In a recent decision, the New Jersey Tax Court reaffirmed the Division of Taxation’s authority to hold corporate officers personally liable for sales and use tax liabilities—even when procedural arguments are raised. Martin D. Hauptman, Esq., Partner in Mandelbaum Barrett PC’s Tax, Trusts, and Estates Practice Group, notes that this ruling reinforces the importance of corporate compliance, proactive tax practices, and individual accountability when it comes to navigating the audit process.
Audit Dispute Fails Without Post-Audit Conference
The case, Patyrak and N.Y. Thymes & Deli, Inc. v. Director, Div. of Taxation, involved a New Jersey corporation with a substantial sales and use tax liability. After the business filed for bankruptcy, the Division of Taxation shifted its collection efforts toward the corporate officer, citing New Jersey’s “responsible person” statute, which allows the Division to hold certain individuals accountable for unpaid corporate taxes. The officer contested the assessment, arguing that the Division failed to conduct a post-audit conference, thereby rendering the assessment incomplete or invalid.
He claimed that neither he nor the corporation had been offered the opportunity to contest the audit results in a conference, therefore the tax assessment should not be enforceable against him personally.
Court Finds Liability Was Properly Imposed
The Tax Court disagreed with the officer’s argument. While the court acknowledged the standard role of post-audit conferences, it emphasized that such conferences are not mandatory and that the absence of one—particularly when due to the taxpayer’s own inaction—does not invalidate an otherwise properly conducted audit.
In this case, the Division demonstrated that the corporation failed to respond to audit communications and was therefore responsible for the lack of a post-audit conference. Since the assessment had been finalized in accordance with established procedures and the corporate officer met the statutory requirements to be deemed a responsible party, the court upheld the assessment and collection action.
Broader Implications for Corporate Officers
This decision underscores how critically important it is for corporate officers to remain engaged throughout the tax audit process,even during periods of financial distress. Failing to respond to audit notices or relying on procedural defenses such as a missed conference can leave individuals vulnerable to personal liability. “Tax responsibility doesn’t disappear when the business closes its doors,” Hauptman explains. “If you’re a corporate officer or someone in a position of control, your involvement in the audit process—and your compliance with statutory obligations—can be the difference between shielding yourself from liability or bearing the financial burden of the corporation’s debts.”
Key Takeaway
Corporate officers should treat all audit-related correspondence with urgency and ensure proper representation during the audit process. While procedural steps like post-audit conferences can offer important opportunities to clarify or contest findings, they are not prerequisites for liability. This ruling serves as a strong reminder: legal responsibility can extend beyond the entity and attach personally to individuals in control, especially when tax debts go unpaid.
For more information on audits, you can reach Martin D. Hauptman at mhauptman@mblawfirm.com or 973-243-7912.