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Revenue Administrative Bulletin 1989-38
Approved: April 25, 1989
RAB-89-38. This Bulletin is being issued to clarify the procedures involved in assessing officer liability against officers of corporations having a sales or use tax deficiency.
Substantive Standards for Officer Liability
The Revenue Act was amended by P.A. 58 of 1986, effective May 1, 1986, to provide for assessment of corporate officers upon failure by a corporation to pay taxes due. The officer liability provision of Michigan's Revenue Act [MCL 205.27a(5)], has been extended to all taxes administered by the Revenue Act. The amendment to the Revenue Act is the definitive officer liability statute for all of the specific tax acts. Currently, the Sales Tax Act [MCL 205.65(2)], Use Tax Act [MCL 205.96(3)], Income Tax Act [MCL 206.351(5)], and the Motor Fuel Tax Act [MCL 207.127(5)(2)] provide for officer liability where a corporation has failed to pay taxes due.
The officer liability provisions contained in the taxing statutes are almost identical to the Revenue Act's officer liability provision. The only difference is in the section that provides personal liability for the corporation's unpaid taxes on an officer responsible for making the returns and payments. The newer Revenue Act provides for officer liability where an officer makes the returns or payments. The Department's position is that the interpretation of the specific tax acts follows the more practical wording of the Revenue Act.
Elements for Finding Officer Liability
The following elements must be determined by the Department before assessing personal liability on corporation officers pursuant to Michigan's Revenue Act, MCL 205.27a(5):
Corporation liable or taxes.
Failure on the part of the corporation to file the required returns or pay the taxes due.
Individual(s) must be an officer(s) of the corporation and:
A. Have control over making returns or payment of taxes, or
B. Supervise making returns or payment of taxes, or
C. Be charged with the responsibility for making returns or payment of taxes.
Evidentiary Standards for Officer Liability
The Department shall be prepared to support a proposed officer liability assessment with documentary or testimonial proof that will establish the substantive standards noted above. Mere proof that an individual was an officer in a corporation is not sufficient.
The Department considers certain documents that would further its ability to present facts regarding officer standing and officer responsibility. Any of the following documents may be utilized to support or demonstrate the facts necessary to assert officer liability:
Application for registration.
Returns filed by the corporation during the period noted on the proposed assessment.
Michigan Annual Reports which include the period assessed.
Audit or collection reports that identify an individual officer as responsible for payment and reporting of taxes.
Correspondence from the taxpayer that identifies an officer as responsible for payment or reporting of taxes.
Collector reports establishing regular contact with a corporate officer regarding unpaid taxes.
Sales, use and withholding returns that identify corporate officers.
Payment plan agreements signed by corporate officers.
Checks in payment of taxes signed by an officer, or subpoenaed bank signature cards for the periods in question.
Any other documents that would tend to prove or disprove corporate officer liability.
The Revenue Act, MCL 205.27a(5), further provides that "the signature of any corporate officers on returns or negotiable instruments submitted in payment of taxes shall be prima facie evidence of their responsibility for making returns and payments." Prima facie evidence is defined Blacks Law Dictionary, Rev 4th Ed, as evidence good and sufficient to establish a given fact, or the group or chain of facts constituting the parties claim or defense, and which if not rebutted or contradicted will remain sufficient.
Statute of Limitations
It is the Department's position the officer liability is derivative of that of the corporation, and any corporate consent, waiver, etc., of the statute of limitations is also effective against the responsible corporate officer. In cases of failure to file by the corporation, the statute would remain open with respect to a responsible corporate officer.
Litigation of a Final Assessment by the Corporation
Michigan's Revenue Act, MCL 205.21(2), suggests that subsequent to an order of determination resulting from an informal conference, an assessment shall be final and subject to appeal. MCL 205.22(2) states that such an assessment is final if not appealed. Finalization of an officer liability Intent to Assess prior to the conclusion of the corporation's pursuit of appellate remedies is premature.
Petitions in Bankruptcy
Corporate officers may be assessed for tax liability incurred by the corporation prior to the date the corporation filed under Chapter XI of the United State’s Bankruptcy Code. Taxes incurred subsequent to filing under the bankruptcy code are the responsibility of the debtor in possession or trustee in bankruptcy. If the corporation is the debtor-in-possession and no bankruptcy trustee is appointed, then the corporate officer(s) retains control of the filing of tax returns and payment of taxes. Therefore, officer liability will attach to any unpaid corporate taxes while the corporation is the debtor-in-possession and no bankruptcy trustee has been appointed. Issuance of an officer liability Intent to Assess may be desirable to preclude the running of the statute of limitations for a particular taxable period, and assure collection.
In those cases where a corporation files a petition in bankruptcy, the Department would issue an officer liability assessment at approximately the same time it prepares a bankruptcy claim to be filed through the Attorney General’s office. This would place the individual officer on notice that he or she has a potential liability.