Infinity Financial v. Dept. of Rev.

IN THE OREGON TAX COURT

MAGISTRATE DIVISION

Income Tax

INFINITY FINANCIAL, MARK J. PERRY, )

and MARSHA REEDER, )

)

Plaintiffs, ) TC-MD 170231N

)

v. )

)

DEPARTMENT OF REVENUE, )

State of Oregon, )

)

Defendant. ) FINAL DECISION1

Plaintiffs appeal Defendant’s Notice of Liability, dated March 31, 2017, finding Plaintiff

Marsha Reeder (Reeder) liable for the “tax debt” of Plaintiff Infinity Financial Corp. (Infinity

Financial). (Compl at 2-3.) The tax debt at issue in this matter is unpaid withholding tax from

all quarters of 2014 and the first quarter of 2015. (Def’s Ltr, March 12, 2018.) A telephone trial

was held December 18, 2017. Mark Perry (Perry), President of Infinity Financial, appeared and

testified on behalf of Plaintiffs. Reeder also testified on behalf of Plaintiffs. Joil Southwell

(Southwell), Operations and Policy Analyst, appeared and testified on behalf of Defendant.

Plaintiffs offered no exhibits. Defendant’s Exhibits A to G were received without objection.

I. STATEMENT OF FACTS

Perry testified that Infinity Financial was a family business and he was the president. He

testified that the business never operated as it appeared on paper; “the business moved faster than

the paperwork.” Reeder testified that the only activity she performed on behalf of Infinity

Financial was telemarketing. Perry testified that Infinity Financial was a failed business that

1

This Final Decision incorporates without change the court’s Decision, entered March 15, 2018. The court

did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court

Rule–Magistrate Division (TCR–MD) 16 C(1).

FINAL DECISION TC-MD 170231N 1

lacked planning and he should be 100 percent responsible for its tax debts. Reeder testified that

she should not have to pay Perry’s tax bill, noting she is “older” and on a “fixed income.”

Perry testified that he wanted Reeder to serve as treasurer of Infinity Financial because

she had some administrative experience and he wanted her to handle banking matters. However,

in practice, Reeder was not the treasurer, president, or secretary of Infinity Financial. Perry

testified that he made all the decisions. Reeder testified that she did not remember conversations

about becoming treasurer, nor did she remember taking that office. She testified that she did not

operate as treasurer, president, or secretary in her “day-to-day duties” for Infinity Financial, nor

did she handle tax matters. Reeder testified “I don’t remember doing anything. I did nothing

that related to money or finances at that time.” Perry concurred that Reeder was not responsible

for paying taxes on behalf of Infinity Financial.

Southwell testified that Defendant is charged with reviewing documents to determine

who is a responsible officer or owner of a company and who is, therefore, responsible for paying

taxes. He testified that Infinity Financial registered as an employer in 2014, reporting two

employees starting in February 2014, resulting in accrued unpaid payroll. Infinity Financial’s

Combined Employer’s Registration, signed July 29, 2014, listed Reeder as an “owner, partner,

corporate officer, etc.” who was responsible for “filing tax returns, paying taxes, and

hiring/firing.” (Def’s Ex E.) The form indicated that employees were performing work as of

February 1, 2014. (See id.) Infinity Financial’s corporate information change form, filed with

the Secretary of State on September 19, 2014, listed Reeder as both President and Secretary.

(Def’s Ex F.) Infinity Financial’s board resolution, dated December 15, 2014, identified Reeder

as Treasurer in 2014, with Perry assuming that role in 2015. (Def’s Ex B.) The corporate

information change filed on March 17, 2015, listed Reeder as President. (Def’s G.)

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Southwell testified that, on November 18, 2015, Defendant sent an “investigation of

authority” letter to Reeder to find out who was responsible for the unpaid payroll debts of

Infinity Financial. (See Def’s Ex D.) He explained that the codes on the record referenced the

first quarter of 2015 and all four quarters of 2014.2 (See id.) Defendant received no response.

Reeder testified that she had no recollection of signing the Combined Employer’s

Registration. (Def’s Ex E.) She testified that she did not look at that form; Perry filled it out.

Reeder testified that she had no recollection of signing the corporation information change form

filed in 2014, but she recognized her signature on that form. (Def’s Ex F.) She testified that she

was aware of the board resolution dated in December 2014, but reiterated that she only worked

as a telemarketer for Infinity Financial. Reeder testified that she had no recollection of signing

the corporation information change form filed in 2015. (Def’s Ex G.) She testified that she

purposely “kept her nose out of all this.” Southwell testified that Reeder had those duties

whether she exercised them or not.

