Paul E. Coan v. Commissioner of Revenue (April 3, 2000)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

PAUL E. COAN			v.		COMMISSIONER OF REVENUE

Docket No. F232273			 	Promulgated:
							April 3, 2000
	

	This is an appeal under the formal procedure pursuant to G.L. c. 62C, § 39, from the refusal of the Appellee, Commissioner of Revenue, to abate withholding taxes assessed against the Appellant under G.L. c. 62B, § 5, as a responsible person liable under G.L. c. 62C, § 31A, for the second, third and fourth quarters of 1989.
	Commissioner Lomans heard the appeal and was joined in the decision for the Appellant by Chairman Gurge and Commissioners Scharaffa, Burns and Gorton. 
	These findings of fact and report are promulgated at the request of the Appellee, pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
	Francis E. Jenney, Esq., for the Appellant.
Philip S. Olsen, Esq., for the Appellee.

FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits entered into evidence at the hearing of this appeal, the Appellate Tax Board ["Board"] made the following findings of fact.
The Appellant, Paul E. Coan, was the president and sole stockholder of P. Coan & Co., Inc. ("the Corporation"), a Massachusetts corporation engaged in large scale excavating and road and utility work. The Corporation timely filed its Massachusetts employee withholding tax returns for the quarters ending June 30, 1989, September 30, 1989 and December 31, 1989 ("periods at issue.") The Corporation's tax returns were signed by the Appellant, in his capacity as president.  The Corporation, however, failed to remit the taxes due for the periods at issue, as required under G.L. c. 62B, § 2.
As a result of the Corporation's failure to pay the withholding tax shown as due on its returns, the Commissioner issued notices of assessment showing the following assessments: withholding tax for the period ending June 30, 1989 was assessed on July 31, 1989 in the amount of $7,826.75; withholding tax for the period ending September 30, 1989 was assessed on October 31, 1989 in the amount of $13,613.08; withholding tax for the period ending December 31, 1989 was assessed on January 31, 1990 in the amount of $9,244.26.  The total amount of the withholding tax assessments for the periods at issue as shown on the notices of assessments was $30,684.09.
On March 28, 1990, the Corporation filed a Chapter 7 petition in United States Bankruptcy Court.  The Corporation listed Massachusetts withholding tax obligations on its Chapter 7 petition totaling $31,572.65, including $9051.30 for the second quarter, 1989, $13,612.22 (interest included) for the third quarter, 1989, and $8909.13 for the fourth quarter, 1989.  The Corporation also separately listed on its Chapter 7 petition Massachusetts corporate income taxes of $38,583.81 owed for the period from June 30, 1989 to June 30, 1990.  The Massachusetts Department of Revenue filed a proof of claim with the Bankruptcy Court on June 15, 1990, indicating that a total of $96,245.62 was claimed to be due for withholding tax and corporate excise obligations.  The proof of claim did not specify the amount due for withholding tax and corporate excise or the portion comprising interest and penalties. 
Nearly six years after the original assessments were made regarding the corporation's withholding tax for the periods at issue, the Appellee Commissioner of Revenue ("Commissioner") issued a Notice of Proposed Determination of Personal Liability and Deemed Assessment to the Appellant on February 3, 1995.  The notice proposed to designate the Appellant as a responsible person for the Corporation's unpaid withholding taxes.  The notice also proposed to assess the Appellant a total of $62,136.18 of withholding taxes, or approximately double the amount shown on the original assessments. The notice does not indicate, and the Commissioner offered no testimony or other evidence to show, how the "unpaid balance of assessment" for each of the periods was calculated or why the amount of the unpaid balance was approximately twice that shown on the original assessment.  Although penalties and interest could possibly have accounted for this increase, there is nothing on the notice to suggest that; in fact, a separate column of interest and penalties showed that only $118.35, $211.55, and $144.87 in interest and penalties were proposed for the applicable periods. 
Following a conference held on March 9, 1995, the Commissioner issued a Notice of Determination of Personal Liability and Deemed Assessment, dated March 10, 1995.  The Commissioner determined that the Appellant was a responsible person for the Corporation's unpaid withholding taxes for the period at issue, and therefore liable for $62,636.84 in withholding taxes, including interest and penalties.
The Appellant timely filed an Application for Abatement, Form CA-6, on March 25, 1995. This application was denied by written Notice of Abatement Denial of November 9, 1995. On January 4, 1996, the Appellant timely appealed the Commissioner's abatement denial of withholding taxes with this Board. 
On the basis of the foregoing, the Board found this appeal to be in conformity with the requirements of G.L.c. 62C, §§ 31A, 37 and 39, and therefore had jurisdiction to hear and decide this appeal.
The Appellant concedes that he is a person responsible for the withholding tax obligations of the Corporation under G.L. c. 62C, § 31A and the Board so finds.  However, although the Bankruptcy Court issued a discharge and closed the Corporation's Chapter 7 case on December 10, 1996, no evidence was offered in this appeal as to the amount of payments made by the Bankruptcy Trustee to the Commissioner on behalf of the Corporation.  Notably, the Commissioner was unable to produce any evidence whatsoever as to the amount of tax payments received from the Trustee on behalf of the Corporation, even though the Bankruptcy Court proceeding was closed less than one year prior to the hearing of this appeal.  
In the circumstances of this appeal, where the Corporation's assets and financial records are in the hands of the Bankruptcy Trustee, and the Appellant has indicated that payments were made to the Commissioner by the Trustee, it is incumbent on the Commissioner to produce records indicating how much of the withholding tax liability has been paid by the Trustee.  In addition, the Commissioner failed to produce any testimony or other evidence to explain the disparity in the amounts shown on the original withholding tax assessments, the amounts shown on the proof of claim, and the amounts assessed personally to the Appellant.  From all that appears on this record, the Commissioner is unable to tell how much was due from the Corporation for withholding tax, how much was paid to the Commissioner on behalf of the Corporation, how much was credited by the Commissioner to the withholding tax obligation, and how much is properly treated as a personal and individual liability of the Appellant.  
On the basis of the foregoing, the Board issued a decision for the Appellant and granted an abatement in the amount of the "deemed assessment" against the Appellant, $62,626.84.


