Hassan Almaleh (RP) 2 Go Wireless Corporation v. Commissioner of Revenue (March 29, 2017)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



HASSAN ALMALEH (RP)		   v.	COMMISSIONER OF REVENUE	
2 GO WIRELESS CORPORATION
					   
Docket No. C319808				Promulgated:	
							March 29, 2017

	   			
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39, from the refusal of the Commissioner of Revenue ("appellee" or "Commissioner"), to abate the Responsible Person Deemed Assessment against Hassan Almaleh ("appellant") for the monthly tax periods ending January 31, 2009 through and including ending March 31, 2010 (collectively, "periods at issue").
Commissioner Good heard this appeal.  Chairman Hammond and Commissioners Scharaffa, Rose and Chmielinski joined her in the decision for the appellee.
	These findings of fact and report are made pursuant to requests by both the appellant and appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.


Timothy J. Burke, Esq. for the appellant.

	Keri E. Angus, Esq. and Andrew M. Zaikis, Esq. for the appellee. 



FINDINGS OF FACT AND REPORT
The appellant testified on his own behalf at the hearing of this appeal.  In addition, the parties entered into the record the deposition transcript of the appellant's former business partner, Behram Agha ("Mr. Agha"), which they jointly submitted in lieu of Mr. Agha's testimony at the hearing.  Based on this evidence, along with the documentary submissions made by the parties, the Appellate Tax Board ("Board") made the following findings of fact.
At all times relevant to this appeal, the appellant was a Massachusetts resident.  The appellant, together with Mr. Agha and another associate, Paul Zadie ("Mr. Zadie"), founded and operated a Massachusetts company, 2 Go Wireless Corporation ("Company"), that made taxable retail sales during the periods at issue.  
On February 9, 2010, the Commissioner issued to the Company a Notice of Failure to File a Return for sales taxes for the monthly periods ending November 30, 2008 through and including ending December 31, 2009.  On May 3, 2010, the Commissioner issued to the Company another Notice of Failure to File a Return for sales taxes for the monthly periods ending January 1, 2010 through and including March 31, 2010.  The Company did not file sales tax returns in response to the notices. On July 17, 2010, the Commissioner issued to the Company a Notice of Intent to Assess for the periods at issue, indicating a proposed assessment of taxes, penalties, and interest in the amount of $76,777.21.  By Notice of Assessment dated August 24, 2010, the Commissioner assessed to the Company additional taxes, penalties, and interest in the total amount of $78,014.26 for the periods at issue.  
The tax liabilities of the Company remained unpaid.  On December 1, 2010, the Commissioner issued to the appellant a Notice of Proposed Determination of Personal Liability and Deemed Assessment for the taxes at issue, and, on April 14, 2011, a Notice of Determination of Personal Liability and Deemed Assessment. 