II. ANALYSIS

The issue in this case is whether Reeder is personally liable for the unpaid withholding

taxes of Infinity Financial from 2014 and the first quarter of 2015. Perry had conceded that he is

personally liable for the taxes. As the party seeking affirmative relief, Reeder bears the burden

of proof by a preponderance of the evidence. ORS 305.427.3 “Preponderance of the evidence

means the greater weight of evidence, the more convincing evidence.” Feves v. Dept. of

Revenue, 4 OTR 302, 312 (1971).

///

2

Those codes are “250 15 3” and “250 14 3/6/9/12.” (Def’s Ex D.)

3

The court’s references to the Oregon Revised Statutes (ORS) are to 2013.

FINAL DECISION TC-MD 170231N 3

A. Overview of Employer Liability for Unpaid Withholding Tax

ORS 316.167 generally imposes an obligation on employers to withhold a specified

amount of tax from wages paid to employees. Additionally, employers are subject to reporting

requirements described in ORS 316.168 to 316.202. If an employer fails to file reports or fails to

remit withheld amounts to the Department of Revenue, the department may determine and assess

the amount of the tax due and may enforce collection against the employer. ORS 316.207. In

this context, “employer” is defined as including “[a]n officer or employee of a corporation, * * *

who as such officer [or] employee * * * is under a duty to perform the acts required of employers

by ORS 316.167, 316.182, 316.197, 316.202 and 316.207.” ORS 316.162(3)(b). Plaintiffs have

not challenged the underlying assessments in this case, only the determination that Reeder was

an officer of Infinity Financial who is personally liable for the assessments.

Defendant has promulgated an administrative rule that states, in part,

“To be held personally liable for unpaid income tax withholding or statewide

transit tax under ORS 316.162, a person * * * must have been in a position to pay

the income tax withholding or statewide transit tax or direct the payment of the

income tax withholding or statewide transit tax at the time the duty arose to

withhold or pay over the taxes. Additionally, the person must have been aware,

or have been in a position that should have been aware, that the income tax

withholding or statewide transit tax was not paid to the department.”

Oregon Administrative Rule (OAR) 150-316-0243(1). The rule also sets forth a non-exhaustive

list of “duties” that tend to show an individual was an “employer” under ORS 316.162(3):

“(a) The power or authority to see that the income tax withholding or statewide transit

taxes are paid when due;

“(b) Authority to prefer one creditor over another;

“(c) Authority to hire and dismiss employees;

“(d) Authority to set employees’ working conditions and schedules;

“(e) Authority to sign or co-sign checks;

FINAL DECISION TC-MD 170231N 4

“(f) Authority to compute and sign payroll tax or statewide transit tax reports;

“(g) Authority to make fiscal decisions for the business;

“(h) Authority to incur debt on behalf of the business; or

“(i) Performed duties other than those outlined by the corporate bylaws or partnership

agreement.”

OAR 150-316-0243(2). The rule further identifies “factors [that] do not preclude a finding that

the individual is liable for the payment of taxes which were required to be withheld:”

“(a) Whether the failure to pay over the required income tax withholding or statewide

transit tax was willful;

“(b) Whether the individual received remuneration;

“(c) Maintenance of full-time employment elsewhere;

“(d) The department considers another individual liable for the same income tax

withholding or statewide transit tax;

“(e) A corporate bylaw or partnership agreement position description to the contrary;

“(f) Absence of signatory authority on a business bank account;

“(g) Absence of bookkeeping or recordkeeping duties;

“(h) Absence of authority to hire, fire, and to set working conditions and schedules; or

“(i) Whether any functions indicating liability have been delegated to another.”

OAR 150-316-0243(3).

In evaluating whether an individual should be held liable for the tax, “substance and not

form controls” the outcome. Frutiger v. Dept. of Rev., 270 Or 821, 826, 529 P2d 910 (1974); see

also Bellotti v. Dept. of Rev., 12 OTR 543 (1993) (stating that “the formalities of a person’s

position do not control”). In Frutiger, the court considered the potential liability of a husband

and a wife, where the wife “held the offices of secretary and treasurer and was a member of the

board of directors” of the corporation and the husband “owned all the shares of stock and was the

FINAL DECISION TC-MD 170231N 5

managing officer of” the corporation. 270 Or at 826. The court examined their respective duties

and determined that, although the wife was a corporate officer,

“she owned no stock, her corporate capacity was a nominal one, she was, in fact,

a corporate officer in name only, she received no compensation for her services

and she, in fact, exercised no day to day supervision or control over the corporate

affairs * * * [so], she is not an ‘employer’ within the meaning of the statute.”

