Your Liability for Corporate Taxes

I don't owe it, my corporation does!  

You may think that if you operate as a corporation that you don't have to worry about personal liability for corporate debts.  When it comes to  payroll taxes, think again!  Ditto with a lot of state taxes.  If you are the person working for a corporation who decides which bills get paid and which get put on the back burner, you will be held personally responsible for taxes withheld from others if they are not paid to IRS. 

If you are having a hard time staying afloat and the choice is paying a supplier demanding money now or a tax payment whose day of reckoning is weeks or months away, it is tempting to think, "We will have the money to pay the taxes by then."  It gets easier to do it again next week and the week after.  Suddenly IRS is in your office wanting it all!  Even if the corporation can pay, the combined penalties and interest charges for doing business this way are about double credit card rates. Rules for getting out of penalties don't apply.

When a corporation can't pay (We had extra costs on a job, a big customer went bankrupt, we thought business would pick up but it didn't) IRS doesn't care if your motives are pure or your luck was bad, it will still hand you a bill for the "Trust Fund Recovery Penalty."  This piggybacks the corporation's unpaid withholding taxes and is charged to the "responsible persons."  This is typically the president, secretary and treasurer or managing members of an LLC. 

The amount of the penalty can be huge. You can ordinarily count on about 20-percent of the gross payroll over several months. 

If you can decide what business bills are going to get paid and which ones aren't, you need to remember IRS will have its hand in your pocket for the next 10 years if taxes aren't paid.  If the penalty has already been assessed against you, lets talk about resolving it through an offer in compromise or installment agreement.

If you have an important sounding but hollow title and have to follow the somebody else's orders about what bills you pay, IRS will still be looking at you.  Protect yourself now by demanding your instructions in writing.  Or resign!  Write a fiery resignation letter and walk out the door!  Drastic problems call for drastic solutions.  I have had clients who should have done this but didn't and now are dealing with huge bills.  Don't join them!  If your company has run up an employment tax bill and you don't really have control, call to discuss strategies for protesting any proposed assessment. 

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Michael S. Cash, Enrolled Agent
Toll Free Phone (866) 711-9467