California OTA Opinion: Personal Liability for Corporate Tax Obligations

by | Mar 11, 2025 | State and Local, Tax News | 0 comments

The California OTA held Reynaldo T. Monzon liable for over $20,000 in unpaid sales tax, despite his claim of not being an officer, highlighting personal liability for corporate tax obligations.

The California Office of Tax Appeals (OTA) issued an opinion on March 3, 2025, holding Reynaldo T. Monzon (appellant) personally liable for the unpaid sales tax liabilities of Prestige SNJ Xpress Auto Body of Lake Forest Inc. Monzon, who acted as the de facto CFO, was found responsible for over $20,000 in sales tax, interest, and penalties for the period of 2017-2018, despite the company closing in 2019.

Monzon’s argued that he was not an officer of the business because the corporation took no action to provide him with related authority.  Thus, appellant argued that he was not actually the CFO. 

This argument failed the burden of proof test undertaken by the OTA. Consequently, the court ruled against Monzon, citing his actions and responsibilities that indicated otherwise.

Numerous factors led to this appellate opinion, including:

  1. Prestige Lake Forest operated an auto body repair business in Lake Forest, California, and closed in February 2019.
  2. Monzon filed the seller’s permit application and was listed as the corporation’s treasurer and contact person for books and records and business activities.
  3. Monzon signed documents as CFO and filed sales and use tax returns for the liability period.
  4. Monzon made electronic payments for the business’s tax liabilities.
  5. Monzon communicated with the CDTFA regarding the business’s sales tax compliance and payment plans.
  6. Monzon completed a Business Operations Questionnaire, identifying himself as “Accounting/CFO.”
  7. CDTFA determined Monzon was personally responsible under R&TC section 6829 for the unpaid sales tax liabilities.

R&TC section 6829 outlines the conditions under which a person can be held personally liable for a corporation’s unpaid taxes. The OTA found that Monzon met these conditions, as he was involved in the filing of returns, making payments, and communicating with tax authorities. Despite Monzon’s claim that he lacked authority and was merely an associate, the evidence showed he acted as the de facto CFO, making him responsible for the unpaid taxes.

The court’s ruling emphasizes that individuals who hold themselves out as officers and engage in executive functions can be held personally liable for corporate tax obligations. Monzon’s case serves as a reminder of the potential legal and financial consequences of assuming such roles without ensuring compliance with tax obligations.

Takeaway

Individuals who assume executive roles and responsibilities within a corporation, even without formal titles or check-signing authority, can be held personally liable for the company’s tax liabilities. It is crucial to understand the implications of one’s actions and ensure compliance with tax obligations to avoid personal liability.

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