Paul D. Osborne v. Commissioner of Revenue (October 5, 2007)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


PAUL D. OSBORNE			v.	COMMISSIONER OF REVENUE

Docket No. C272078				Promulgated:
							October 5, 2007


This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39, from the refusal of the appellee Commissioner of Revenue ("Commissioner") to abate sales taxes assessed against Paul D. Osborne ("appellant") under G.L. c. 64H § 16 and G.L. c. 62C, § 31A, as a responsible person for the monthly tax periods from May 1999 through December 1999 ("tax periods at issue").      
Commissioner Hammond heard the appeal and was joined in the decision for the appellee by Commissioners Scharaffa Egan, Rose and Mulhern.  
These findings of fact and report are made at the request of the appellant pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

Paul D. Osborne, pro se, for the appellant.

Kevin M. Daly, Esq. and David T. Mazzuchelli, Esq. for the appellee.

FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits submitted at the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact.
Paul D. Osborne Desk Corporation ("PODC") was a family-owned and operated Massachusetts corporation, which was in the business of selling and leasing office furniture.  In the late 1990s, PODC encountered financial difficulties and was ultimately placed in receivership on January 5, 2000.  Its assets were liquidated in early 2000.  
The Commissioner sent appellant a Notice of Proposed Determination of Personal Liability and Deemed Assessment, dated April 24, 2001, for PODC's unpaid sales taxes for the tax periods at issue.  Subsequently, the Commissioner issued a Notice of Determination of Personal Liability and Deemed Assessment, dated August 6, 2001, for the unpaid sales taxes.  Appellant timely filed an Application for Abatement with the Commissioner on October 4, 2001.  The Commissioner denied the Application for Abatement and sent appellant a Notice of Abatement Denial dated February 4, 2004.  On April 2, 2004, appellant timely appealed to the Board.  On the basis of these facts, the Board found and ruled that it had jurisdiction over this appeal. 
Appellant was the treasurer of PODC from 1995 through December 31, 1999 and also functioned as its general manager during that period.  As treasurer, appellant was responsible for the accounting functions of PODC, including, but not limited to, maintaining the daily books and records of PODC and paying PODC's bills.  Appellant signed PODC's Massachusetts corporate excise tax returns and PODC's comptroller, who signed the sales tax returns for PODC, worked under the direction of appellant.  Appellant authorized the payment of bills and taxes of PODC, determined when bills were paid.  He was also the only individual at PODC who held and exercised check-signing authority on behalf of PODC during the tax periods at issue.
Appellant was intimately involved in PODC's financial affairs.  The record indicates that when PODC encountered financial difficulties, appellant loaned it money from his personal account.  Appellant executed a Loan Security Agreement and promissory note and wrote several personal checks to PODC totaling $322,000 at various times from 1998 through 1999.  His personal loans to PODC were made in an attempt to insure that the company could satisfy its creditors.  
Appellant did not contest PODC's sales tax liability for the tax periods at issue or meaningfully challenge the Commissioner's determination that he was a responsible person.  Rather, appellant contended that because he had severed his ties to PODC in 2000 and filed personal bankruptcy because of collection efforts by creditors of PODC, the appellee should have collected the tax at issue from another person or entity.  Moreover the appellant argued that he was no longer associated with PODC when the determination of personal liability was made.
On the basis of the evidence of record, the Board found that appellant was a person responsible for the unpaid taxes of PODC for the tax periods at issue.  Appellant failed to offer any evidence that he was not a responsible person during the tax periods at issue.  Further, for the reasons detailed in the following Opinion, the fact that the Commissioner's determination of personal liability was made after he had left PODC is of no consequence; the relevant fact is that he was a responsible person during the tax periods at issue.  Accordingly, the Board issued a decision for the appellee in this appeal.



OPINION
Responsible person liability in Massachusetts is prescribed by G.L. c. 62C, § 31A, which provides in pertinent part that:
If a person fails to pay to the commissioner any required tax of a corporation or partnership and such person is personally and individually liable therefor to the commonwealth under . . . section sixteen of chapter sixty-four H . . . the commissioner shall so notify such person in writing at any time during the period of time that such assessment against the corporation or partnership remains in existence and unpaid.  . . .  After the expiration of thirty days from the date of such notification, such person shall be personally and individually liable for the tax of the corporation or partnership, which shall be deemed to be assessed against such person . . . . 

(emphasis added).  G.L. c. 64H, § 16 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 . . . . 

