Personal Liability for Fraudulent Tax Evasion

An officer, manager or director of a corporation, association or limited liability company who takes an action or participates in a fraudulent scheme or plan to evade taxes can be held personally liable for tax evasion. This also applies to a partner of a partnership and a managing general partner of a limited partnership or limited liability partnership. See Tax Code Section 111.0611.

The liability is for taxes, penalties and interest due from the business entity, including an additional 50 percent penalty for fraud provided in Section 111.061.

Actions that may indicate a fraudulent plan to evade taxes include:

  • filing, or causing to be filed, a fraudulent tax return or report with the Comptroller on behalf of the business entity;
  • intentionally failing to file a tax return, report or other required document with the Comptroller when the business entity is under legal obligation to file;
  • filing, or causing to be filed, a tax return or report with the Comptroller on behalf of the business entity that contains an intentionally false statement that results in the amount of tax due exceeding the amount of tax reported by 25 percent or more; and
  • altering, destroying or concealing any record, document or thing, presenting to the Comptroller any altered or fraudulent record, document or thing or otherwise engaging in fraudulent conduct with the intent to affect the course or outcome of a Comptroller audit or investigation, a redetermination hearing or other proceeding involving the Comptroller.

In Hearing No. 105,113, the member and manager of a limited liability company was assessed liability for fraudulent tax evasion under Section 111.0611. The personal liability stemmed from a mixed beverage gross receipts tax audit that found the manager’s company had grossly underreported the amount of tax due. Records presented showed that the manager prepared and signed the mixed beverage gross receipts tax returns and remittances, ordered and paid for the bar’s expenses and taxable inventory, accepted and signed for the inventory and made deposits.

Due to the manager’s involvement in the day-to-day operations of the bar and the underreporting of mixed beverage gross receipts tax, the Comptroller held that the manager filed the tax returns as part of a fraudulent scheme or plan to evade the payment of taxes due.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1208.html