Who's Responsible for Payroll Taxes Now?

Question: I was the secretary of a masonry company that defaulted on its payroll taxes. First, they didn't file, and when they finally got around to filing, they took forever in paying the payroll taxes. Last year, the company (a corporation) dissolved. Here's the problem: I just got a letter from the IRS saying that I'm responsible for $50,000 worth of payroll taxes through a Civil Trust Fund Penalty. How am I responsible?

Answer:
I'm sorry to hear about your situation. You were a secretary at the office, and I suspect that you had check-writing powers in your office. Even having check-writing authority might be enough to make you liable for the unpaid employment taxes.

The thing that makes a Civil Trust Fund Penalty so onerous is that it can be assessed not just against a company that fails to pay employment taxes, but also against individuals at the company. Anyone at the company who collects or pays withheld income and employment taxes can be liable if that person willfully fails to collect or pay them. That means a company officer, an employee with withholding authority, even individuals with authority to disburse funds.

In other words, if you have check signing authority, even if you were just a secretary, you can be as liable as the president of the company. If you don't pay or appeal in a timely fashion, the IRS can and will impose liens and levies against you in an effort to collect.

The Civil Trust Fund Penalty

Every company with employees is required to withhold a portion of the employee's paycheck and to forward it to the IRS. The withheld portion is called employment or trust fund tax -- it's money withheld for income tax, social secuirty, and Medicare taxes which is held "in trust" by the employer until it's paid to the Treasury.

What happens when the company fails to withhold, account for or deposit the employment taxes? The IRS introduces a nightmare called the Civil Trust Fund Penalty. Also known as the 100 percent penalty or trust fund recovery penalty, the Civil Trust Fund Penalty is a mechanism which allows the IRS to impose penalties on the delayed payment.

What makes the Civil Trust Fund Penalty so onerous is that it can be assessed not only to the company, but to individual officers and employees of the company responsible for handling employment taxes. If you have employment tax issues, consult a professional as soon as possible.