In upholding the Board's consideration of federal cases on this issue, the Supreme Judicial Court noted the "close parallel between the State and Federal statutes concerning the duty to pay over [taxes]. . . ."  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.), 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).  Exclusive control over the relevant operations of the corporation is not required, provided that the taxpayer's control 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.'")).  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 served as the treasurer of PODC during the tax periods at issue.  The appellant was PODC's sole fiscal officer and was responsible for all accounting functions of PODC, including, but not limited to, maintaining its daily books and records and timely paying its bills.  Moreover, the record indicates that appellant was the only individual with check-signing authority on behalf of PODC, and he authorized the payment of its bills and taxes.  The appellant also listed himself as the guarantor for loans to PODC.  All of these factors gave the appellant significant control over the financial operations of PODC and, accordingly, placed him under a duty to pay over the taxes at issue.  See Mandell v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1994-1 at 11-12.  Based on the foregoing, the Board ruled that the appellant had the requisite duty and responsibility to pay the sales taxes of PODC and, therefore, he was a person responsible for the payment of PODC's sales taxes for the tax periods at issue.  
On the dates that the Commissioner issued his Notices of Proposed Determination of Personal Liability and Deemed Assessment and the Notice of Determination of Personal Liability and Deemed Assessment, PODC had already been placed in receivership. At that point the appellant apparently exercised no further control over the financial affairs of PODC relating to prioritization or payment of debts because all payments made by PODC required approval of the receiver.  The appellant contended, therefore, that he was no longer a person responsible for the payment of PODC's sales taxes when the notices were issued and that he should not be liable for the Commissioner's assessment of taxes.
The Board addressed the timing of a responsible person assessment in Kent v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1998-660.  The taxpayers there conceded that they had been persons responsible for the corporation's unpaid sales and use taxes during the tax periods at issue and during the audit period, but they argued that they were no longer responsible persons when the Commissioner issued the notices of personal liability against them because they had resigned their positions as president, treasurer, and members of the board of directors.  Id. at 661-62.  In that case, the Board ruled that the timing of the Commissioner's responsible person assessment was not relevant:                       
There is, however, nothing in [G.L. c. 62C, § 31A] to mandate or even suggest that the Commissioner may only issue the notice while the taxpayers are in a position to pay over the taxes.  In fact, the statute explicitly provides that the Commissioner may notify the person at any time that the liability remains unpaid.  To accept Appellants' interpretation would render the purpose of the statute null and void by allowing a taxpayer to escape responsibility simply by beating the Commissioner to the punch and removing himself from a position of authority before the notice of personal liability is issued.

Id. at 664-65 (emphasis in original).  In upholding the Commissioner's assessments against the appellants, the Board ruled that "[t]he operative date for determining whether an individual has the requisite duty and responsibility to pay over the tax is the date the tax became due from the corporation, not the date the Commissioner makes the assessment."  Id. at 665 (citing Mandell and Brown).  In the instant appeal, there is ample evidence that the appellant had the requisite duty and responsibility to pay over PODC's collected sales taxes for the tax periods at issue.  Therefore, consistent with the Board's ruling in Kent, the Board found and ruled here that the appellant was a person responsible for the payment of those taxes.  
It is well settled in Massachusetts law that a responsible person is to be held liable for the full amount of a corporation's unpaid tax liability, including the full amount of interest and penalties.  In Berenson v. Commissioner of Revenue, 413 Mass. 831 (1992), the Supreme Judicial Court, in affirming the Board's decision, held that Massachusetts personal liability statutes prescribe "personal liability for 'any sums' due the Commissioner.  Penalties and interest are sums due the [C]ommissioner."  Id. at 832.  The court's holding in Berenson is unaffected by a corporation's filing of a bankruptcy petition, because the responsible person assessment creates a new liability in the taxpayer for the full amount of the corporation's unpaid taxes.  G. L. c. 62C, § 31A provides that the unpaid taxes of the corporation "shall be deemed to be assessed against such [responsible] person."  As the Board explained in Cole v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2000-21, "[o]nce the corporation has failed to pay a 'trustee tax,' the liability under G.L. c. 62C, § 31A is separately assessed against, and is collectible by the Commissioner from the responsible person."  Id. at 30 (emphasis added); see also Heritage Bank for Savings v. Doran, 399 Mass. 855, 861 (1987) ("While § 31A expressly provides that the liability of the corporation 'shall be deemed to be assessed' against the responsible officer, the deemed assessment as contemplated by the statute does not arise until thirty days from the date that the Commonwealth notifies a liable individual that an assessment against the corporation remains in existence and the taxes remain unpaid.").  
As to the appellant's other claims, the federal bankruptcy statute, 11 U.S.C. § 524, paragraph (e) specifically provides that "discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt."  Therefore, "[w]hile it is true that the bankruptcy court's confirmation of the plan binds the debtor and all creditors vis-à-vis the debtor, it does not follow that a discharge in bankruptcy alters the right of a creditor to collect from third parties."  First Fidelity Bank v. McAteer, 985 F.2d 114, 118 (3rd Cir. 1993).  See also In re: Western Real Estate Fund, Inc., 922 F.2d 592, 600 (10th Cir. 1990) ("[A] discharge in bankruptcy does not extinguish the debt itself . . . .  The debt still exists, however, and can be collected from any other entity that may be liable.").  Massachusetts courts recognize that "§ 524(e) permits a creditor to recover against any other entity who may be liable on the debtor's behalf."  Perez v. Cumberland Farms, 213 B.R. 622, 623 (D. Mass. 1997).      
In the instant appeal, PODC's taxes remained unpaid.  The existence of the receivership did not impair the Commissioner's ability to collect the full liability from the appellant as a person responsible for the unpaid taxes.  Accordingly, the Commissioner's assessment against appellant for the unpaid taxes, plus interest and penalties, pursuant to G.L. c. 62C § 31A and G.L. c. 64H, § 16 was proper.  

CONCLUSION
In the present appeal, the appellant had the requisite duty and responsibility to pay over the sales taxes of PODC on the dates that the taxes became due from PODC.  The appellant was thus a person responsible for the payment of these taxes even after PODC went into receivership.  
The liability prescribed under G.L. c. 62C, § 31A was specifically assessed against and collectible from the appellant, not PODC.   Section 31A thus enabled the Commissioner to assess the appellant as the person responsible for the full amount of PODC's unpaid taxes together with interest and penalties as calculated under G.L. c. 62C, §§ 32 and 33.  
Based on the foregoing, the Board 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 PODC's unpaid taxes assessed for the tax periods at issue.  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 for the appellee in this appeal.

				   THE APPELLATE TAX BOARD



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


     
A true copy,


Attest: _________________________________
  	                    Clerk of the Board

ATB 2007-1159