CLIFTON R. JESSUP, JR., Bankruptcy Judge.
This case came before the Court on December 14, 2017 for Evidentiary Hearing on Debtor's Objections to Claim #1 and Claim #3 filed by the State of Alabama, Department of Revenue (hereinafter the "Department" or "ADOR"). Following the hearing, the Court entered an Order Requiring Briefs to be filed by January 16, 2018 to address the following issues: (1) whether the Debtor received notice pursuant to ALA. CODE § 40-2A-7 of the final tax assessments issued by the Department; and (2) whether the Debtor is a "responsible party" pursuant to ALA. CODE § 40-29-72 and § 40-29-73 for the unpaid withholding taxes of Hoyt Harris, Inc. for the tax periods at issue.
The Court has considered the post-hearing Briefs submitted by each party, the testimony and evidence presented during the Evidentiary Hearing, the parties' Joint Stipulations of Undisputed Facts, and the relevant law and finds that Claims #1 and #3 should be allowed as the Debtor received both notice of the final assessments and is a responsible party for the periods at issue under Alabama law as set forth herein.
On May 23, 2017, the Debtor commenced the above-captioned case by filing a Chapter 7 Petition in which she listed the Department as a secured creditor in the amount of $13,500 and as an unsecured creditor in the amount of $31,000. On June 8, 2017, the Department filed Claim #1 in the amount of $28,957.82 as a secured claim for withholding taxes for the quarters ending December 2013 through June 2014. Attached to Claim #1 is a copy of a Notice of Lien for Taxes recorded on June 1, 2016 in the Madison County Judge of Probate, Alabama. On August 14, 2017, the Department filed Claim #3 in the amount of $13,000 as a priority claim pursuant to 11 U.S.C. § 507(a)(8) for withholding taxes for the quarter ending September 2014.
The Debtor objects to both claims, arguing that she never received notice of the 100% penalty assessed by the Department against her on behalf of Hoyt Harris, Inc. for unpaid withholding taxes and that she was at no time a "responsible party" for the payment of withholding taxes on behalf of the company under Alabama law.
On December 7, 2017, the parties filed a Joint Stipulation of Undisputed Facts and Disputed Issues, stipulating as follows:
In addition to the stipulated facts, the Debtor testified that she served as the Vice-President of Hoyt Harris, Inc. during the relevant time periods and that she had check signing authority on behalf of the company. Beginning in January of 2010, the Debtor began working 24 to 30 hours per week in the company's main office along with her ex-husband who served as President of the company and with her sister-in-law, Loring Harris, who served as the Corporate Secretary.
The Debtor was primarily responsible for monthly billing and for reconciling accounts receivables. Although Loring Harris was primarily responsible for the payment of payroll taxes and issued most of the checks for Hoyt Harris, Inc., the Debtor also wrote checks and handled payroll for the company on occasion when Loring Harris was unavailable.
The Debtor testified that her ex-husband informed her that there was a problem with the payment of payroll taxes while she was still working for Hoyt Harris, Inc. and admitted that she understood that such taxes had to be paid. The Debtor further admitted that she was aware that ADOR Compliance Officers were contacting Hoyt Harris, Inc. regarding the delinquent taxes.
ADOR Compliance Officers, Anthony Ingegneri and Jameson Thompson, both testified that they regularly contacted the Debtor regarding Hoyt Harris, Inc.'s unpaid withholding taxes. The Department maintains an internal recordkeeping system in which compliance officers make contemporaneous notes as they speak with a point of contact which reflected numerous phone calls between the Debtor and Compliance Officers beginning February 11, 2013 and continuing through the Fall of 2014.
From December of 2013 through the Fall of 2014, Mr. Thompson testified that the Debtor was his primary point of contact at Hoyt Harris, Inc. regarding the company's unpaid withholding taxes. Although Mr. Thompson and the Debtor only spoke over the phone, Mr. Thompson testified that he subsequently met the Debtor in May of 2015 at his dentist office where the Debtor was then employed. According to Mr. Thompson, it was the Debtor who recognized his name when they met. The Debtor inquired whether he was the Compliance Officer with whom she had spoken while she was employed at Hoyt Harris, Inc. During this meeting, the Debtor provided Mr. Thompson with her ex-husband's cellphone number so that ADOR could contact him regarding the unpaid tax liability.
ADOR Revenue Compliance Officer Evelyn Lyle testified that it was her job to investigate and identify responsible parties for Hoyt Harris, Inc.'s unpaid withholding tax liability. Upon determining that the Debtor was the Vice-President of Hoyt Harris, Inc., that the Debtor had check signing authority on behalf of the company, and that she was involved in the day-to-day operations of the company, Ms. Lyle determined that the Debtor was a responsible party for the payment of Hoyt Harris Inc.'s delinquent taxes. She then verified the Debtor's mailing address through the United States Postal Service and mailed the preliminary and final tax assessments at issue to the Debtor at 1104 W. Cleermont Circle SE, Huntsville, AL 35801 by certified mail, as set forth in detail in the parties' Joint Stipulation of Undisputed Facts.
