STATE OF WISCONSIN
TAX APPEALS COMMISSION
ROLAND F. SARKO
847 Co. Trk. Hwy. GG
Mount Horeb, WI 53572
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8907
Madison, WI 53708-8907
|DOCKET NOS. 97-W-112
DECISION AND ORDER
MARK E. MUSOLF, CHAIRPERSON:
These matters were heard at Madison on May 9, 2000. The petitioner, Roland F. Sarko ("Mr. Sarko") represents himself. Attorney Michael J. Buchanan represents the respondent Wisconsin Department of Revenue ("the Department"). The Department filed the only brief. Mr. Sarko was given an opportunity to file a brief but did not.
Having considered the entire record, the Commission hereby finds, concludes, and orders as follows, affirming the assessments.
FINDINGS OF FACT
Jurisdictional Facts - Docket No. 97-W-112
1. By notice from the Department dated November 22, 1995, an assessment was made against Mr. Sarko as an officer, employee or other responsible person of R. F. Sarko and Associates, Inc. ("the corporation"), who failed to withhold, account for or pay over taxes withheld under Wis. Stat. § 71.83(1)(b)2 for the period beginning with the year-end reconciliation for 1992 and various periods through the month of April 1995.(1)
2. By letter dated January 23, 1996, Mr. Sarko timely filed with the Department a petition for redetermination of the assessment.
3. By Notice of Action letter dated January 9, 1997, the Department denied Mr. Sarko's petition for redetermination, and he timely appealed to this commission.
Jurisdictional Facts - Docket No. 97-W-113
4. By notice from the Department dated January 14, 1994, an assessment was made against Mr. Sarko as an officer, employee or other responsible person of R. F. Sarko and Associates, Inc., who failed to withhold, account for or pay over taxes withheld under Wis. Stat. § 71.83(1)(b)2 for the period beginning with the year-end reconciliation for 1988 and various periods through the month of July 1993.(2)
5. By letter dated March 11, 1994, Mr. Sarko timely filed with the Department a petition for redetermination of the assessment.
6. By Notice of Action letter dated January 9, 1997, the Department denied Mr. Sarko's petition for redetermination, and he timely appealed to this commission.
7. Until May 1991, Mr. Sarko was the president and treasurer of the corporation and owned 70% of the corporate stock.
8. Beginning May 1991, Mr. Sarko held all offices of the corporation--president, vice president, secretary, and treasurer--and was the corporation's sole director and shareholder.
9. Mr. Sarko was a well-compensated employee of the corporation. He signed all of the corporation's forms WT-6 (Wisconsin monthly withholding tax returns), most of which were filed late and without a payment of the tax due. He also signed all of the corporation's forms WT-7 (annual reconciliation).
10. Mr. Sarko was one of two authorized signatories on both of the corporation's business checking accounts at the Bank of Sun Prairie. He signed checks drawn on those accounts to pay other creditors of the corporation while knowing that the Department's taxes were unpaid. These other creditors included Mr. Sarko and other employees, for whom he signed at least three checks to pay net wages.
11. Deposits into these accounts were substantial. For example, in December 1992 alone, nearly $67,000 was deposited. During April, August, September, and December 1993, a total of over $283,700 was deposited; during April, August, and December 1994, over $117,500; and in April 1995, over $77,000.
12. Mr. Sarko signed a number of checks drawn on the corporation's checking accounts to pay taxes due to the Department. These payments were applied in accordance with Wis. Stat. § 71.91(5)(k)(4) and other provisions of Wis. Stat. ch. 71, subchapter XV. The corporation was credited for all payments made.
13. From June 1990 through March 1995, several of the Department's revenue agents contacted the corporation in regard to its withholding tax delinquency. Mr. Sarko was the corporate spokesperson who dealt with these agents during this entire time period. During these numerous contacts, the Department's agents repeatedly informed Mr. Sarko personally of the corporation's delinquent withholding taxes.
14. Mr. Sarko executed an Installment Agreement with the Department on behalf of the corporation on August 26, 1992. The corporation agreed to make installment payments of $3,000 a month until the delinquent withholding taxes (in excess of $300,000 at that time) were paid in full. As part of that agreement, Mr. Sarko agreed that the corporation would "file current tax returns and pay all tax due by the due dates of the returns."
