In 2020, a court decision in Florida changed how tax penalties work for businesses. The case, VMOB, LLC v. Florida Department of Revenue, means that officers or directors of a company can be held personally responsible for the company’s tax debt. The court’s decision could be risky for taxpayers who don’t know about it. The issue in the case is how much the penalty is reduced when the tax is paid. Traditionally, the penalty was reduced in proportion to the amount of tax paid. For example, if a $100,000 tax is paid, the $200,000 penalty would be reduced by the same proportion. Both parties in the case argued about this interpretation. The Second District Court of Appeal in VMOB case ruled that for every $1 of tax paid, only $1 of penalty can be reduced, even though the statute language says otherwise. This means that a taxpayer facing a $200,000 penalty can only reduce it to $100,000 by paying the underlying tax. The case involved Ms. Bartlett, who argued that the penalty should be limited to twice the unpaid tax balance, but the court disagreed. Ms. Bartlett argued that she should only have to pay a penalty of $17,581.12 instead of $81,060.04 because of a specific law. She said that the penalty should decrease as the business pays off its tax debt. The tax department disagreed, saying the penalty should only go away when the tax debt is fully paid. But both sides agree that the penalty should decrease at a 1:2 ratio for every dollar the business pays. The only difference is when this should happen. The VMOB decision says that §213.29 allows for a 1:1 abatement ratio, instead of the 1:2 ratio that the parties argued for. The court had to decide how much money Ms. Bartlett had to pay for not paying her taxes on time. The court decided that she owed $81,060.04, but because her business had already paid $31,779.06, the amount she owed was reduced to $49,280.98. Ms. Bartlett and the tax department had different arguments about how much she owed, but the court said their arguments didn’t make sense. The court also said that the traditional way of interpreting the law, where the penalty is reduced by half of the amount paid, is the better way to understand the law. The court interpreted a law about tax penalties in a way that might not be what the law actually says. The law has been around since 1985, but in 1992, the penalty amount was increased without changing the abatement language. The court’s decision means that when a business pays its overdue taxes, the penalty is only reduced by the same amount as the taxes paid, instead of the entire penalty being eliminated like it used to be. This could be a big change in how the law works. The abatement provision in the tax law should work the same way before and after it was changed. If a business pays all of its taxes before a hearing, the owner shouldn’t have to pay a personal penalty. This is how it worked before, and it should still work this way. But under the new law, even if the business pays everything, the owner still has to pay half of the original penalty. This doesn’t make sense because it goes against how the provision has always worked. Plus, it’s important for the business to pay its taxes, so the penalty should be reduced as they pay. This is the best way to encourage businesses to pay their taxes.
The VMOB decision basically takes away a business owner’s incentive to avoid personal liability for unpaid taxes. Before a 1992 law change, a business owner could avoid personal liability by making sure the business paid its overdue taxes before a hearing. The law change didn’t change this intention, it just adjusted the penalty amount. So, the court’s interpretation of the law goes against what the law was originally meant to do. If you’re fighting a penalty from the tax department, you have two options: go to court or have a hearing with the Department of Administrative Hearings. Right now, the VMOB case decision affects everyone in Florida, and all courts and judges have to follow it unless another court decides differently. So, if you go to court, you might lose, but you can still appeal and hope for a different result. If you have a hearing instead, the judge has to follow the VMOB decision unless another court says otherwise. If someone wants to appeal a decision from a state agency, they can choose which district to file the appeal in. For example, if the appeal is about taxes, they may want to file in a district where the agencyâs headquarters is not located. There is a recent court decision that says the penalty for not paying taxes on time should be higher, but some lawyers think that decision is wrong. They expect there will be more legal fights about it in the future. So, lawyers need to be careful when helping their clients with tax problems. VMOB had a typo in their opinion about the amount owed, and there was a disagreement about how much was actually owed. The law says that the personal liability for unpaid taxes can be reduced if the tax is paid, but in this case, the tax had not been paid. Both sides argued for a 1:2 reduction in the amount owed. VMOB, LLC is appealing a decision from the Department of Revenue. They are arguing that the decision should be overturned because it conflicts with a previous decision from a higher court. The Department of Revenue argues that the previous decision does not apply in this case. VMOB hopes to win their case by taking it to a higher court, just like South Dakota did in a similar case. These are legal cases from Florida where courts are being asked to make decisions.
Source: https://www.floridabar.org/the-florida-bar-journal/tax-penalties-after-vmob-what-to-know-and-how-to-fight-back/
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