When the Debtor failed to claim the certified mail, Ms. Lyle mailed copies of the preliminary and final assessments to the Debtor's mailing address by regular mail. Each time Ms. Lyle mailed an assessment to the Debtor, she verified the Debtor's current address with the United States Postal Service which the Debtor admits has not changed since January of 2013 through the present date.
The Debtor testified that she remembered receiving a letter from ADOR in either May or June of 2016 regarding an assessment. She contacted ADOR by telephone and explained that she did not have an ownership interest in Hoyt Harris, Inc. According to the Debtor, the assessment was rescinded on-line and she believed that the matter had been resolved.
ADOR records reflect that on April 18, 2016, Ms. Lyle mailed a letter to the Debtor, writing in part, "[s]ince you feel you are not responsible for the unpaid trust fund taxes owed by Hoyt Harris, Inc., I am enclosing a 100% Penalty Interview form to help outline facts that show your actual status within the corporation. This will help in further investigation of the case."
The Debtor admits that she received another letter from ADOR in December of 2016 stating that she was again being assessed for the unpaid withholding taxes. The Debtor contacted ADOR and was informed by Ms. Lyle that she could appeal the assessment. The Debtor testified that she requested that the hearing be held in Huntsville, Alabama and was informed that Ms. Lyle would let the Debtor know when the hearing was scheduled.
Ms. Lyle testified that she mailed a letter to the Debtor on behalf of the Department dated April 5, 2017 scheduling the appeal hearing in Montgomery, Alabama on May 2, 2017.
Section § 40-2A-7(b)(4) of the Alabama Code establishes the following procedure for service of a final tax assessment upon a taxpayer:
Pursuant to § 40-2A-7(b)(4) d, the Department is required to mail all final assessments over $500 by certified mail to a taxpayer's last known address, or at the Department's option by personal service. The Debtor concedes that the Department made numerous attempts to communicate with her concerning the taxes at issues, but argues that she failed to receive actual notice of the assessments. However, the "language of the statute requires only that the notices be mailed to the last known address and requires no proof of actual receipt of the notice."
The Court further finds that the Department exercised reasonable care and diligence in determining the Debtor's last known address.
Although the Debtor contends that she did not receive certified mailed from the Department, the evidence reveals that the Debtor received and ignored multiple levels of notice for the assessments at issue. With regard to the withholding taxes represented by the Department's Claim #1, the Debtor admits that she received notice of the preliminary assessment, but asserts that she thought that the taxes had been resolved after she spoke with the Department.
The Department assessed liability against the Debtor as responsible party for Hoyt Harris, Inc.'s withholding tax liability for quarters ending December 2013 through June 2014 and September 2014 pursuant to ALA. CODE § 40-29-72 and § 40-29-73. Section 40-29-73(a) of the Alabama Code provides that as a general rule:
Section 40-29-72 of the Alabama Code defines the term "person" as "an officer of a corporation, or a member of a partnership, who as such officer, or member is under a duty to perform the act in respect to which the violation occurs."
For purposes of Alabama's 100 percent penalty statute, courts have held that "[a] person is a `responsible person' . . . if he or she has the duty, status, and authority to pay the taxes in question."
In this case, the Debtor argues that as the Vice-President of Hoyt Harris, Inc. her role was limited because she did not routinely sign payroll checks, tax returns, or other checks for the company. She further asserts that she never represented to ADOR Compliance Officers that she was the person that would handle payment of the delinquent payroll taxes. Instead, the Debtor argues that she "simply indicated that she would try and facilitate their handling."
As explained by the District Court for the Northern District of Alabama, "the standard of responsibility is not rigid or formalistic; rather, in recognition of practical experience and economic realities, the standard is intended to identify those persons who have significant authority over the management of the corporation on a day-to-day basis."
The Debtor's argument is not compelling because more than one person may be a responsible party for purpose of Alabama's 100 percent penalty statue. "If a person was responsible for paying the corporation's taxes, it is irrelevant that other individuals were equally or even more responsible for the taxes."
Under the circumstances of this case, the Court finds pursuant to ALA. CODE §§ 40-29-72, 40-29-73(a) that the Debtor is a responsible party for the unpaid withholding tax liability of Hoyt Harris, Inc. for the quarters ending December 2013 through June 2014 and September 2014. The Debtor had the duty, status, and authority to pay the taxes in question. She knew that taxes were owed, but other creditors were paid in lieu of thereof.
Based upon the forgoing, the Court finds that the notice provided to the Debtor was in compliance with ALA. CODE § 40-2A-7(b)(4) and that the Debtor is a responsible party for the tax periods at issue under Alabama law. The Court will enter a separate Order consistent with this Memorandum Opinion overruling the Debtor's Objections to Proofs of Claim #1 and #3.
