J. Nold Midyette



The Taxpayer and his wife formed a New Mexico limited liability company (LLC) to sublease restaurant space in Santa Fe, New Mexico.  The Taxpayer intended to further sublease the space to a third party, but could not obtain the landlord’s consent.  The Taxpayer then decided to have his LLC operate the restaurant.  He delegated the running of the restaurant to a manager, with the verbal understanding that once there were sufficient profits to cover the Taxpayer’s investment, ownership of the LLC would be transferred to the manager.  The Taxpayer and the manager both had signature authority over the LLC’s bank account.  While the Taxpayer was not involved in daily operations, he instructed the restaurant’s bookkeeper to notify him of any tax problems.  He also directed the bookkeeper to provide his accountant with financial information concerning the restaurant’s income and expenses; this information was then used to prepare the LLC’s tax returns.  At some point, the bookkeeper notified the Taxpayer that notices were arriving from the IRS.  A few months later, the manager closed the restaurant, leaving the LLC with substantial past-due tax liabilities.  The Taxpayer notified the Department of the closure and was assessed for unpaid withholding taxes in his individual capacity.  The Taxpayer protested, arguing that he did not have control over the restaurant’s operations and was not the employer.  Based on the Taxpayer’s status as owner and managing member of the LLC, his signature authority over the LLC’s bank account, his exercise of authority over the LLC’s bookkeeper, and his signature on tax returns and other documents related to the business, the Hearing Officer found that the Taxpayer was individually liable for the LLC’s delinquent withholding taxes.  Protest denied.