseball player entrusted his accountant with filing and paying his taxes. The accountant instead embezzled the funds and caused the taxpayer to owe significant tax liabilities plus penalties for late payment. The taxpayer argued that he didn’t know about tax law and tax preparation and that was why he had paid the accountant to take care of his taxes. The taxpayer was willing to pay the principal tax but asked the IRS to remove the penalties for late payment. The IRS refused to waive the penalties and the taxpayer sued the IRS. The 6th Circuit ruled in favor of the IRS. The appeals court explained that circumstances that led to the imposition of penalty were under the taxpayer’s control and subject to his supervision. It was the taxpayer’s negligence to pick a competent and trustworthy accountant that led to his liability for tax penalties. Since the taxpayer neglected his duty, he was held to be responsible for the late...

Virginia Business Owner’s Responsibility for Delinquent Sales Taxes

Virginia Department of Taxation (‘Virginia DOT’) has recently stepped up its enforcement of state laws relating to officer responsibility for delinquent trust fund taxes such as employment and sales taxes. Virginia corporate officers who may not even be responsible for the business’s tax matters under the bylaws of the business are routinely targeted by Virginia tax authorities as responsible officers of the corporation or of limited liability companies organized in Virginia. Such designation usually leads to assessment of business taxes against responsible officers. The targeted individuals then receive tax bills for Virginia sales taxes or employment taxes which should have been paid by the business. Failure to timely contest the ‘responsible officer’ designation will lead to a final determination which no longer may be appealed. Virginia tax appeals officers make their determinations based on the applicable Virginia law which has many similarities to the federal statute governing trust fund penalty...