Dino Marcaccio
President
Former Texas Comptroller State Tax Auditor
Section 111.0611: Personal Liability for Fraudulent Tax Evasion
I prefer to call it the ‘Personal Officer Fraud’ Tax Code Section. Either way, you have probably never heard of this tax law unless you or your client has received some type Texas Comptroller Notification usually based on a Sales Tax or Liquor Tax audit assessment. These assessments are absolutely deadly and very often result in liens on officers’ homes and if not paid, a personal lawsuit by the Texas Attorney General’s Office on behalf of the Texas Comptroller’s Office. I personally believe that over 50% of these assessments have little to no legal basis and often can be challenged and BEAT.
Tax Code Section 111.0611 allows the Comptroller to: (1) add a 50% Fraud Penalty to any qualified (their definition) audit assessment and (2) personally assign to entire liability (tax, penalties, interest) to any officer(s). By definition, a 50% Fraud Penalty is applied to the tax assessed if the tax assessed (or even estimated) is more than 25% of the total tax due (tax reported + tax assessed or estimated).
That is, if what they assess in tax (numerator) is more than what they say you should have paid in tax (denominator) then you get hit with another 50% Fraud Penalty and the officer(s) receive a ‘Texas Notification of Personal Liability for Fraudulent Tax Evasion’. On that date the Comptroller normally registers that personal fraudulent tax liability in the county you live and do business in and almost always files a tax lien on any real property you own (INCLUDING YOUR HOME).
Nearly 7 years ago, 111.0611 ‘Personal Officer Fraud’ assessments were rarely applied. They just didn’t happen often because the Texas Comptroller had to PROVE that the officer(s) intended to commit fraud and have clear evidence of the ‘tax collected and not remitted’. But things changed dramatically when Susan Combs was elected in 2007. By the end of 2008 I began to see 111.0611 assessments being assigned to many estimated audits and now they are being generated much more often. But not is all lost. The pendulum is beginning to swing in the other direction. I would refer to you a recent 2015 Fraud Sales Tax Administrative Hearing case – CPA HEARING NO. 111,012. In this case the business owner won and the judge threw out the 50% Penalty and the personal assessment.
But beware. These assessments are not easy to defeat. In addition, what constitutes enough evidence to assess a 111.0611 is still not CLEAR, and each case seems to be judged on its own merits. Unfortunately, judges often don’t set the bar very high as far as allowing the Comptroller attorney to meet their initial burden of proof.
Usually what matters to most judges is which side was better prepared to argue their case in court. Although the Comptroller’s attorneys are supposed to have the initial burden of proof this is DEFINITELY not always the case. In this particular case (CPA Hearing Number 111,012) the judge decided to advocate for the TP and throw out the Fraud assessment even though the taxpayer provided little to no defensive arguments and/or evidence. But this rarely happens. Often the business owner (or representative) loses because the judges initially allow the 111.0611 assessment and the business owner is left fighting an uphill battle in Administrative Hearings court and possibly later in Texas District Court if it goes that far. All I can say is hire an experienced consultant who has WON these types of cases before and fasten your seat belt.
