Ohio – Bankruptcy Did Not Discharge Personal Liability

SALT Report 1315 – The Ohio Board of Tax Appeals determined that a partner of a limited liability corporation and his wife were personally liable for the LLC’s unpaid Ohio sales tax because they had knowledge of their obligation to file returns and remit taxes.

R.C. 5739.33 states that when a corporation fails to pay sales tax due to the state, the state can impose personal liability on any corporate officer or employee deemed “responsible.”   A responsible person is defined as anyone who has control, supervision, or knowledge of the…fiscal responsibilities of the business or corporation, and has personal knowledge of the businesses failure to remit or file taxes.

The Board determined that the taxpayer was the sole owner of the company, and his wife, who assisted in the day-to-day business operations, had the authority to write checks on behalf of the business, and had filed and prepared previous tax returns. Therefore, each person was found to be responsible for the businesses liabilities.

In early 2006, the LLC filed Chapter 7 bankruptcy and the taxpayers attempted to have the tax assessment discharged, however section 523 (a)(1)(A) states  that a dissolution, termination, or bankruptcy shall not discharge a responsible [person’s] liability and the sum due for the liability may be collected by assessment.

Based on the above facts, the Board of Tax Appeals determined that the taxpayer and his wife had not met the burden of proof required to establish the right to relief they requested and were held personally liable.

For Further Information:

Ohio Board of Tax Appeals -No. 2009-A-282, 2009-A-283