“Ask Your Attorney” Column

About Being Responsible For Business Payroll Taxes

Dear Counselor: Although I have only a very small (2%) ownership interest in the business I work for, the majority owners made me an Assistant Treasurer, and I make out the payroll checks. Now I find out the business is having financial trouble, and the withholding taxes haven’t been paid. Will the IRS come after me?

Dear Client: In a just and perfect world, no — not unless you intentionally diverted the withholding taxes to yourself. However, in the real world, whether you are a 2% owner, or a 92% owner, if you are an officer, and have the responsibility to make out and sign the payroll checks, then it is likely that the IRS will look long and hard at you to see if you can personally be held responsible for making up the unpaid withholding taxes, and also for penalties for failing to see to it that they were paid. If a corporation fails to pay withholding tax, or the employer’s portion of social security, the IRS can come after directors, officers and/or other people who are responsible for paying in such amounts and filing the necessary returns (regardless of who owns the business). Having been given the authority to sign checks is one of the first things the IRS is going to look at. So, it might be great for your ego to have been named an Assistant Treasurer, and for you to be able to say you have check signing authority, but with the title comes the responsibility to see to it that business taxes are paid.

You need to come in to discuss this with me right away to see what can be done before the IRS agent “comes a knocking.”

John L. Maier, Jr.