Minnesota Sales Tax Responsible Person Legal Standard | Audit Tax Lawyer

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In this article, I would like to discuss the legal definition of Responsible Person under Minn. Stat. § 270C.56 – I will refer to this term as Minnesota sales tax responsible person legal standard.

Minnesota Sales Tax Responsible Person: Background Information

Minnesota imposes a sales tax “on the gross receipts from retail sales.” Minn. Stat. § 297A.62, subd. 1 (2014). “The sales … tax required to be collected by the retailer under chapter 297A constitutes a debt owed by the retailer to Minnesota, and the sums collected must be held as a special fund in trust for the state of Minnesota.” Minn. Stat. § 289A.31, subd. 7(a) (2014).

If the sales tax is not collected or remitted to the Minnesota Department of Revenue (“DOR”) by the company, then Minnesota law imposes personal liability upon a person who “has the control of, supervision of, or responsibility for filing returns or reports, paying taxes, or collecting or withholding and remitting taxes and who fails to do so.” Minn. Stat. § 270C.56, subd. 1 (2014). In other words, the State of Minnesota will collect the sales tax liability incurred by a company from whoever is defined as a “responsible person” – this is what I mean by Minnesota Sales Tax Responsible Person.

Minnesota Sales Tax Responsible Person: Legal Test

In order for a person to be assessed with the personal liability for non-payment of a sales tax, Minnesota courts follow a two-prong analysis under the Legal Test that establishes whether a person is a Minnesota Sales Tax Responsible Person. The first prong is definitional and the second one is substantive. Yik C. Lo v. Comm’r of Revenue, 2016 Minn. Tax LEXIS 17, *24 (Minn. T.C. April 7, 2016).

Let’s deal with the definitional prong first. “The threshold definitional question is whether the assessed person qualifies as a ‘person’ for purposes of the personal liability statute.” Id.; also see Igel v. Comm’r of Revenue, 566 N.W.2d 706, 709 (Minn. 1997). For the purposes of this statute, the word “person” is defined broadly to include an officer of a company, a member of a partnership and even an employee. Minn. Stat. § 270C.56, subd. 2 (2014). Pretty much any stakeholder, officer or employee would be considered a “person”.

If the first question is answered positively, then, the second issue is whether the “person” was also a “responsible person” – i.e. whether the “person” had the requisite control over financial matters to be found personally liable for the company’s tax liabilities. Stevens v. Comm’r of Revenue, 822 N.W.2d 646, 652 (Minn. 2012).

The Minnesota Supreme Court adopted a five-factor test to determine who is a responsible person. Benoit v. Commissioner of Revenue, 453 N.W.2d 336, 344 (Minn. 1990). This test is “informative” while the statutory language of 270C.56 controls. Larson v. Comm’r of Revenue, 581 N.W.2d 25, 28-29 (Minn. 1998). In other words, the courts may and actually at other factors besides those listed in the test.

The five factors are:

“(1) The identity of the officers, directors and stockholders of the corporation and their duties;
(2) The ability to sign checks on behalf of the corporation;
(3) The identity of the individuals who hired and fired employees;
(4) The identity of the individuals who were in control of the financial affairs of the corporation; and
(5) The identity of those who had an entrepreneurial stake in the corporation.” Benoit, 453 N.W.2d at 344.

The idea behind the test is to focus on “those persons who have the power and responsibility to see that the taxes are paid.” Id. Writing for a unanimous court, Judge Wahl also stated: “Control and influence over the ‘disbursement of funds and priority of payments to creditors’ are the most important elements.” Id. at 342.

Contact Sherayzen Law Office for Professional Help With Minnesota Statute § 270C.56

If the DOR found you personally responsible for a company’s sales tax liability under Minn. Stat. § 270C.56, contact Sherayzen Law Office for professional tax help.

Serious Illness as Reasonable Cause | International Tax Lawyer

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We are continuing our series of articles on Reasonable Cause. Today, we will discuss whether a serious illness can establish a reasonable cause for abatement of the IRS penalties. It is important to note that this discussion of serious illness as a reasonable cause is equally applicable to death and unavoidable absence of the taxpayer (in fact, the Internal Revenue Manual (IRM) discusses all three circumstances – death, serious illness and unavoidable absence of taxpayer – at the same time in providing guidance on reasonable cause).