On August 8, 2011, the appellant filed an abatement application on Form CA-6, challenging his responsible-person designation for the periods at issue.  The appellant requested and received a hearing with the Office of Appeals of the Department of Revenue ("DOR"). Following that hearing, on February 5, 2013, the Office of Appeals issued a Letter of Determination, upholding the previous determination that the appellant was a responsible person with a duty to collect and remit the sales/use taxes for the Company for the periods at issue.  By Notice of Abatement Determination dated April 12, 2013, the Commissioner denied the appellant's request for abatement, and on June 11, 2013, the appellant seasonably filed a Petition Under Formal Procedure with the Board.  On the basis of the above facts, the Board found and ruled that it has jurisdiction over the instant appeal.
According to the appellant's testimony, he and Mr. Agha met in 2008 when both men were working at the Cape Cod Mall in Hyannis.  At that time, the appellant was operating a jewelry kiosk and Mr. Agha was operating a cell phone and accessories retail store affiliated with Sprint PCS.  The men discussed opening and operating a cell phone and accessories store to sell Metro PCS products.  After seeking financial backing from Mr. Zadie, the appellant and Mr. Agha together approached Metro PCS about opening a store selling Metro PCS products.  
On May 1, 2008, the appellant, Mr. Agha and Mr. Zadie together filed a Dealer Profile with Metro PCS, listing  Mr. Agha as the "primary contact" and "President/Owner/Partner," the appellant as the "alternative contact" and "Vice-President/Owner/Partner," and Mr. Zadie as "Treasurer/Owner/Partner." According to Mr. Agha's deposition testimony, Mr. Zadie provided the financial investment for the Company, Mr. Agha provided his knowledge of the cell phone industry, and the appellant agreed to have primary responsibility for the day-to-day operations, including sales, with assistance from Mr. Agha.  The Company filed Articles of Organization in Massachusetts on July 11, 2008, which listed Mr. Agha as President, his brother, Khurram Agha, as Treasurer and Officer, and the appellant as Secretary, Officer and Director.  The Company began operations by opening a store in Quincy in January of 2009.   
The appellant testified that, over time, he began to notice that money was disappearing from the Company's bank account.  Eventually, he discovered that Mr. Agha was siphoning the Company's cash for non-Company expenditures, including gambling, his personal debts, and the debts of his other business interests.  The Company's bills went unpaid, including its rent and the tax liabilities at issue in this appeal.  Copies of e-mails from the Company's landlord were entered into the record, indicating that by June of 2009, the Company owed several months of back rent.  
Relations between the three business partners became strained.  In June of 2009, the appellant sent Mr. Agha an e-mail, which stated: 
[E]verybody told me watch him he pay his college account his car payment… i trust you.  Don't touch any single penny from the account if you touch a penny from this [expletive] account don't pay any [expletive] rent don't pay any [expletive] bill it is… this not your [expletive] money don't order anything… this … not your job put all the money back you understand you take for sprint for [expletive] everything you stop palying game with me it I start this company im going to finsh it. [sic] 

