There are many Canadian companies that have been doing business in the US for years and never reported their sales or service activities to the federal or state governments.  Very few are completely oblivious to the requirements.  However, the majority are aware that they need to, at the very least, do something.  Instead they sit quietly, hoping they won’t get caught, not wanting to “open a can of worms” that may turn into endless, expensive reporting.

As US tax preparers we are frequently asked in the context of risk is whether officers have personal liability for a company’s tax obligations when remittance is not made.  The answer to this is “YES”.  States do not “discriminate” from imposition of various procedures to levy taxes, including assessing personal judgements against owners, directors, officers, partners or even employees of an entity

A recent New York State case is a reminder that officers can be held personally liable for their company’s unpaid taxes.  In Matter of Martin M. Hopwood Jr. DTA Nos. 825756 and 825757, et al. (NYS Tax App. Trib., Aug 3, 2012), the petitioner, Mr. Hopwood Jr., became CFO of the family-owned corporation after serving as legal counsel for years.  56% of the company’s stock was equally divided between him and his older brother, the company’s President, with a lesser portion allocated to other family members.  When a large multimillion dollar contract went awry in 2008, the business hit hard times when their invoices went unpaid and the costs for the work proved to be extremely underestimated.   The brother, the President, left the business and the petitioner stepped into the vacant seat to try to save it.

Additional factors from the project further drove costs up, complicating paying debts.  Contractual requirements forced the company to hire workers from a subcontractor who abused the overtime billing system. To save the business, Mr. Hopwood Jr. claimed to have invested close to $2,000,000 of his own money.  However, in April 2009, the company filed for bankruptcy protection while drawing up a suit against the project manager and the subcontractor for fraud, breach of contract and several other actions.

In 2012, a notice of deficiency asserting withholding tax penalties and a notice of determination for unpaid sales and use tax were issued to the petitioner as the party responsible for collection and remittance of the company’s taxes.  Both notices were then sustained in the court by an Administrative Law Judge in the fall of 2015.  In early 2017, the Tax Appeals Tribunal upheld the ruling based on NYS tax law 1133(a) which states “every person required to collect any tax imposed by this article shall be personally liable for the tax imposed, collected or required to be collected…”  The provision further clarifies that such person can be “an officer, director or employee of a corporation or of a dissolved corporation, any employee of a partnership or any employee of an individual proprietorship who as such officer, director or employee is under a duty to act for the corporation, partnership or individual proprietorship in complying with any requirement of this article; and any member of the partnership.”  As a former CFO and a new President, the petitioner was the person required to collect and remit taxes for the business.  It was determined that he had been signing corporate tax returns for the period leading up to and during the bankruptcy filing thereby taking responsibility.

To further support their position, the Tribunal cited Matter of Constantino (NYS Tax App. Trib. Sept. 27, 1990) to assert that the petitioner had sufficient authority and control over the corporation’s affairs while receiving significant economic benefit.  At this point, Mr. Hopwood Jr. chose not to give testimony but referred to records from a prior hearing which challenged the “responsible person” status.  The case presented earlier had placed the onus for lack of payment on financial hardship first and foremost.  Ultimately, the Tribunal found nothing in the records to release him from his responsibility.

This case serves as a warning that even if your business hits hard times, state tax authorities will still hold you liable for corporate tax obligations.



Tax Reform


US Tax and Reporting Obligations – How They Stand Today

Every year, Americans abroad pay thousands of dollars to file taxes in two or more countries which apply tax treaties that will often (but not always!) offset any balance of US taxes due.   While accountants make money from obliging expats and IRS agents review returns that generally add little to the coffers that pay them, US citizens living outside of the states must contend with an overwhelming amount of compliance, as well as detailed and punitive foreign reporting.  Sadly, we now know that any relevant relief for American emigrants has been overlooked by both of the tax reforms bills recently passed in Congress.

Residency-Based Taxation Recommendation – Simpler or More Complex?

Groups representing US citizens living and working abroad have reached out to both the House and the Senate and received resounding support with promises that work is underway.  However, to the contrary, the recently passed House and Senate tax bills only offer US corporations a territorial tax policy exempting them from taxation on their foreign-sourced income.  Relief for American individuals who live and work abroad does not appear forthcoming.

A recommendation put forth by the American Citizens Abroad (ACA) on behalf of American expatriates recommended a residency-based taxation (RBT) policy. This would contrast with the existing citizen-based taxation (CBT) rules which affects world-wide income for all US citizens, irrespective of residency.  The suggested policy would exempt the foreign income for Americans who truly qualify as residents of a foreign country.  The test for an American to be a “qualified individual” is set forth in section 911 of the Internal Revenue Code (IRC).  It considers whether the person is a bona fide resident of a foreign country for at least one full uninterrupted tax year regardless of employment status. The bona fide residence (BFR) test as set out in the IRC is determined on a case-by-case basis.  Factors to consider include, intention of the trip, nature and length of stay abroad, whether you are maintaining a home in the US, where your family is residing, among other factors.

A detailed side-by-side comparison of the proposed RBT versus the current law, first published in December of 2016, can be read at  It highlights the basic tax-neutrality for US tax revenues from foreign-sourced income, which is essential for Congressional consideration.  The RBT policy does not recommend any changes to US source income or gains from sales of US real property, which would continue to be taxable for federal income tax purposes.  It would also not apply to US armed services or diplomatic corps stationed abroad.

Special rules and definitions set out in existing bilateral tax treaties would still apply to those living in certain countries. In addition, lucky residents of nations deemed tax havens would still be eligible for the RBT.  Individuals would have the ability to “opt out” of the RBT prior to relocating should the net tax result work against them.  This might be an option for someone who would be frequently traveling back to the US and have no interest in “day counting”.  Or perhaps a person who has an estate in the US that would be better served under the current CBT would consider the opt out.

Simplification of Tax Regime through Additional New Taxes

The ACA’s proposal goes further to suggest any real losses to tax revenue could be mitigated by imposing a departure tax on Americans newly relocating but whose plan is to be abroad short term.  The minimum threshold for triggering the departure tax could be set relatively high so as not to be punitive.  Those Americans making a permanent or long-term move would meet the criteria for the RBT program while those who are currently abroad and show they are “qualified” would have the new policy automatically apply. This suggestion would ultimately shift the tax burden to the ultra-rich who leave stateside to avoid US taxation rather than impede average Americans from pursuing opportunities.

When a Citizen Taxpayer is Not a Priority

As it stands, the bulk of the tax reform is aimed at simplifying an incredibly chaotic tax system and aiding American multinational corporations in hopes of stimulating domestic job creation.  This clearly leaves most of the bills’ advantages for US citizens stateside.  For those of us living and working abroad, it looks like our relief is still just a hope in the future.