For a business owner, the payment of taxes is an unpleasant reality. Your business may face many taxes; income tax, property tax, special business taxes and payroll taxes. To many, they are all taxes, but to the Internal Revenue Service, payroll taxes are of special merit.
This is because the collection of payroll taxes is different. Payroll taxes, or the FICA withholding on your employees paycheck, are held in trust for the various programs under Social Security and Medicaid. As an employer, you hold them in trust for your employees prior to payment to the IRS, and because of this, the IRS treats you as a fiduciary.
When an employer fails to make these payments of withheld funds to the IRS, the sanctions can be severe. What may be disturbing is that anyone within the business deemed to be a “responsible person” can be held 100 percent liable for the shortfall.
The IRS will aggressively pursue all responsible persons, even those who typically may have no dealings with the payment of these taxes, and each one can be held accountable for the full amount of the delinquent withholding.
In a recent case, a CEO was held personally liable for the nonpayment of $6.8 million in payroll taxes and criminally prosecuted. His case was egregious because he divert the money for lavish personal spending. He could be sentenced to five years in prison and his plea agreement will require the repayment of $10 million dollars in restitution.
If you own or work for a business in a position that could be found by the IRS to make you a “responsible person” you should speak with a tax attorney and learn what can be done to prevent this type of catastrophic prosecution from happening to you.
Source: forbe.com, “CEO Faces 5 Years For Spending $6.8M Withheld IRS Employment Taxes,” Robert W. Wood, March 29, 2016