Id. In Bellotti, this court held that the corporate secretary of an S-corporation with a single

shareholder was not liable for unpaid withholding — notwithstanding his check-signing

authority and past practice of signing the withholding returns —because the sole shareholder

(who was also the sole director and president of the corporation) instructed the secretary not to

pay the tax and would have fired the secretary if he had. 12 OTR at 543. The court concluded

that the secretary did not have “the requisite authority and control in form and substance within

the corporate structure to order the payment of or pay the corporate tax.’ ” Id. at 546 (citation

omitted).

An individual with actual authority to pay the taxes may not escape personal liability by

delegating that authority or merely claiming a perceived lack of control or knowledge. See

Robblee v. Dept. of Rev., 325 Or 515, 528-529, 942 P2d 765 (1997) (president of the corporation

was liable for the tax even though he withdrew his check-signing authority when he became

aware that the corporation might become delinquent in paying its state withholding tax); see also

Gagon v. Dept. of Rev., 13 OTR 41 (1993) (individual who was executive vice president,

secretary, and management team member was liable for the tax even though he was unaware the

withholding taxes were unpaid and he “saw himself as ‘paid to take orders,’ not to give them”).

B. Analysis of Whether Reeder was an “Employer” under ORS 316.162(3)

Perry urges the court to decide this case on the facts of the corporate arrangement, not

based upon the documents filed with Defendant and the Secretary of State. In essence, he urges

FINAL DECISION TC-MD 170231N 6

the court to consider the substance over the form: notwithstanding the various officer positions

that Reeder held on paper, she exercised no actual authority over Infinity Financial. Rather,

Perry was solely in control of and responsible for the corporation.

It is difficult to evaluate Reeder’s role in the operation of Infinity Financial because the

court received scant evidence of either the corporation’s activities or of Reeder’s duties. For

instance, the court is unaware of what goods or services Infinity Financial provided. The only

hint is Reeder’s testimony that she engaged in telemarketing on behalf of the corporation. The

court received no evidence concerning the corporation’s employees, such as their identities, their

duties, their working conditions and schedules, or who, in fact, hired them.4 The court did not

receive a copy of the corporate bylaws identifying officers’ duties. Although Perry had hoped

Reeder would handle banking maters, the court received no evidence concerning checks issued

by the corporation or signatories on the corporate bank account. The court received no evidence

that any payroll reports were filed and, if so, who completed and signed the reports. The court

received no evidence of any loans made to the corporation. The court received no evidence of

whether Reeder was compensated for her duties on behalf of corporation.

The court is left with testimony by Perry and Reeder that Perry made all of the decisions

on behalf of Infinity Financial, which is contradicted by corporate filings identifying Reeder

variously as president, secretary, and treasurer of the corporation. Perry’s only explanation for

those filings was that “the business moved faster than the paperwork.” The corporate filings lead

to an initial conclusion that Reeder had authority to pay withholding tax on behalf of Infinity

Financial. However, Reeder’s testimony revealed that she did not recall signing the filings and

did appear to understand their significance; her only duty was telemarketing. The court found

4

The Combined Employer’s Registration includes several check-boxes that indicate Reeder was

responsible for “Hiring/firing.” (Def’s Ex E.)

FINAL DECISION TC-MD 170231N 7

Reeder to be credible. Perry testified that he, and not Reeder, exercised control over Infinity

Financial. On the evidence presented, the court concludes that Reeder was an officer in name

only and exercised no actual authority over Infinity Financial.

III. CONCLUSION

Upon careful consideration, the court concludes that Plaintiff Marsha Reeder was not an

“employer” within the meaning of ORS 316.162(3) and is not, therefore, personally liable for the

unpaid withholding taxes of Infinity Financial for the periods including all quarters of 2014 and

the first quarter of 2015. The court further concludes that, by his own admission, Plaintiff Mark

J. Perry had authority to pay Infinity Financial’s withholding tax for those periods and is,

therefore, personally liable for the unpaid tax. Now, therefore,

IT IS THE DECISION OF THIS COURT that Plaintiff Marsha Reeder was not an

“employer” within the meaning of ORS 316.162(3) and is not, therefore, personally liable for the

unpaid withholding taxes of Infinity Financial for the periods including all quarters of 2014 and

the first quarter of 2015.

IT IS FURTHER DECIDED that, by his own admission, Plaintiff Mark J. Perry had

authority to pay Infinity Financial’s withholding tax for the periods including all quarters of 2014

and the first quarter of 2015 and is, therefore, personally liable for the unpaid tax.

Dated this day of April 2018.

ALLISON R. BOOMER

MAGISTRATE

If you want to appeal this Final Decision, file a complaint in the Regular

Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR

97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.

Your complaint must be submitted within 60 days after the date of the Final

Decision or this Final Decision cannot be changed. TCR-MD 19 B.

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This document was signed by Magistrate Allison R. Boomer and entered on April

3, 2018.

FINAL DECISION TC-MD 170231N 9