STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)

CORY WILSON, Employer

UNEMPLOYMENT INSURANCE CONTRIBUTION LIABILITY DECISION
Account No. 030318-7, Hearing No. S0600098MW


On June 7, 2006, the Department of Workforce Development issued an initial determination holding that the appellant was personally liable for $2,268.41 in unpaid unemployment taxes of the Carlton Corporation. The appellant timely requested hearing on the adverse determination, which was held on June 6, 2007. On June 8, 2007, a department administrative law judge issued an appeal tribunal decision affirming the initial determination of personal liability. The appellant timely petitioned for commission review of the adverse decision, and the matter now is ready for disposition.

Based upon the applicable law and the evidence in the case, and after consultation with the administrative law judge, the commission issues the following:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

At issue are unpaid unemployment tax contributions from the Carlton Corporation from the first quarter of 2000 through the first quarter of 2002 (excluding the second quarter of 2000 and the fourth quarter of 2001). During that time period the appellant was president of the corporation, an entity that provided juvenile mentoring services persuant to a contract with Milwaukee County. The majority concludes that the appellant is personally liable for the unpaid contributions, and so affirms the appeal tribunal's ultimate conclusion to that effect.

The appellant set up the corporation in 1998, using local government grant monies to provide tutoring and mentoring services to disadvantaged youth under a Milwaukee County social services program. The services were provided by approximately 20 individuals the appellant retained (mentors), whom he paid from grant funds. The appellant considered these individuals to be independent contractors, so the corporation paid no unemployment taxes on their remunerations, to the department.

At some point in 2000, the appellant turned over operations of the corporation to his mother and another woman, but continued some oversight of the corporation. The continuation of the corporation was short-lived; it was out of money by the spring of 2002 and ceased operations at that point.

The department audited the corporation on October 1, 2002, as a result of which the department reclassified the mentors as employees. On January 21, 2003, the department issued an initial determination to the corporation based upon its October 2002 audit. That determination was appealed, resulting in a December 8, 2004 appeal tribunal decision affirming the January 2003 initial determination that the mentors were employees and not independent contractors. As the corporation had no funds as of late 2002, the department initiated the instant personal liability proceedings against the appellant.

The relevant statute is Wis. Stat. § 108.22(9), which provides:

Any officer or employee holding at least 20% of the ownership interest of a corporation subject to this chapter, who has control or supervision of or responsibility for filing contribution reports or making payment of contributions, and who willfully fails to file such reports or to make such payments to the department, may be found personally liable for such amounts, including interest, tardy payments or filing fees, costs and other fees, in the event that after proper proceedings for the collection of such amounts, as provided in this chapter, the corporation is unable to pay such amounts to the department. The personal liability of such officer or employee as provided in this subsection survives dissolution, reorganization, bankruptcy, receivership, assignment for the benefit of creditors, judicially confirmed extension or composition, or any analogous situation of the corporation and shall be set forth in a determination or decision issued under s. 108.10.

Essentially, therefore, there are four requirements for holding one personally liable for a corporation's unpaid taxes: 1. at least 20 percent ownership interest in the corporation; 2. control or supervision of or responsibility for making tax payments; 3. wilful failure to make those payments; and 4. proper, unsuccessful proceedings by the department to collect the monies in question from the corporation itself. The majority concludes that all criteria are established.

There is no question as to the appellant's holding at least 20 percent ownership interest in the corporation. The appellant also was directly responsible for the finances of the corporation, at least through 2000, and continued to exercise oversight and some control of the finances even after turning over some operations of the corporation to his mother. The appellant thus meets the second requirement as well.

The third requirement is that the appellant have willfully failed to make the unemployment tax payments in question. The willfulness requirement is met if a responsible person acts with "a reckless disregard of a known risk that the [unemployment tax] funds have not been remitted to the government. Reckless disregard in this context is tantamount to gross negligence and is established if the responsible individual "(1) clearly ought to have known that (2) there was a grave risk that withholding taxes were not being paid and if (3) he [or she] was in a position to find out for certain very easily." U.S. v. Running, 7 F. 3rd 1293, 1298-99 (7th Cir. 1993). The appellant knew that the individuals providing mentoring services on behalf of the corporation were properly classified as employees and not as independent contractors, and that unemployment tax contributions were due on their remunerations. (1)   Further, if the appellant did not know, he should have. This is sufficient to satisfy the third criterion. There is no question, finally, but that the department first properly proceeded against the corporation for the unpaid taxes, to no avail.

