STATE OF WISCONSIN
TAX APPEALS COMMISSION
7620 W. Donna Court, Apt. #8
Milwaukee, WI 53223-2588
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8933
Madison, WI 53708-8933
|DOCKET NO. 97-W-342
DECISION AND ORDER
THOMAS M. BOYKOFF, COMMISSIONER:
This matter was heard by the Tax Appeals Commission ("Commission") at a trial on May 6, 1999. Petitioner appears pro se, and the Wisconsin Department of Revenue ("Department") is represented by Attorney Sheree Robertson. Both parties have submitted documents in support of their positions.
Having considered the entire record and the arguments of the parties, the Commission finds, concludes, and orders as follows:
FINDINGS OF FACT
1. Kasa Corporation ("Kasa Corp.") is a Wisconsin corporation located in Milwaukee, Wisconsin, which was organized by petitioner in 1984 as a building contractor. Kasa Corp. was also a subcontractor during the period under review, calendar years 1989 to 1995.(1) On January 31, 1985, petitioner filed with the Department an Application for an Employer Identification (Withholding Tax) Permit. In that application, petitioner estimated that $40 of income tax was to be withheld from employees' wages each month. He signed the application as corporation president.
2. Since its inception, 100% of Kasa Corp.'s stock was owned by petitioner, who was its president and treasurer.
3. As corporate president, chief executive officer, and treasurer, petitioner estimated bids for Kasa Corp., negotiated contracts on behalf of Kasa Corp., and managed contracting projects for Kasa Corp.
4. Petitioner was also in charge of Kasa Corp.'s financial operations. He was authorized to sign checks on a corporate account at M&I Northern Bank, Brookfield, Wisconsin. Petitioner wrote several checks on this account to corporate creditors, including a June 28, 1989 check to Chrysler Credit Corp., a February 21, 1989 check to Martin Matukkus, and a check to Wisconsin Electric (date is unreadable; likely late 1989). Petitioner was also authorized to sign checks on the corporation's account at Associated Bank Milwaukee, which was maintained from December 26, 1995 to December 11, 1996. He wrote and signed checks on that account to pay such corporate creditors as Fred Hofstede for rent on December 6, 1996, Kinko's copying service on December 6, 1996, the Milwaukee Clerk of Courts on January 17, 1996, Kasa Corp.'s employees, and others. This account had a $1,236.25 balance on December 29, 1995, and an average balance of $1,416.72 in January 1996 when 14 checks were written.
5. Kasa Corp. filed at least 13 franchise/income tax returns and one amended return for the seven years under review. Petitioner signed all of these returns as corporate president.
6. Petitioner filed Kasa Corp.'s franchise/income tax returns for tax years 1986 to 1992 on October 17, 1995. Zeros were written on each line provided for a dollar amount. The Department did not accept these tax returns as true and correct.
7. Kasa Corp. also filed at least one additional franchise/ income tax return for each year under review. No payments accompanied any of these returns. Petitioner signed all returns as corporate president. Two returns were filed for 1991 and 1993, and the 1995 return was amended. Five of the tax returns were dated as signed on May 7, 1996 (the returns for 1989, 1990, one return for 1991, 1992, and one return for 1993). A deduction for wages paid to employees was taken on each tax return except on one 1991 return and on the 1995 return.
8. On May 7, 1996, Kasa Corp. also filed an Employers Annual Reconciliation of Wisconsin Income Tax Withheld From Wages form for each year under review, showing that income taxes were withheld from employees' wages. One additional form was filed for 1989 and 1992, on August 9, 1997 and January 15, 1993, respectively. No explanation was given as to why two reports were filed for each of those two years. All of the reports were signed by petitioner as corporate president. No tax was paid when these forms were submitted to the Department.
