State & Local Tax Blog

MN Tax Court Finds Company President Personally Liable

The MN Tax Court confirmed once again, something we all should know. Corporate officers can be held personally liable for unpaid taxes. Sometimes, these cases reach an individual who really seems blameless for the situation, but in this case, it’s hard to argue with the decision of the court. In this case, as reported by CCH, the individual had the ability to sign checks, and he could hire and fire employees. He had joint control of the corporation’s financial affairs with other officers, and he had an entrepreneurial stake in the corporation. Thus, the court found that the individual had the authority and responsibility necessary to hold him personally liable for the corporation’s unpaid tax.
I thought Findings of Fact nos. 3 and 4 showed that the state had a pretty strong case:
3. Appellant was involved in the day-to-day operations of the business and was a signatory on the business bank accounts. He had access to Mojito’s accounts through paper checks, through on-line electronic access, or through communication with the bank. During the tax periods at issue, he had control or supervision jointly with others over the finances of Mojito, including the payment of taxes.

4. Mojito began having problems with unpaid sales taxes sometime in 2004. Although Appellant was on personal leave from September, 2004 through February, 2005, his partners copied him on email messages so he continued to be informed of Mojito’s sales tax liability during that time. From March through October of 2005, he was involved in Mojito’s operations and kept up to date on its sales tax status. As early as March 2005, he was advised of the risk that Mojito would be posted by the State for unpaid taxes so it could no longer purchase liquor. Again in April 2005, Appellant was notified that although Mojito’s sales tax return had been filed, the amount owed ($13,778) had not been paid. By June 2005, Appellant was working with and proposing compromises to Mojito’s creditors and negotiating with the restaurant’s landlord to assist Mojito in paying down its outstanding sales tax liability to the state.

(Paddock v. Commissioner of Revenue, Minnesota Tax Court, No. 7856-R, March 31, 2008)

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