Serious Illness Can Constitute a Reasonable Cause

IRM 20.1.1.3.2.2.1 (11-25-2011) expressly states that serious illness can be used as a Reasonable Cause Exception: “death, serious illness, or unavoidable absence of the taxpayer, or a death or serious illness in the taxpayer’s immediate family, may establish reasonable cause for filing, paying, or depositing late… .” In this context, “immediate family” means spouse, siblings, parents, grandparents, or children.

In the business context, a reasonable cause may be established if death, serious illness or other unavoidable absence occurred with respect to a taxpayer (or his immediate family) who had the sole authority to execute the return, make the deposit, or pay the tax. The same rule applies to corporations, partnerships, estates, trusts and other legal vehicles for conducting business.

Taxpayer Has the Burden of Proof to Establish that Serious Illness Constitutes Reasonable Cause for His Prior Tax Noncompliance

Stating that a serious illness can constitute a reasonable cause for abatement of the IRS penalties with respect to prior tax noncompliance is not equivalent to stating that serious illness automatically establishes a reasonable cause.

On the contrary, the taxpayer has the burden of proof to establish that serious illness did indeed constitute reasonable cause with respect to his prior tax noncompliance. In other words, serious illness may not be sufficient to establish reasonable cause for various reasons (for example, in cases where it was not actually related to tax noncompliance).

Factors Relevant to Determination of Whether Serious Illness Is Sufficient to Establish Reasonable Cause Exception

IRM 20.1.1.3.2.2.1 (11-25-2011) provides a list of recommended factors to consider in evaluating a taxpayer’s request for abatement of penalties based on serious illness, death or unavoidable absence. I somewhat modified the list to fit in all factors expressly mentioned in the IRM. Here is the non-exclusive list of factors expressly referenced in the IRM:

1. the relationship of the taxpayer to the other parties involved;

2. the dates, duration, and severity of illness (in case of death, the date of death; in case of unavoidable absence, the dates and reasons for absence);

3. how the event prevented tax compliance;

4. how the event impaired other obligations (including business obligations);

5. if tax duties were attended to promptly when the illness passed (or within a reasonable period of time after a death or absence);

6. (in a business setting) in a situation where someone other than responsible person or the taxpayer was responsible for meeting the infringed business tax obligation, and why that person was unable to meet the obligation;

7. (in a business setting) if only one person was authorized to meet the tax obligation, whether such an arrangement was consistent with ordinary business care and prudence.

This is not an all-inclusive list of factors. The IRM foresees the possibility that any other relevant factors may be considered in the analysis of whether a Reasonable Cause Exception was established based on serious illness, death or unavoidable absence.

Contact Sherayzen Law Office for Experienced Help With Establishing A Reasonable Cause Defense, Including Based on Serious Illness

There is always a risk that the IRS may reject a taxpayer’s reasonable cause argument, often simply because the argument was never properly elaborated by the taxpayer. This is why it is important to maximize your chance of success by timely securing professional legal help.

Sherayzen Law Office is a highly experienced tax law firm that has helped its clients around the world to establish various reasonable cause defenses against IRS domestic and international tax penalties. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

IRS 2017 Standard Mileage Rates for Business, Medical and Moving

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The IRS recently issued the optional IRS 2017 standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

According to the IRS Rev. Proc. 2010-51, a taxpayer may use the business standard mileage rate to substantiate a deduction equal to either the business standard mileage rate times the number of business miles traveled. If he does use the IRS 2017 standard mileage rates, then he cannot deduct the actual costs items. Even if the IRS 2017 standard mileage rates are used, however, the taxpayer can still deduct as separate items the parking fees and tolls attributable to the use of a vehicle for business purposes.

It is important to note that a taxpayer does not have to use the IRS 2017 standard mileage rates. He always has the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. In such a case, all of the actual expenses associated with the business use of the vehicle can be used: lease payments, maintenance and repairs, tires, gasoline (including all taxes), oil, insurance, et cetera.