(emphasis added)  
Nevertheless, the Company's financial operations continued to decline, as did relations among the business partners.  Mr. Zadie, who had provided the initial financial backing for the Company, wanted his investment back.  In July and August of 2009, the appellant issued two checks to Mr. Zadie, totaling almost $20,000, as a return of his investment.  
On September 24, 2009, Mr. Agha sent an e-mail to the appellant, which stated:
i am sick and tired of waiting, i went ahead and hired an accountant for mass unwired corp. 2 go wireless.
he will calculate each and everything and file our taxes.  i don't want irs to knock our doors

tax season is here and 2 go wireless hasn't any sales, excise etc file taxes. [sic].   

Nevertheless, none of the members of the Company took steps to file and pay the sales taxes at issue.  According to the appellant, Mr. Agha's transgressions became so egregious that he was forced to sever ties with him. On February 10, 2010, the appellant and Mr. Zadie incorporated a new retail cell phone business, Metro Unlimited, with a business location immediately next door to the Company's Quincy location.  The Commissioner ultimately deemed all three individuals connected with the Company - the appellant, Mr. Agha and Mr. Zadie - to be responsible persons in connection with the tax liabilities at issue.  
On the basis of the record in its totality, the Board found that the appellant had sufficient control over the Company's finances to be considered a person responsible for the filing and payment of its taxes.  The appellant was one of the founding principals of the Company, and he was listed as an owner, partner, officer and director in corporate filings, including the Company's Metro PCS Dealer Profile and the Articles of Organization filed with the Secretary of State.  The evidence showed, and the Board found, that the appellant oversaw not only the day-to-day retail operations of the Company, but that he regularly exercised control over the financial aspects of the Company, including the payment of bills.  The record showed that the appellant possessed, and exercised, check-signing authority on behalf of the Company, and that he was the only person with possession of the Company's bank debit card.  
The Board did not find the appellant's testimony to be credible.  In particular, the appellant attempted to minimize his check-signing authority, claiming initially to have written "maybe two to three" checks.  On cross-examination, he was forced to retract that statement when presented with approximately 20 checks that he signed.  
After being confronted with this evidence, the appellant admitted that he had signed multiple checks, both as a payor and as an endorser.  He also acknowledged that he made deposits and withdrawals to and from the Company's bank account, and copies of bank slips for those transactions, signed by the appellant, were entered into the record.  The checks and bank slips signed by the appellant spanned the entirety of the periods at issue.  
However, the appellant testified that he only acted at the direction of Mr. Agha, and also claimed that his deficiencies with written English effectively precluded him from exercising significant control over the Company's financial operations.  The Board likewise rejected these claims, as they were contradicted by the evidence of record. 
Several e-mails entered into the record demonstrated that the appellant had sufficient grasp of written English to communicate meaningfully with the Company's various creditors, including its landlord and representatives from Metro PCS, along with Mr. Agha.  Moreover, the June 2009 e-mail from the appellant to Mr. Agha belied the appellant's assertion that he merely acted at the direction of Mr. Agha with respect to the Company's financial affairs.  In that e-mail, the appellant, in no uncertain terms, ordered Mr. Agha not to touch the Company's funds or pay its bills.  These e-mails demonstrated that the appellant was, contrary to his self-serving assertions, able to read and write in English and that he was sharing financial responsibilities with Mr. Agha, at times even asserting himself with Mr. Agha with regard to control over the Company's finances.  Thus, the Board found that the appellant was not simply acting at the behest of Mr. Agha in carrying out the financial activities of the Company.    
Perhaps more importantly, the record showed that the appellant was aware of the Company's financial problems, including its tax obligations, and yet he continued to pay other non-tax expenses.  For example, following the June 2009 e-mail exchange with Mr. Agha, the appellant issued sizeable checks to Mr. Zadie in July and August of 2009, returning his investment in the Company.  In addition, the September 2009 e-mail from Mr. Agha to the appellant expressly stated that the Company's sales tax returns had not been filed, and yet the appellant thereafter continued to issue checks to the Company's other creditors, including its landlord and Metro PCS.  
On the basis of these facts, the Board found and ruled that the appellant had a sufficient level of involvement and control over the Company's financial operations to be a person responsible for the payment of the Company's unpaid sales taxes for the periods at issue.  The Board therefore found and ruled that the Commissioner's assessment was valid, and accordingly, the Board issued a decision for the appellee in this appeal.

                       OPINION
Responsible person liability in Massachusetts is prescribed by G.L. c. 64H, § 16, which provides as follows:
Every person who fails to pay to the commissioner any sums required by this chapter shall be personally and individually liable therefor to the commonwealth.  The term "person" . . . includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee or member is under a duty to withhold and pay over taxes in accordance with this section . . . . 

