The 'Guilt by Association' Case

http://www.ustaxcourt.gov/InOpHistoric/PerrinMemo.TCM.WPD.pdf

1/18/12

The IRS was able to assess a company’s in-house accountant who was NOT an owner for the unpaid payroll taxes of the company because he; (1) had signature authority on the bank account, (2) signed payroll checks, (3) signed the employment tax returns, and (4) signed checks in payment to other creditors while the employment taxes for those periods remained unpaid. The owner of the company maintained a lavish lifestyle for some period of time but eventually faces bankruptcy and prison and therefore seemed permanently incapable of paying the taxes. The accountant met the definition of a responsible party and therefore could be required to pay them even though he did NOT personally financially benefit and the IRS believed that he was only following the instructions of his employer in order to preserve his job.

Take aways

• The law is clear that any responsible party may be held liable for unpaid payroll taxes. Whenever possible, refuse to be a signed on payroll checks and/or reports for entities you do not own.

• The trust fund penalty amounts to the FICA taxes withheld from employee pay plus related fines. These monies are considered held in trust.

• This is why, even though it may seem cold-hearted, we disengage from clients who we know are not paying their payroll taxes unless they are pursuing/adhering to a payment plan and paying their current patrol taxes in a timely manner.