15. On behalf of the corporation, Mr. Sarko signed a Second
Amended Plan of Reorganization in bankruptcy on December 30, 1994, which provided that Mr. Sarko "will retain ownership and management of the company."
16. Mr. Sarko claimed credit on his individual Wisconsin income tax returns for the years 1990, 1991, and 1992 for the withholding taxes that were never remitted by the corporation to the Department.
17. Both assessments were updated by notice provided to Mr. Sarko on February 14, 2000, based on actual returns filed rather than on the Department's estimates.
APPLICABLE WISCONSIN STATUTE
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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 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
The Department properly assessed Mr. Sarko as a responsible person, pursuant to Wis. Stat. § 71.83(1)(b)2, because he had the authority and duty to pay the Wisconsin withholding taxes of R. F. Sarko and Associates, Inc., and breached that duty by paying other creditors, knowing that the withholding taxes were unpaid.
It is well-established that, for personal liability to be established for withholding taxes under § 71.83(1)(b)2, the Department must show that Mr. Sarko had the authority to pay or direct payment of the corporation's taxes, a duty to pay them, and an intentional breach of that duty. See, Gerth and Kelley v. WDOR, Wis. Tax Rep. (CCH) ¶ 203-367 (WTAC 1992).
The evidence clearly shows that Mr. Sarko had the authority to pay the taxes at issue. He was the corporation's president and treasurer, with full check-signing authority at all times. He also controlled the corporation because he held between 70% and 100% of its stock at all relevant times.
As the corporation's president and treasurer, Mr. Sarko was duty-bound to see to the timely payment of current withholding taxes as well as payment of any unpaid taxes at the earliest possible moment out of funds on hand. Gerth and Kelley v. WDOR, supra, at 15,590. He did not do this, even though he knew the taxes were not being paid.
Intentional Breach of Duty
Consistent interpretations of both state and federal officer liability statutes have held that all that is necessary for intent to be proven is to show that there was a decision to use corporate funds to pay other creditors with knowledge of taxes being due. See, Gerth and Kelley v. WDOR, supra, and Garsky v. U. S., 600 F.2d 86, 79-2 USTC ¶ 9436 (7th Cir. 1979).
It is clear that Mr. Sarko knew withholding taxes were unpaid but continued to pay creditors, including employees who were owed wages, to the exclusion of the Department. This constitutes intentional breach of duty.
At the hearing, Mr. Sarko presented numerous copies of checks payable to the Department, which he claimed were not properly credited to the corporation's account. However, the Department showed in detail that each check paid was properly credited to the corporation's account in accordance with Wis. Stat. § 71.91(5)(k).
In summary, Mr. Sarko produced no evidence showing that he was improperly assessed under Wis. Stat. § 71.83(1)(b)2 as a person responsible for the unpaid withholding taxes of R. F. Sarko and Associates, Inc.
We see no reason to address in detail the Department's complaint in its brief about how the Commission determines personal liability. Authority, duty, and breach of duty are the elements required to establish such liability under long-standing Commission precedent. These elements have not only been consistently applied in Commission decisions since 1992, but by the Dane County Circuit Court on appeal. See, e.g., WDOR v. James R. Werner, Case. No. 00 CV 1962, Slip Op. at 7 (Wis. Cir. Ct. Dane County Dec. 8, 2000), Danny R. Senf v. WDOR, Case No. 99 CV 2221, Slip. Op. at 4 (Wis. Cir. Ct. Dane County February 23, 2000), and Michael A. Pharo v. WDOR, Case No. 98 CV 0060, Slip. Op. at 10-12 (Wis. Cir. Ct. Dane County Sept. 2, 1998).
It is the Department's duty to first show the basis of its assessment, viz., that these three elements were present. Drilias v. WDOR, Wis. Tax Rptr. (CCH) ¶ 400-222, 30,738 (WTAC 1996). In most cases the petitioner files the initial brief, although circumstances may make that unworkable, as was the situation here.
The Department's actions on Mr. Sarko's petitions for redetermination are affirmed.
Dated at Madison, Wisconsin, this January 8, 2001.
WISCONSIN TAX APPEALS COMMISSION
Mark E. Musolf, Chairperson
Don M. Millis, Commissioner
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"
2 This period under review includes year-end 1988, all 12 months of 1989, 1990, and 1991, year-end 1989, January, February, March, June, July, August, and October of 1992, and January, June, and July of 1993.