The Supreme Judicial Court has noted the "close parallel between the State and Federal statutes concerning the duty to pay over [taxes]" and has thus upheld the Board's consideration of federal case law as guidance on this issue.  Brown v. Commissioner of Revenue, 424 Mass. 42, 44 (1997).  "Under the Federal cases, the issue of a duty to pay over [taxes] turns on whether the facts demonstrate that the person assessed had the authority to have the taxes paid."  Id.  (citing United States v. Rem, 38 F.3d 634, 642 (2nd Cir. 1994); Purcell v. United States, 1 F.3d 932, 937 (9th Cir. 1993); Barnett v. IRS, 988 F.2d 1449, 1454-55 (5th Cir. 1993), cert. denied, 510 U.S. 990 (1993); and O'Connor v. United States, 956 F.2d 48, 50-51 (4th Cir. 1992)).  
The factor most probative of a duty to pay over taxes is "significant control over disbursement of the company's funds."  Gadoury v. United States, 77 F.3d 460 (1st Cir. 1996).  The taxpayer's control over the relevant operations of the corporation is not required to be exclusive, provided that it is significant.  Gephart v. United States, 818 F.2d 469, 473 (6th Cir. 1987); Caterino v. United States, 794 F.2d 1, 5 (1st Cir. 1986).  See also United States v. Kim, 111 F.3d 1351, 1362 (7th Cir. 1997) (quoting Thomas v. United States, 41 F.3d 1109, 1114 (7th Cir. 1994) ("[A]ll that is required is that the individual 'could have impeded the flow of business to the extent necessary to prevent the corporation from squandering the taxes it withheld from its employees.'")).  Thus, responsible person status essentially "encompasses all those connected closely enough with the business to prevent the default from occurring."  Bowler v. United States, 956 F.2d 723, 738 (7th Cir. 1992) (citing Adams v. United States, 504 F.2d 73, 76 (7th Cir. 1974)).  
In the present appeal, the appellant was a founding principal of the Company, and he was listed as an officer, owner, partner and director of the Company on its Dealer Profile executed with Metro PCS and its Articles of Organization on file with the Secretary of State.  In addition, the record showed that the appellant exercised significant control over the Company's finances, including making bank deposits and withdrawals and issuing checks to its various creditors.  The appellant had physical possession of the Company's sole debit card and he was a signatory on the Company's bank account. Contrary to his self-serving assertions, the record showed that the appellant possessed check-signing authority, and that he exercised that authority on a regular basis during the periods at issue.  These facts, taken together, supported the conclusion that the appellant had and exercised "significant control over the disbursement of the [Company's] funds."  Gadoury, 77 F.3d 460.  
Furthermore, the evidence established that the appellant was aware of the Company's tax liability and yet continued to pay other outstanding debts instead of taxes.  See, e.g. Mandell v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1994-1, 13 (finding the taxpayer to be responsible for the corporation's unpaid tax liability when he handled the corporate finances, wrote virtually all of the checks, paid the corporation's bills, had discretion over which bills were paid, and was aware of the company's sales tax liability). The Board therefore concluded that the appellant "'was in a position of responsibility to direct the disbursement of corporate funds,'" Karet v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1997-1232, 1235 (citation omitted), and that he could have prevented "the default from occurring."  Bowler, 956 F.2d at 738 (citations omitted).
Although the appellant may have shared access to the Company's funds with Mr. Agha, the law does not require that the taxpayer be the person exclusively responsible for the fiscal affairs of a company, merely that the taxpayer's control be significant.  See Gephart, 818 F.2d at 473; Bowler, 956 F.2d at 738 (citing Adams v. United States, 504 F.2d 73, 76 (7th Cir. 1974)); see also Fox v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2005-634, 646.  
Further, the present appeal is readily distinguishable from cases in which this Board has found that the appellant was not a responsible person.  For example, in MacLean v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1998-16, the appellant in that matter held the position of Treasurer, but the Board specifically found that he did not have any managerial duties or control over corporate funds and his check-signing authority could be exercised only at the direction of other individuals within the company who "assumed essentially all management control of the company" and "controlled all payments."  See also Caradimos, Executrix v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1997-589 (finding that taxpayer was not a responsible person when he did not participate in the financial affairs of the corporation or exercise his check-signing authority during the tax periods at issue, which occurred after his retirement). In contrast with those appeals, the record here showed that the appellant had significant control over the Company's funds throughout the periods at issue in this appeal.  
Based on the foregoing, the Board found and ruled that the appellant failed to meet his burden of proving that he was entitled to an abatement of the taxes assessed against him as a person responsible for the Company's unpaid tax liability.  See Staples v. Commissioner of Corp. & Tax, 305 Mass. 20, 26 (1940)(finding that a person who claims to be aggrieved by the refusal of the Commissioner to abate a tax in whole or in part has the burden of establishing the right to an abatement). 

 Accordingly, the Board issued a decision in favor of the appellee in this appeal.

					THE APPELLATE TAX BOARD




By: _________________________________
    Thomas W. Hammond, Jr., Chairman




A true copy,


Attest: _________________________   
          Clerk of the Board

  The appellant filed a Request for Findings of Fact and a Request for Rulings of Law under 831 CMR 1.29.  The Board treated these filings as a Request for Findings of Fact and Report under 831 CMR 1.32. 
 The Company eventually opened other locations, including in Weymouth and Attleboro.   
 The e-mail is substantially reproduced herein as it appeared. The Board notes the grammatical and typographical errors. 
 English is not the appellant's first language.  

ATB 2017-76