Call Me Irresponsible
Or not responsible – at least that’s what yet another corporate officer pled to IRS and the courts, when accused of not assuring that his company’s payroll taxes were timely funded.
Recall that the Internal Revenue code imposes a “trust fund recovery penalty” (for not seeing to it that payroll taxes withheld from employees are remitted) on any person who (a) is responsible for collecting, accounting for, and paying over payroll taxes; and who (b) willfully fails to perform this duty. The amount of the penalty is the amount of the tax which was not paid, and can often be a hefty hit.
In deciding whether an individual is a “responsible person,” courts consider factors including whether or not the bloke in question:
- Holds a corporate office
- Has check-signing authority
- Can hire and fire
- Manages the day-to-day operations
- Prepares payroll tax returns
- Signs financing contracts
- Determines financial policy
And “willfulness” involves a voluntary, conscious and intentional act to prefer other
creditors over Uncle Sam.
Apparently, such was the case with our taxpayer friend Fitz William Guerin in this case, whose responsibilities included supervising his company’s senior management and who, along with others, had the final say in company strategic direction. Unfortunately, our buddy Fitz ultimately became aware that the company had failed to make timely payments to IRS of federal withholding taxes and, nonetheless, continued to authorize payments to creditors other than the U.S. of A. – including payments to himself! A definite no-no.
The district court in this instance rejected Guerin’s assertion that IRS abused its discretion by failing to seek payment from others before pursuing him. “No dice” said the court. Even if there were others from whom IRS could have collected the unpaid trust fund taxes, our boy was still out of luck since there is no mandate levied upon IRS to pursue collection against every responsible person, or against the corporation itself, before attempting to collect from a responsible person.
Moral – don’t play games with payroll taxes. It makes your Uncle Sam’s hair catch fire.
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He can be reached at 831-7288, welcomes comments at firstname.lastname@example.org, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.