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Tribunal Holds that Bankruptcy Does Not Discharge Officer's Personal Liability for Unpaid Taxes

Certain officers may be personally liable for the unpaid taxes of a Michigan business.  MCL 205.27a(5) imposes personal liability on those officers with tax paying responsibilities if a business fails to file a return or pay a tax due. As a general matter, an officer has "tax paying responsibilities" if he signs returns, files returns, or has the power to direct others to file returns or pay taxes.

The Michigan Tax Tribunal recently considered the interplay between officer personal liability (under MCL 205.27a(5)) and personal bankruptcy.  In Henderson v. Department of Treasury, MTT 431375, the petitioner was a manager of a LLC.  The Department of Treasury argued that the petitioner was personally liable for the LLC's unpaid Single Business Taxes.  The petitioner argued that the officer liability assessment was discharged by his filing of a personal bankruptcy petition and subsequent discharge of debts.

The Tribunal noted that certain taxes (e.g., excise taxes and taxes based on income) are not dischargeable if they arose within 3 years of the bankruptcy petition filing.  The Tribunal, citing a recent case from federal District Court, held that the SBT was an excise tax.  Therefore, the officer liability assessment was not dischargeable because the tax arose within 3 years of the bankruptcy filing.

Categories: Corporate Income Tax

Photo of Nicholas M. Oertel

focuses his practice in the areas of Michigan non-property tax disputes, business entity selection, corporate transactions, and information technology.

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