Personal Liability of Employers for Failing to Pay IRS Taxes on Payroll

Maine Chipco International, a poker chip manufacturer in the United States, was recently found guilty of tax evasion for its failure to pay withholding taxes to the IRS. Its CEO was sentenced to 10 months in jail after the court considered evidence showing that the company allegedly used funds that were withheld from employees to pay various expenses, including the CEO’s own mortgage, legal fees, and other personal expenses.

This decision serves as a reminder to company officers of their exposure to liability for unpaid company taxes, even if they claim lack of knowledge or actual participation in the IRS tax violation.

Liability of Owners and Officers for Unpaid Taxes

Federal law requires employers to withhold certain amounts such as social security, and medicare tax from their employees’ salaries at the time salaries are paid to the employees. The withheld taxes are held in trust by the employer, to be remitted to the IRS at specified periods. As funds that are held in trust, these may not be used for other purposes.

When the IRS discovers a shortage in the amount paid as payroll tax, it may pursue all responsible persons who have ownership or signing authority over the company and its payables. And business owners and other responsible officers may have personal liability for the company’s failure to pay payroll taxes.

The IRS can pursue the employer and other responsible officers of the company through a Trust Fund Recovery Assessment which is equivalent to a 100% penalty on the unpaid taxes. Other penalties that the IRS can impose on the company include business closure and criminal penalties.

The poker chip CEO’s conviction arose from a Maine state case, but the IRS pursues similar cases of non-payment of payroll taxes.

Why You Need an IRS Tax Lawyer

The IRS Code is a collection of complex rules contained in thousands of pages of legal jargon which provide the legal foundation for taxpayer remedies. If you have received a notice from the IRS on your company’s alleged failure to deposit withheld payroll taxes, an IRS tax lawyer can help protect your business using knowledge and experience of complex tax rules and procedures.

In Tyler and the East Texas area, the law firm of Scott Scammahorn has close to two decades of tax litigation experience, helping businesses resolve their IRS problems which include IRS tax liens and levies, tax litigation, offers in compromise, and payment plans.

We welcome your call at (903) 595-1000 to discuss your IRS legal issues.