9. In 1996, petitioner filed the most recent franchise/income tax returns and the withholding reports. The reason for filing was that Kasa Corp. was competing for a contract to work on the Milwaukee Public Library Project; before it could be awarded the contract, Kasa Corp. had to resolve its state tax issues. To resolve these matters, on May 8, 1996 petitioner entered into an Installment Agreement on behalf of the corporation with the Department. The agreement did not state which tax delinquencies of Kasa Corp. were covered by the installment amount of $11,825.94. As a prerequisite to the agreement, however, petitioner had to file all of Kasa Corp.'s outstanding withholding tax reports together with complete and proper franchise/income tax returns, which he did. The agreement required an initial $2,000 payment by May 17, 1996, then $350 monthly payments until the amount due was paid in full. Shortly after entering into the agreement, petitioner failed to comply with its terms and was in default.
10. Under date of January 31, 1997, the Department issued to petitioner an assessment for $21,683 of tax, interest, and penalty covering calendar years 1989 to 1995, asserting petitioner's personal liability for with-holding tax under Wis. Stat. § 71.83(1)(b)2. The amount of this assessment was calculated from information on withholding tax reports filed by petitioner on behalf of Kasa Corp.
11. Petitioner filed with the Department a petition for redetermination dated February 13, 1997, objecting to the assessment.
12. In a Notice of Action letter dated August 12, 1997, the Department adjusted the amount due to $21,480.91 to reflect a payment applied against the delinquent account of Kasa Corp., but otherwise denied petitioner's petition for redetermination.
13. Petitioner filed a timely petition for review with the Commission.
APPLICABLE WISCONSIN STATUTES
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(b) Intent to defeat or evade.
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2. 'Personal liability.' ... Any person required to withhold, account for or pay over any tax imposed by this chapter, whether exempt under s. 71.05(1) to (3), 71.26(1) or 71.45 or not, who intentionally fails to withhold such tax, or account for or pay over such tax, shall be liable to a penalty equal to the total amount of the tax, plus interest and penalties on that tax, that is not withheld, collected, accounted for or paid over. The personal liability of such person as provided in this subdivision shall survive the dissolution of the corporation.... "Person", in this subdivision, includes an officer, employe or other responsible person of a corporation ... who, as such officer, employe ... or other responsible person, is under a duty to perform the act in respect to which the violation occurs.
CONCLUSION OF LAW
Under Wis. Stat. § 71.83(1)(b)2, petitioner is personally liable for the unpaid withholding taxes of Kasa Corporation for years 1989 through 1995.
The elements necessary(2) to establish the personal liability for unpaid withholding taxes are:
1. The authority to pay -- or to direct the payment of --
2. The duty to pay -- or to direct the payment of -- the taxes;
3. The intentional breach of that duty.
Gerth and Kelly v. Wisconsin Department of Revenue, Wis. Tax Rep. (CCH) ¶ 203-367 (WTAC 1992); Michael A. Pharo v. Wisconsin Department of Revenue, 1997 Wisc. Tax LEXIS 28 (WTAC 1997), aff'd (Dane Co. Cir. Ct. June 8, 1998); Kenneth Higgs and Richard F. Wagner v. Wisconsin Department of Revenue, 1998 Wisc. Tax LEXIS 12 (WTAC 1998); Irvin L. Hougom v. Wisconsin Department of Revenue, 1999 Wisc. Tax LEXIS 21 (WTAC 1999); and Danny R. Senf v. Wisconsin Department of Revenue, 1999 Wisc. Tax LEXIS 42 (WTAC 1999).
If the Department presents clear and satisfactory evidence of the three elements, petitioner bears the burden of proving otherwise by clear and satisfactory evidence. Drilias v. Wisconsin Department of Revenue, Wis. Tax Rep. (CCH) ¶ 400-222 (WTAC 1996). In this case, the Department has proven that petitioner was a responsible person with respect to withholding taxes not withheld, accounted for or paid during the period under review. Petitioner has not proven the contrary.
Petitioner Had The Authority To Pay The Taxes
Petitioner was president, treasurer, and owned 100% of the stock of Kasa Corp. during the period under review. As president and treasurer, he was in charge of Kasa Corp.'s daily operations. He was, in his words, "the overall chief executive officer at the period in question." As CEO, he had the authority to pay -- or to direct payment of -- the withholding taxes at issue.
