Delinquent payroll taxes mean tough penalties

Each week, your employees fill out time sheets, punch the clock or log in to record the hours they work. You or someone you hired keeps track of those hours, calculates the pay for each employee and issues a weekly check or deposit for the total amount, minus payroll taxes. The person responsible for managing payroll then submits the payroll taxes to the Internal Revenue Service. At least, that’s what is supposed to happen.

Failing to give the IRS the payroll taxes your company has withheld from employees is one of the most serious violations of tax law in the government’s eyes. In fact, if the IRS determines that you are responsible for the violation, they have the authority to fine you 100 percent of the taxes owed. Such fines could seriously jeopardize your business.

Where does the responsibility lie?

The key to an IRS investigation into unlawfully retained payroll taxes is the determination of two factors:

• Who is responsible for collecting payroll taxes and submitting them to the IRS?
• Did that responsible person purposely and deliberately retain the money?

If you have check-signing authority, the IRS will not necessarily assume you are responsible for the failure to remit the payroll taxes. In fact, in some cases, someone higher up the chain of command may assign check-signing duties to cover his or her involvement in the illegal failure to remit the taxes. This doesn’t mean they won’t scrutinize your role in the business, but they will also look for other factors, such as:

• Are you an officer or director of the business?
• Do you own shares or otherwise have a financial interest in the company?
• Are you involved in the daily management of the business?
• Is it your responsibility to hire and fire employees?
• Do you have authority over paying bills, including taxes, and when the company pays them?
• Are bank accounts and financial records under your control?

If you answered yes to any of these questions, there still might be circumstances in which you are not the person responsible for failing to pay the taxes, such as if an outside party like an accountant managed this duty for you. Discussing those possibilities with your Ohio attorney may improve your chances with the IRS.

Fundamentally, if your business is having difficulty meeting its obligation to the IRS, you do have options. While the pressure you feel from this serious and overwhelming burden may leave you uncertain what to do, the guidance of an experienced advocate may help get your business back on track.