Unremitted payroll taxes can result in personal liability
Article Abstract:
Sec. 6672 holds individuals personally liable for taxes held back by a corporation from the wages of employees or collected as an excise tax but not remitted to the government. This personal liability, called the trust fund recovery penalty or the 100% penalty, is applicable only to the trust fund amounts and does not include the employer's share of federal insurance contribution. A two-part test is used to determine if an individual is liable. The first part assesses if the person is responsible based on status, duty and authority. The second part looks at whether the person has acted willfully in not collecting and remitting the taxes. If the responsible person cannot be identified, the IRS usually picks on the president, secretary or treasurer. If payment cannot be made on due date, the partial payment should come with a written statement of request that the funds be applied first against the trust fund portion of a certain period.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1995
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Creditors, non-officers, and others may be liable for unpaid withheld taxes
Article Abstract:
Individual taxpayers are credited with federal income taxes that are withheld from their paychecks, even if their employers have not turned over the withheld sums to the government. Once the income taxes have been credited, the government will seek to collect those taxes, plus a 100 percent penalty, from any employer or individual who is responsible for payment and willfully refuses to do so. The case law in this area shows that 'responsibility' and 'willfulness' are very broadly interpreted by the courts to include any individual who has discretionary responsibility over the disbursement of funds. The responsible individual must be able to show that diligent efforts were made to pay the government, and that no other creditors were given preference over the government.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
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Planning to minimize exposure to the "100 percent penalty." (responsibility for withheld taxes)
Article Abstract:
Employees who are considered responsible persons by the IRS should actively work to avoid liability under IRC section 6672 for any deficiencies in the withholding tax funds. Some solvent businesses use withholding tax funds for cash flow but this can be disastrous for high-level employees who may find themselves personally responsible for the deficiencies should the business fail. However, approaching the IRS to arrange payments could trigger the liability and therefore full payment of deficiencies is necessary to remove liability.
Publication Name: Taxes: The Tax Magazine
Subject: Business
ISSN: 0040-0181
Year: 1995
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