ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – GETTING A BAD JUDGE – THE SAD CASE OF RICHARD WEISS – PART 2
By Robert S. Schriebman
This case involves personal liability for unpaid corporate level sales taxes. It is important because the same basic principles and reasoning will apply to EDD personal assessments for unpaid corporate level employment and withholding taxes. Before getting into the case, I would like to share with you, sage advice I was given by a very experienced trial lawyer.
The two of us have been friends since we were 11 years old. We both became lawyers. On this particular day we were having lunch and we were discussing an EDD case that I wanted to take to a full hearing before the CUIAB. My friend listened to all my arguments and considered the strong points of my case. He looked me straight in the eyes and said, “Bob, you have a good case, a strong case, but what if you get a bad judge?” Whether it is the CUIAB or any other forum, there are always good judges and bad judges. I discussed the hazards of litigation with my client and he felt it was in his best interest to settle.
Richard Weiss had a good case. He had sound arguments that he should not be held personally responsible for the unpaid sales taxes owed by his small corporation Star Video, Inc. Richard took his case to the Office of Tax Appeals (OTA). The case was decided by Judge A. Kwee. In Part 1, I reviewed Judge Kwee’s decision and his reasoning for holding Richard personally liable. But in this Part 2, we will review the dissenting opinion by Judge T. Stanley who showed that Judge Kwee omitted key facts that clearly pointed responsibility to Richard’s partner James Miller (James).
In the Matter of the Appeal of Richard S. Weiss, OTA Case Number 18043018 issued June 20, 2019.
Judge Stanley Got It Right
OTA cases are typically heard by three judges. Two of the three judges have to agree. If a judge disagrees, that judge is allowed to write a dissenting opinion. This is what Judge Stanley did.
James Miller Was in Control
A key element for personal assessment, whether we are talking about sales tax assessments or EDD assessments, is responsibility. The targeted person must be responsible for the day-to-day fiscal affairs of the corporation or LLC.
Judge Stanley pointed out that James, as the corporation’s president, assumed banking, 401K, and tax responsibilities. Richard was not responsible for the corporation’s financial situation. He was merely a salesman, even though he held the title of vice president. Judge Kwee found Richard responsible because of a Secretary of State filing naming him as CFO. However, Judge Stanley pointed out that Richard did not prepare of file the form. It was done by a secretary without his knowledge. James also admitted to sales tax collectors that he was in control of the company’s fiscal matters. Richard had submitted a letter of resignation in 2009 that Judge Kwee never mentioned.
What convinced Judge Kwee that Richard should be held responsible was Richard’s statement, ‘Everything was done by whatever I could do to keep everyone employed by making our rent, utilities and vendors’ payments.’ That was not the full statement. What Richard actually added was the following, “by loaning my own personal money” ($100,000). In support, Richard furnished copies of checks made payable to the corporation, not to the corporation’s creditors or employees. Judge Kwee made it appear as though Richard actually paid these bills instead of paying back taxes. In reality, it was James who paid the bills. It was James who wrote the checks.
Ownership and Title Are Not Determinative
Richard’s status as part owner and vice president did not automatically mean he could independently direct sales tax payments which is required for finding of authority under the law. Judge Stanley pointed out that the evidence showed that James wrote the checks and paid the bills. Checks signed by Richard were few and far between. Judge Stanley further reviewed the internal notes prepared by the Van Nuys, CA sales tax office reflecting the contacts by Richard and James. Their notes were sketchy and inconclusive as to who said what to whom. There was no proof that Richard had any authority to resolve the unpaid sales tax situation. Richard only asked if a payment arrangement was possible, he did not negotiate any conditions or terms.
In summary, the records examined by Judge Stanley showed that James had final authority regarding the corporation’s sales tax payments. Although Richard had knowledge that the tax liabilities were owed, but not paid, that does not prove that Richard had the actual authority to make those payments without James’ approval.
Bank Signature Cards Are Not Dispositive of Responsibility
Judge Stanley then brought up a very important point you should know. Both Richard and James had the ability to sign checks because their signatures were on the bank’s signature cards. But this fact, standing alone, does not automatically mean responsibility. This is a very important point because EDD collectors will seize on bank signature authority to hold a person personally liable for unpaid payroll taxes. This alone is not enough!
Judge Kwee It Wrong!
Judge Stanley concluded that Judge Kwee did not present the full story. If all the facts came out Richard should have been given a walk. Judge Kwee got it wrong. Judge Kwee seems to have made up his mind in advance and did not wish to be confused by the facts.
The case of Richard Weiss brought home the sage words of my friend the trial lawyer with decades of real-world experience behind him. As I write this article, his words come back, “You have a good case, a strong case, but what if you get a bad judge?” There may be a lot said for taking advantage of a good settlement.
Richard Weiss represented himself. That was a mistake. In matters of great importance, especially when you are the target of a personal level assessment for unpaid taxes, wisdom dictates you be represented by experienced tax counsel.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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