The majority therefore finds that the appellant, during the time period at issue, had at least 20 percent ownership interest in the corporation, had control or supervision of or responsibility for making the tax payments at issue, and willfully failed to make those payments. The majority also finds that the department engaged in proper but unsuccessful proceedings to collect the payments from the corporation itself.

DECISION

The appeal tribunal decision is modified to accord with the foregoing and, as modified, is affirmed. Accordingly, the appellant is personally liable for delinquent unemployment taxes of the Carlton Corporation, in the amount of $2,268.41.

Dated and mailed March 13, 2008
wolsoco . srr : 105 : 1   ER 451

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

 


JAMES T. FLYNN, Chairperson, (dissenting):

There is no question but that the appellant had the requisite ownership interest in the corporation and responsibility for making any unemployment tax payments due. There also is no question as to the department's having made sufficient attempts to collect the monies in question from the corporation itself. Neither the evidence nor the administrative law judge's credibility assessment, however, allows a finding that the appellant's failure to pay the taxes was wilful.

When the appellant set up the corporation, he sought input from an attorney and an accountant, both of whom told the appellant he was properly categorizing the mentors as independent contractors and not as employees. The appellant testified, although without supporting documentation, that the individuals performing mentoring services were established as self-employed persons who bid out their services with different agencies in the Milwaukee area. The appellant believed that other corporations similar to his, and providing the same kinds of services, were not reporting those individuals to the department as employees. Finally, in the corporation's 1998 Wisconsin Employer Report, received by the department in December of 1998, the appellant listed the mentors as independent contractors. All of this evidence supports a finding that the appellant's treatment of the mentors as independent contractor and not as employees, was not a wilful disregard of the possibility that they in fact were employees (and not independent contractors). In fact, no evidence supports a finding of willfulness on the appellant's part. Nor do the administrative law judge's credibility impressions.

The administrative law judge found the appellant to be credible in some respects; the one respect in which he did not find the appellant credible had to do with the appellant's having left open the corporation's bank accounts allegedly for no reason, after the appellant's mother took over the corporation. The administrative law judge thought there must have been something in it for the appellant, and I do not disagree. That does not allow the jump the majority makes to a finding of reckless disregard or gross negligence with regard to the appellant's having initially listed the mentors as independent contractors, however. As to the latter issue, the administrative law judge indicated that it could be argued both ways; the administrative law judge ultimately concluded, however, that the appellant did not come across as sophisticated, that he likely did get the advice (from an attorney and an accountant) that he said he had, and that his categorization of the mentors as independent contractors rather than as employees was due more to a lack of sophistication and experience than to an intent to defraud the department.

Finally, in Wisconsin, because of the societal stigma associated with such matters as fraud and reckless disregard, proof of such must be by the so-called middle standard of proof, clear and convincing evidence. See Kuehn v. Kuehn, 11 Wis. 2d 15, 104 N.W.2d 138 (1960). And the commission has expressly so held. See In re Contribution Liability of Henry A. Warner, UI Dec. Hearing No. S9100679 (LIRC July 16, 1993), aff'd, Warner v. LIRC, Case No. 93-CV-3157 (Dane Cty. Cir. Ct. May 18, 1994).

Based upon the foregoing, I would find that the appellant's failure to have paid the unemployment taxes for the individuals performing mentoring services was not wilful and that the appellant thus is not personally liable therefor.


/s/ James T. Flynn, Chairperson

 


 

cc: Attorney Michael J. Mathis


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Footnotes:

(1)( Back ) The majority does not find credible the appellant's testimony regarding his having sought advice from an attorney and an accountant, and what that advice was.

 


uploaded 2008/03/17