How Can Businesses Get Into Payroll Tax Trouble?
Many business owners seek payroll tax relief, because they’ve failed to remit employee payroll withholding taxes (Form 941’s). This can put their companies in a position to be shut down by the IRS over payroll issues. The IRS actively collects on this type of tax far more aggressively than any other tax obligation.
The IRS believes that, as an employer, you have a fiduciary responsibility to collect income tax withholdings from your employees and remit them to the IRS on a quarterly basis. By your withholdings and remittances, your employees are also aided in meeting their own tax obligations. In essence, the IRS considers unremitted payroll taxes as theft from both your employees and the U.S. Treasury.
The Civil Trust Fund Recovery Penalty enables the IRS to focus its collection efforts against a member, deemed responsible for a delinquency, of a tax-owing company. The law that established this penalty also enables the IRS to pierce the corporate veil of a company and enforce collections against officers of the business individually. In fact, IRS collection activity can also be directed against non-officers, such as people who have signing authority on the company bank account.
Essentially, a “responsible party” is someone who makes or shares in the decision to use employee withholding taxes to pay bills other than payroll taxes owed to the IRS.