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Corporate Sales Tax Assessment Against Individuals - Dual Determination

California Revenue and Taxation Code Section 6829 and Regulation 1702.5. Responsible Person Liability

California is a dual determination jurisdiction under 6829 and 6487.

Factors to Consider in Dual Determination-Responsible Party, Willful and Intentional Analysis

  1. The actual “office” position held by the person to be charged and the exact tax periods during which he/she held it.
  2. The actual duties of the taxpayer as shown by corporate records and employment agreement.
  3. The period during which each officer or “responsible person” could sign/endorse checks.
  4. Look at bank documents and signatory cards.
  5. How many checks were signed and for what purpose. Look for patterns in the checks in terms of amount, periods and purpose.
  6. Who signed the Sales Tax Forms?
  7. Were the funds available to pay the sales taxes? Look at bank balances in January, April, July, and October. Need to establish that although the funds were available someone else in the corporation prevented the payment of the tax.
  8. Ask who was responsible for preparing the checks? Is the signer of the checks just following orders from someone that had actual control of the funds?
  9. Ask who prepared the returns? Was the signer just following orders? Your client may have signed the returns without understanding that the taxes weren’t being paid.
  10. Who is responsible for purchase and sales? Look to see if the person in control of personnel also controls finances?
  11. Are there any co-signers required for the checks? Look at the extent, period and purpose of the consigner’s authority.
  12. Look for assets that may still be available to pay the taxes? Did any of the other officers or individuals steal corporate assets that prevented the payment of taxes?
  13. Did the statute of limitations expire as to prevent the CDTFA from assessing the taxes?
  14. Even if you were the responsible party, the taxpayer may have lacked the intent or willfulness to not pay the taxes. If the taxpayer is not business savvy or hired other individuals to perform the duty then the taxpayer can challenge the intent aspects of the trust fund taxes. Look at time line of events to see when the taxpayer realized non payment of taxes. What did the client do to correct the situation?

I’ve listed partial list of facts to argue against the responsible person tax assessments. There are numerous case laws and fact patterns that you may need to explore before establishing and proceeding your argument with the CDTFA.

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