David W. Hanson, Tax Practitioner, Owner of Liability for Payroll Taxes

This is to remind business owners of the importance of paying  over to the IRS taxes that are withheld from your employees' wages.  Officer/owners of businesses are the first person the IRS will look to,  to collect any unpaid withholdings. I cannot emphasize enough this point:  If  found to be the person responsible for withholding, collecting, and paying  these taxes over to the IRS, you will be personally liable for any nonpayment  which is considered to be willful. This means that you will have to pay the  taxes out of your own pocket. Let me explain.
Under the system established for withholding taxes, your employees are  credited for any taxes withheld from their wages. Your company is deemed to  hold the withheld taxes "in trust" for the federal government. This is why  withholding taxes are referred to as "trust fund taxes." Often times,  businesses that experience financial troubles will use taxes withheld from  employees' wages to pay creditors and suppliers, in order to keep the business  afloat during the troubled times.  However, if the business eventually fails,  the employees are not liable for the unpaid taxes, and the business probably  doesn't have sufficient funds to satisfy the trust fund tax liability.
By enacting Section 6672 of the Internal  Revenue Code, Congress made sure that the government would have the means to  recover trust fund taxes if, for whatever reason, they are not paid. Section  6672 imposes personal liability on any person who  is required to collect, truthfully account for, and pay over trust fund taxes  but who willfully fails to do so. In the past, this has been referred to as  the "100% Penalty" because the amount of liability is equal to 100% of the  taxes withheld from the employees' wages. More recently, the IRS calls this  the "Trust Fund Recovery Penalty."
Lets look at the elements for liability under Section  6672.  First, to be liable, a person must be a  "responsible person." There is no one factor that makes an individual a  responsible person. Generally, a responsible person is the one who has the  power and authority to control the business' decision making process regarding  the payment of creditors. In most cases, the IRS looks to officers and owners  of a business as responsible persons because they are the ones who make the  decision concerning which creditors to pay and which ones not to pay. Courts  have found stockholders, directors, managers, bookkeepers, and people outside  the business to be responsible persons because they had the ultimate authority over  the disbursements of the business' funds. More than one person can be held  liable, too.
Still, there is a second element without which a responsible person  is not liable for the Section 6672 penalty:   Willfulness. Willfulness does not mean that there is some bad motive or  intent. Rather, for these purposes, willfulness can be established if there  is evidence that the responsible person(s) knew that payments were being made  to other creditors or suppliers at a time when withheld taxes were not being  paid to the IRS. In some cases, the responsible person does not actually have  to be aware that the taxes are not being paid if there is a history of  nonpayment of trust fund taxes at times of financial crisis. 
You can see from this brief discussion that it is not difficult for  the IRS to impose personal liability for unpaid trust fund taxes on the person  responsible for making the financial decisions in a business. Moreover, this  liability never goes away. For instance, it would survive a personal  bankruptcy. We hope that your business will continue to enjoy its  success.  In the event things become rocky, it is important to place the payment for payroll taxes as a high priority, due to these personal liability issues.

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