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S corp sales tax recovery from personal tax refund

  • 1.  S corp sales tax recovery from personal tax refund

    Posted 04-03-2019 09:03
    My client owning 100% of S corporation recently was notified that his NYS personal tax return refund is adjusted against
    sales tax arrears of his S corporation which the corporation was paying off under installment agreement. How can a corporation
    sales tax debt be recovered from personal tax refund? It didn't happen in past years.

    The fact that it is a separate entity seems to have been ignored by NY State.
    Has anyone any experience or information about any rule/guidelines which allows such recovery?

    Regards
    Bharat Shah


  • 2.  RE: S corp sales tax recovery from personal tax refund

    Posted 04-04-2019 02:52

    HE IS A RESPONSIBLE PARTY AND IS PERSONALLY LIABLE FOR TRUST FUND TAXES.

     

    THE SALES TAX MONEY BELONGED TO NEW YORK.  AS THE 100%, HE USED THOSE FUNDS FOR ANOTHER PURPOSE.

     

    MARK WEISS, CPA

    WEISS & MOSKOWITZ, CPA'S PA

    25 EAST SPRING VALLEY AVENUE

    PO BOX 855

    MAYWOOD, NJ  07607-0855

     

    PHONE 201-909-0500

    FAX        201-909-0160

    EMAIL  mweiss@wmfcpa.com

     






  • 3.  RE: S corp sales tax recovery from personal tax refund

    Silver Most Valuable Member
    Posted 04-04-2019 11:46
    Hello Bharat,

    Yes, in most cases (after doing some paperwork) NYS CAN go after a corporate officer for unpaid sales and use taxes.  If the corporate officer does not timely fight the assessment, the state can then offset personal tax refunds to apply to the corporate sales tax assessment.
    -Mark Stone

    ------------------------------
    Mark Stone
    SALES TAX DEFENSE, LLC
    631-491-1500 x 11
    mstone@salestaxdefense.com
    ------------------------------



  • 4.  RE: S corp sales tax recovery from personal tax refund

    Bronze Most Valuable Member
    Posted 04-04-2019 13:43
    Bharat,
    A sales tax liability of a business is also owed by anyone who is found to be a "responsible person" of the business entity.
    A 100% shareholder is generally deemed to be a responsible person, therefore they are also liable for the deficiency.
    While it doesn't seem fair to take the refund while the S Corp is paying on an agreed installment plan, it apparently is legal.
    They would rather have the money now, than wait for the entire amount to be paid in installments.

    Brian

    ------------------------------
    Brian Gordon CPA
    President
    State Tax Audit Representation
    626 RXR Plaza
    Uniondale, NY 11556
    516-510-6041
    bgordon@statetaxauditrep.com
    www.StateTaxAuditRep.com
    ------------------------------



  • 5.  RE: S corp sales tax recovery from personal tax refund

    Posted 04-04-2019 17:10
    Sales taxes are basically trust fund taxes and can be a personal liability of responsible parties such as an officer.

    ------------------------------
    Paul Sadej
    CPA
    PAUL J. SADEJ JR., CPA PC
    Bellmore NY
    ------------------------------



  • 6.  RE: S corp sales tax recovery from personal tax refund

    Posted 04-04-2019 19:35
    Thanks to every one for their input. It is not that client intended not to pay but business has been running in losses for last few years
    and hence signed off on installment agreement and has been  paying off arrears according to terms. However the concept of setting up
    the corporation to protect from personal liability in case of genuine failure of business does not work if the shareholders of S corporation
    as responsible officers of the corporation are liable to pay for taxes.

    Can filing for bankruptcy (as liabilities are much more than virtually no assets) or closing the corporation which my client is contemplating (as business is unlikely to generate profit) could change the outcome for collection of unpaid sales tax liability from his personal tax returns refunds in future?
    Suggestions will be appreciated.

    Thank you all for your responses and sharing your experience.

    Regards
    Bharat Shah







  • 7.  RE: S corp sales tax recovery from personal tax refund

    Bronze Most Valuable Member
    Posted 04-04-2019 20:17
    Hello Bharat:
    Unfortunately for your client, sales tax is a trust tax and is not dischargeable in the individual's bankruptcy. The responsible person is assessed sales tax, interest and penalties, and it grows fast - the interest is 14.5% when penalties are assessed. The State will continue to take the refunds until the liabilities are paid in full, whether the company is open or closed.

    It's not just the refunds, however. The State can file a warrant which generally remains in place for twenty years while there is a balance due, and which acts as a lien against real property for the first ten years. The State can levy personal bank accounts and brokerage accounts after a warrant is filed. With a balance due of $10,000 or more, the State can suspend the taxpayer's driver's license. There are other potential consequences.

    Let me know if you have more questions or would like to discuss a resolution.

    - Yvonne

    ------------------------------
    Yvonne Cort
    Partner
    Capell Barnett Matalon & Schoenfeld LLP
    Jericho NY
    (516) 931-8100
    ycort@cbmslaw.com
    ------------------------------



  • 8.  RE: S corp sales tax recovery from personal tax refund

    Bronze Most Valuable Member
    Posted 04-05-2019 08:23
    Bharat,
    Closing the corporation will not relieve your client of his personal responsibility, therefore it will not prevent NYS from taking his income tax refunds now or in the future.  However, you could file for an offer in compromise to possibly reduce the liability.  In that case you would have to prove that your client cannot afford to pay the liability, and convince NYS that it would be in their best interest to compromise the debt.  If you feel your client is a candidate for an offer in compromise and you need help with that, give me a call.

    Brian
    State Tax Audit Representation, Inc.





  • 9.  RE: S corp sales tax recovery from personal tax refund

    Silver Most Valuable Member
    Posted 04-05-2019 10:10

    Your client has the option to file for both corporate and personal bankruptcy.  However, in general terms, bankruptcy CANNOT discharge trust fund liabilities that he improperly diverted from the state.

     

    Regards,

     

    Stuart G. Lang, CPA, CGMA

    Partner

    slang@grrcpas.com

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