Monday, August 19, 2013
Two recent cases give insight to liability of trust fund money. When monies are withheld from an employee?s check for FICA and Federal Income Tax by an employer, the employer is considered a trustee of these funds for the United States Government. If these monies are not deposited in a timely manner the business and possibly individuals can be held personally liable for the monies.
In Publication 15 the regulations identify a ?responsible person? as;
?A
responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship, or any other person or entity that is responsible for collecting, accounting for, and paying over trust fund taxes. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.?
However two recent court decisions give some insight into how the courts will interpret the regulations.
Case One: Comeaux v. United States of America., US District Court, W.D. Louisiana
In summary Mr. Comeaux is assessed the Trust Fund Recovery Penalty due to his employer not remitting the taxes withheld from employees pay. Mr. Comeaux paid over $10,000 toward the liability while filing a case against the IRS stating he should not be considered a ?responsible person? related to the remittance of payroll taxes. The court sided with Mr. Comeaux stating the IRS failed to prove that he had the authority to pay the delinquent taxes. While Mr. Cormeaux did possess limited ability to sign checks he did not have the authority to choose what bills would be paid.
Case Two: Jomey B. Ethridge v. US District Court, SD Mississippi
Jomey Ethridge served as President of Struthers Industries. As President Jomey Ethridge had knowledge that the payroll taxes were not paid and was responsible for paying the corporations taxes. Despite knowing the payroll taxes were delinquent payments were made to employees and certain material vendors. In addition personal expense accounts continued to be paid. The court found that Jomey Ethridge was personally liable for the unpaid payroll taxes.
The key difference between these cases seems to be the ability and authority to decide who gets paid. In Case One Mr. Comeaux had the ability to sign checks but not the authority to decide who was to be paid. In Case Two Jomey Ethridge had the ability to sign checks and the authority to decide what vendors were to be paid.
These cases once again call attention the responsibility that businesses have with trust fund money and the potential personal liability of those who have the ability and authority to make trust fund tax deposits.