Accountant hit hard by trust fund penalty

In a new case before the Tax Court, Kazmi, Technical Service Memo 2022-13, 03/01/22a heavy tax penalty was imposed on a part-time accountant who was paid by the hour.

context: As some of you may know, if payroll taxes are not remitted to the IRS on time, a person determined to be a “responsible party” may be held personally liable for the total amount of unpaid taxes. In other words, a business owner might have to pay the IRS an amount equal to 100% of the lost revenue out of their own pocket.

But this provision is not limited to business owners or corporate officers. It can be extended to any person in the company responsible for collecting or paying social charges and who voluntarily fails to do so. Further, the IRS takes a broad view of what constitutes a willful failure for this purpose.

The facts of the new case: The taxpayer was employed by Urgent Care as a part-time accountant and paid an hourly rate during the tax year in question. He had no stake in Urgent Care nor was he an officer. His name did not appear on any of Urgent Care’s bank accounts.

Further, the taxpayer had no authority to sign checks for emergency care or any authority to make payments on his behalf. At all times, he worked under the direction of his immediate supervisor, a physician.

The taxpayer admitted that he did payroll for the business in his capacity as a part-time accountant. He knew that the company had not paid its payroll taxes on time for two quarters of 2014. The total unpaid taxes exceeded $10,000. As a result, the IRS imposed the trust fund penalty on the taxpayer.

Results: After reviewing all the facts, the Tax Court concluded that the taxpayer was a responsible party under the law and that the failure to pay payroll taxes on time was willful. Despite the procedural issues raised by the taxpayer, the Court said the IRS Collections Adjudication Officer acted within his jurisdiction. It therefore confirmed the penalty imposed on this part-time worker.

The main takeaway from this case is that the trust fund penalty is not limited to corporate bigwigs alone. This can spill over to employees in lower-level jobs and even part-time or seasonal workers if they take responsibility for payroll matters. In short, to be warned is to be warned!

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