Petitioner was authorized to sign and issue checks on the corporate checking accounts in Associated Bank Milwaukee and in M&I Northern Bank. Under this authority, petitioner personally signed and issued many corporate checks to creditors of Kasa Corp. while Kasa Corp.'s withholding taxes were due.
Petitioner Had A Duty To Pay The Taxes
On January 31, 1985, Kasa Corp. applied for an Employer Identification (Withholding Tax) Permit from the Department. The application estimated the amount of income tax to be withheld from wages each month as $40. By signing and submitting this application, petitioner acknowledged that he knew that Kasa Corp. would be required to withhold, account for, and pay income taxes withheld from employees' wages to the Department.
Petitioner also completed and signed, as corporate president, Kasa Corp.'s annual franchise/income tax returns and annual withholding forms to report income tax withheld from wages. He signed one copy of each document for each year under review.
On May 8, 1996, petitioner signed an installment agreement on behalf of Kasa Corp. with the Department, acknowledging $11,825.94 in tax delinquencies. At this point, it is clear that petitioner had actual knowledge of tax delinquencies and, therefore, had a duty to ensure payment of past and future tax obligations of Kasa Corp. Petitioner failed to comply with the agreement and preferred other creditors over the Department. This demonstrates that petitioner knew of his duty to pay the corporation's taxes and intentionally breached the duty.
To summarize, petitioner knew that Kasa Corp. would have a withholding tax obligation from at least January 31, 1985. He also knew that withholding tax was due on July 15, 1993; August 29, 1994; and May 7, 1996, when he signed annual withholding forms. Although withholding liabilities existed, petitioner wrote checks to other creditors from December 26, 1995 to December 11, 1996.
Petitioner denies, however, responsibility for some delinquent withholding taxes because he believed that, when Kasa Corp. was working under a contract, a CPA had the responsibility to file and pay the taxes. In Masrud v. Wisconsin Department of Revenue, Wis. Tax Rep. (CCH) ¶ 203-284 (WTAC 1991), and Jeffrey P. Mach, Sr. v. Wisconsin Department of Revenue, 199 Wisc. Tax LEXIS 47 (WTAC 1997), the Commission held that the authority to file tax returns includes the authority over employees who write checks and file tax reports. The authority may be delegated, but the obligation to comply with the law or to see that it is complied with cannot be delegated to avoid liability. See, Thomsen, Jr. v. U.S., 89-2 USTC ¶ 9575 at 89.731, 887 F.2d 12 (1st Cir. 1989). This no-delegation principle has been repeatedly affirmed by the Commission for state tax purposes, recently in Michael A. Pharo, supra, and Danny R. Senf, supra.
Petitioner Intentionally Breached
His Duty To Pay The Taxes
The Department is not required to show bad faith, malice or evil intent to prove an intentional breach of the duty to pay withholding taxes due. It only must show that petitioner used corporate funds to pay other corporate creditors with knowledge that taxes were owing. Garsky v. U.S., 600 F.2d 86, 79-2 USTC ¶ 9436 (7th Cir. 1997).
In 1989, petitioner issued checks to corporate creditors on Kasa Corp.'s checking account in M&I Northern Bank, Brookfield, Wisconsin. In 1996, petitioner issued checks to corporate creditors on Kasa Corp.'s checking account in Associated Bank Milwaukee. These checks to creditors were written while petitioner knew that state withholding taxes were unpaid and delinquent. This establishes an intentional breach. Garsky, supra; Gerth and Kelly, supra; and Danny R. Senf, supra.
IT IS ORDERED
That the Department's action on petitioner's petition for redetermination is affirmed.
Dated at Madison, Wisconsin, this 14th day of October, 1999.
WISCONSIN TAX APPEALS COMMISSION
Mark E. Musolf, Chairperson
Don M. Millis, Commissioner
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"
2 The Commission has held that the amount of an assessment may also be an element of personal liability. Monfre v. Dep't of Revenue, 1998 Wisc. Tax LEXIS 7, at 29-30 (WTAC 1998). The amount of the assessment is not an issue in this case.