An attorney was recently held liable for the tax debts of his defunct PC, in which he served as the sole officer and director. In Jeff Kaiser, PC v. State, Kaiser operated his law practice as a professional corporation (“PC”) until 2003, when he forfeited its business privileges by failing to file Texas franchise tax reports. He was the sole officer and director of the PC. After 2003, he filed for Chapter 7 bankruptcy and continued to practice law as a sole proprietorship. In 2008, during his bankruptcy proceedings, Kaiser filed franchise tax reports for the defunct PC for report years 2004-2008 reporting income from his solo law practice after the PC’s charter was forfeited. In 2013, the state filed suit to collect the franchise tax owed from 2004-2008. Shortly after, the state filed a lien solely for the 2004 report period.
Kaiser argued that it is unconstitutional for the state to impose liability on a natural person for income through a defunct corporate entity because it violated his right to due process, equal protection, and substantive due process. Kaiser further argued that the tax code imposes a four year statute of limitations to record a lien before the Comptroller can bring a collection action.
The Third Court of appeals rejected these arguments. The Court held that Kaiser’s obligation to pay the taxes does not arise from the Comptroller’s ‘assessment’ of tax, but rather, the obligation is imposed by the state and written into the tax code. Further, even if Kaiser is correct that a lien must be recorded within the 4-year time period for making an assessment, his bankruptcy proceedings were still pending at the time the franchise tax reports were filed. This tolled the limitations period for the Comptroller to make an additional assessment until 2013, which made the lien recording timely.
The Texas Supreme Court denied review of this case.