OPINION
In the present appeal, the Corporation was assessed withholding taxes, with related interest and penalties, which it failed to pay when due.  The issue presented by the present appeal is whether, and to what extent, the Corporation's obligation remained unpaid, thereby allowing the Commissioner to impose personal and individual liability on the Appellant pursuant to G.L. c. 62B § 5 and G.L. c. 62C, § 31A.  Under G.L. c. 62B, § 5:

Every employer who fails to withhold or pay to the commissioner any sums required by this chapter to be withheld or paid shall be personally and individually liable therefor to the commonwealth.  The term 'employer' . . . includes an officer or employee of a corporation . . . who as such officer, employee or member is under a duty to withhold and pay over taxes in accordance with this section. 

If an employer in violation of this chapter fails to withhold the tax in accordance with section two, and thereafter the tax against which such tax may be credited, pursuant to section nine, is paid, the tax so required to be withheld shall not be collected from the employer; but this paragraph shall in no case relieve the employer from liability for any penalties or addition to the tax otherwise applicable in respect of such failure to withhold. [Emphasis added.]  

The Appellant does not dispute that he is an officer under a duty to withhold and pay over taxes under Chapter 62B and the Board so finds.  Accordingly, to the extent that the Corporation's withholding taxes for the periods at issue were not paid to the Commissioner, the Appellant would be personally and individually liable for the Corporation's withholding tax under § 5.
G.L. c. 62C §31A provides the procedure which the Commissioner must follow in order to imposes personal and individual liability on persons responsible for the corporation's unpaid withholding tax liabilities.  G.L.c. 62C § 31A provides 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. . .chapter sixty-two B. . . the commissioner shall so notify that 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. [Emphasis added.]

In the present appeal, the Commissioner offered no testimony or other evidence to rebut the Appellant's position that the Bankruptcy Trustee had made payments to the Commissioner on behalf of the Corporation for withholding tax obligations.  Accordingly, the Commissioner did not establish either that the Corporation "failed to pay" the withholding tax assessed (G.L. c. 62B, § 5) or that the original assessment to the Corporation "remained .  . . unpaid."  Accordingly, the Commissioner failed to establish an unpaid corporate assessment, the fundamental statutory prerequisite to the imposition of personal and individual liability. 
	Although the burden of proof is on the taxpayer to prove an entitlement to an abatement (See Staples v. Commissioner of Corp. & Tax, 305 Mass. 20, 26 (1940)), the Commissioner must establish an evidentiary basis in the record to show that an assessment was properly made where a taxpayer puts the validity of the assessment in doubt, particularly where the evidence supporting the validity of the assessment is uniquely in the hands of the Commissioner.  See e.g., Unitrode Corporation v. Commissioner of Revenue, 2000 A.T.B. Adv. Sh. 79, 92, n.5 (Docket No.197231, February 17, 2000); Horvitz v. Commissioner of Revenue, 1999 A.T.B. Adv. Sh. 57, 81, n.2 (Docket No. F231494, March 2, 1999); Waban, Inc. v. Commissioner of Revenue, 22 Mass. App. Tax Bd. Rep. 31 (1997).







Accordingly, the Board found that the Appellant was not a person responsible for the outstanding withholding taxes and issued a decision for the Appellant in the present appeal.

				     APPELLATE TAX BOARD

							       By:__________________________
                                                      Abigail A. Burns, Chairman



A true copy,

Attest: ____________________
        Clerk of the Board

The amount of withholding tax due, $62,636.84, was comprised of the following:  $15,612.61 for the second quarter, 1989, $27,908.04 for the third quarter, 1989, and $19,636.84 for the fourth quarter, 1989.

10


ATB 2000-227