Bursting Bubbles: Evidentiary Presumptions in Personal Liability Assessments.

Author:Hogan, Steven M.
Position:Tax Law
 
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One of the scariest things that can happen to a business owner in Florida is to receive a Notice of Assessment: Personal Liability from the Florida Department of Revenue. These notices are sent when the department believes it has enough evidence to hold an officer or director of a company personally responsible for the company's tax liability.

The personal liability assessment is authorized by F.S. [section]213.29. The penalty amount must be "equal to twice the total amount of the tax evaded or not accounted for or paid over." Because of this, the penalty acts as a "doubling" of the tax amount at issue. The penalty will be abated to the extent that the underlying tax is paid. (1)

Section 213.29 also grants the department a presumption that it is correct in personally assessing this double penalty. The statute states that "[a]n assessment of penalty made pursuant to this section shall be deemed prima facie correct in anyjudicial or quasi-judicial proceeding brought to collect this penalty." (2)

But what does this presumption mean? How does it affect the burden of proof when the business owner challenges the penalty assessment? Surprisingly, this issue has not been authoritatively addressed by a court of law. This article argues that the presumption under [section]213.29 is properly viewed as a "bursting-bubble" evidentiary presumption. The author invites counter arguments and further commentary on this important issue.

Personal Liability Assessments Under [section]213.29

Personal liability assessments are a way for the department to personally assess a business entity's tax liability against an officer or director of the entity. To impose this assessment, the department must establish that the officer or director of the business entity has "willfully" taken action to evade Florida's tax laws. (3)

The "willfulness" requirement means that the department must establish, as a matter of fact, that the officer or director against which the assessment is imposed has "willfully [directed] any employee of the corporation to fail to collect or pay over, evade, defeat, or truthfully account for" taxes that are due under F.S. Ch. 201 (documentary stamp tax), Ch. 206 (fuel tax), or Ch. 212 (sales and use tax). (4)

In this way, the "willfulness" requirement is akin to mens rea in the criminal context, or the "intent" prong of a fraud claim. In these types of situations, the intent of the accused is what matters. Without evidence of intent--the "willfulness" in evading tax--the penalty cannot be applied.

The question is how the department can prove that an officer or director of a corporate taxpayer has acted with the "willfulness" necessary to trigger a personal liability assessment under [section]213.29. The answer is found in the presumption created by the statute.

The Rebuttable "Prima Facie Correct" Presumption

When the department imposes a personal liability assessment under [section]213.29, the statute provides that the assessment "shall be deemed prima facie correct in any judicial or quasijudicial proceeding brought to collect [the] penalty." (5)

To examine the effects of the phrase "prima facie correct" in [section]213.29, we must first determine if the words create an evidentiary presumption. We must then determine whether the presumption is rebuttable.

Under the Florida Evidence Code, an evidentiary presumption is "an assumption of fact which the law makes from the existence of another fact or group of facts found or otherwise established." (6) The "prima facie correct" language in [section]213.29 is being used in precisely this way: It creates an assumption of fact that a business entity's officer or director has acted willfully in evading the tax at issue. This assumption requires one to assume that the officer or director has acted willfully, thereby making the assessment "correct."

Because of this, we can conclude that the "prima facie correct" language in [section]213.29 creates an evidentiary presumption. But is this evidentiary presumption rebuttable?

The Florida Evidence Code provides the answer. According to the code, all evidentiary presumptions are rebuttable "[e]xcept for presumptions that are conclusive under the law from which they arise." (7) The next question is whether the prima facie correct presumption arising from [section]213.29 is conclusive under the terms of the statute.

The term...

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