WHAT HAPPENS WHEN A CORPORATION DOES NOT PAY THEIR PAYROLL TAXES?

When a corporation has unpaid payroll taxes, those who are responsible for the payment of the tax will be held personally responsible for 100% of the employee share of the tax.  This is called Trust Fund Recovery Penalty.  A responsible person is defined as a person who (1) is aware of the payroll tax liability, (2) has the ability to pay the tax and (3) acted willfully not to pay, regardless of the reason.  This “Penalty” will be assessed when it is determined the corporation is either unwilling or unable to pay the tax. The person could either be an officer, board member or even the bookkeeper.

In most cases the IRS will assume all officers and board member are responsible persons [regardless of the facts and circumstances] and will automatically assess 100% of the trust fund penalty against each officer and board member.  Generally an officer or board member will need to go to court to show they are not a responsible person.  Except in bankruptcy proceedings, before the individual is eligible to go to court they first need to pay the Trust Fund Penalty, and then sue in court for a refund.

An example of this is in the court case of Skoczylas v. the U.S. [Skoczylas v. USA, 09 Civ. 2035 (ILG) (RML), NYLJ 1202582026679, at *1 (EDNY, Decided December 3, 2012)].  The IRS automatically assessed the Trust Fund Penalty against a board member but in court was denied summary judgment and awarded the board member a refund.  Even though the individual was a director of the corporation, material fact issues remained as to whether she was responsible person who acted willfully with regard to corporation’s tax debts. Although she was director, she didn't manage corporation’s day-to-day affairs and lacked decision making authority over paying debts even though she had some check-signing authority.  In addition it was unclear as to whether creditors ran the corporation during bankruptcy and/or if she had actual control over the checkbook and bank accounts.  It was also undisputed that the CEO was a responsible person who acted willfully.

Please contact this office if you have any questions or need assistance.

JULY 2010 TAX BRIEFING

Addresses for Filing Elections and Statements:
Following the reorganization of the IRS (as required by the IRS Restructuring and Reform Act of 1998), the IRS issued Notice 2003-19 (2003-1 CB 703) to advise taxpayers of the revised addresses for filing elections, statements, returns, and other documents with the IRS. Since then, many of the locations listed in Notice 2003-19 for filing documents have changed and are no longer accurate. Accordingly, the IRS has revoked Notice 2003-19 . Instead, the address for filing many of the documents listed in Notice 2003-19 can be found (1) on www.irs.gov ; (2) in current IRS forms, instructions to forms, and publications; or (3) on a new IRS webpage accessible at www.irs.gov/file/article/0,,id=224931,00.html.

Bankruptcy Trustees Requesting Tax Refunds:
The IRS provided guidance to the trustee (or debtor- in-possession) representing a bankruptcy estate for properly requesting a tax refund, other than an application for a tentative carryback or refund adjustment under IRC Sec. 6411 . [ Editor's Note: The debtor in a Chapter 11 reorganization is a debtor-in-possession when the debtor remains in full control of all of the assets.] This guidance supersedes Rev. Proc. 81-18 (1981-1 CB 688) and applies to all cases commenced under the Bankruptcy Code except for Chapter 9 municipal debt adjustment cases and Chapter 15 ancillary and cross-border cases. Rev. Proc. 2010-27, 2010-31 IRB.

Gulf Oil Spill Assistance Day:
The IRS listed the Taxpayer Assistance Centers in seven Gulf Coast cities that will be open this Saturday, 7/17/10, to provide face-to-face assistance for taxpayers impacted by the BP oil spill. The following locations will be open from 9 a.m. to 2 p.m. Central Time: (1) 1110 Montlimar Drive, Mobile, Ala.; (2) 651-F West 14th St., Panama City, Fla.; (3) 7180 9th Ave. North, Pensacola, Fla.; (4) 2600 Citiplace Centre, Baton Rouge, La.; (5) 423 Lafayette St., Houma, La.; (6) 1555 Poydras Street, New Orleans, La.; and (7) 11309 Old Highway 49, Gulfport, Miss. Individuals with questions about the tax treatment of BP payments or who are experiencing filing or payment hardships because of the oil spill will be able to work directly with IRS personnel. News Release IR-2010-85.

Preventive Health Services:
Temporary regulations (found in TD 9493 ), issued in conjunction with regulations issued by other federal agencies, address preventive health services under the Patient Protection and Affordable Care Act. Group health plans and health insurance issuers offering group health insurance must provide coverage for, and may not impose any cost-sharing requirements (such as a copayment, coinsurance, or deductible) for, the enumerated list of items or services, which includes "immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved." Temp. Reg. 54.9815-2713T generally applies to plan years beginning on or after 9/23/10; however, see Temp. Reg. 54.9815-1251T for the application of these rules to grandfathered health plans.

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