The IRS 2017 standard mileage rates shall be as follows:

  • 53.5 cents per mile for business miles driven (down from 54 cents for 2016);
  • 17 cents per mile driven for medical or moving purposes (down from 19 cents for 2016)
  • 14 cents per mile driven in service of charitable organizations

The IRS 2017 standard mileage rates are generally lower than last year’s mostly due to the lower price for gasoline. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

On the other hand, in some circumstances, a taxpayer cannot use the IRS 2017 standard mileage rates. For example, a taxpayer cannot use the IRS business standard mileage rate for a vehicle after using any MACRS depreciation method or after claiming a Section 179 deduction for that vehicle. Additionally, the business standard mileage rate cannot be used for more than four vehicles used during the same period of time. More information about the limitations on the usage of the IRS 2017 standard mileage rates can be found in the IRS Rev. Proc. 2010-51.

PATH Act and New January 31 Filing Deadline | Tax Attorney News

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On October 28, 2016, the IRS reminded employers and small business owners of the new January 31, 2017 deadline as a result of the PATH Act.

PATH Act’s Impact on the Filing Deadlines for Forms W-2 and 1099-MISC

In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. Starting 2017, the new strict W-2 filing deadline of January 31, 2017, will be enforced.

The reason for this change in the deadline is The Protecting Americans from Tax Hikes (PATH) Act of 2015. According to PATH, the employers will now have one filing deadline on January 31 for both employee copies of Forms W-2 and the filing of Forms W-2 with the Social Security Administration.

Moreover the PATH Act also affects the filing deadline for certain Forms 1099-MISC, particularly those reporting amounts in Box 7, Nonemployee Compensation. These Forms 1099-MISC will now also have to be filed on January 31, 2017.

PATH Act’s Impact on Requesting Form W-2 Filing Extension

The PATH Act also has an impact on the availability of Form W-2 filing extensions. Starting 2017, only one 30-day extension to file Form W-2 will be available and this extension is no longer automatic. If an extension is necessary, a Form 8809 “Application for Extension of Time to File Information Returns” must be completed as soon as you know an extension is necessary, but no later than January 31.

PATH Act May Delay Some Refunds Until February 15

The other major impact of the PATH Act that will be felt by many Americans is the potential hold on their refunds until February 15. The PATH Act requirest the IRS to hold the refund for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC); the IRS must hold the entire refund, not just the portion related to the EITC or ACTC.

PATH Act is Meant to Help IRS Fight Fraud and Spot Tax Return Errors

The PATH Act was enacted by Congress and signed into law in December of 2015 in order to make it easier for the IRS to detect and prevent fraud associated with tax refunds. The idea is to give the IRS more time to identify fraudulent refunds through accelerated W-2 filing deadline for employers and holding refunds (which are frequently subject to fraud) until February 15.

Of course, the additional time will allow the IRS to also spot any errors on the tax returns.

Tax Deadlines Extended for Certain Mississippi Storm Victims

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As a result of the FEMA’s state of disaster declaration, certain Mississippi Storm victims will now benefit from the extension of the 2015 tax return filing and tax payment deadlines. In particular, the residents of Benton, Coahoma, Marshall, Quitman and Tippah counties (as well as other counties that may be added at a later time) will have until May 16, 2016 to file their 2015 tax returns and pay any tax due. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.

The extended deadline also affects the estimated tax payments; the IRS will waive all penalties associated with these deadlines for Mississippi Storm victims. Individual Mississippi Storm victims will now be able to benefit from this extended deadline with respect to January 15 and April 18 deadlines for making quarterly estimated tax payments.

Business Mississippi Storm victims will also benefit from this deadline extension, including February 1 and May 2 deadlines for quarterly payroll and excise tax returns. Furthermore, the deadline extension applies also to March 1 deadlines for farmers and fisherman who are Mississippi storm victims and choose to forego making estimated tax payments.

Additionally, the IRS will waive late-deposit penalties for federal payroll and excise tax deposits normally due on or after December 23 and before January 7 if the deposits are made by January 7, 2016. Details on available relief can be found on the disaster relief page on IRS.gov.

The IRS will automatically provide filing and penalty relief to any taxpayer with an IRS address of record located in the Mississippi disaster area. Thus, Mississippi storm victims need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

Furthermore, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the Mississippi disaster area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

Finally, individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred, or the return for the prior year. See Publication 547 for details.