No office manager is paid enough for this. The tax law doesn’t like it at all when an employer withholds payroll taxes from paychecks and fails to pass it on to the IRS. One tool the IRS uses to encourage compliance is the “responsible person” penalty. If a person with responsibility for remitting payroll taxes knowingly fails to do so, the IRS can assess that person with a 100% penalty — even if that person didn’t get any of the money.
A Virginia federal district court recently drove that lesson home to a Ms. Horne, an office manager for a medical practice:
A. Responsible Person
Horne was a responsible person for the Company for each quarter of 2006 through 2010. First, Horne was the Company’s Officer Manager throughout that time period. Second, Horne had substantial authority over payroll because she prepared and signed the Company’s payroll checks. Third, because Horne was charged with preparing checks to creditors, she necessarily determined which creditors to pay. Fourth, Horne participated in day-to-day management of the Company, including making decisions about employee compensation, maintaining the Company’s books and records, and preparing financial information to be presented at shareholder meetings. Fifth, at all relevant times, Horne had authority to, and did, sign checks drawn on the Company’s bank account. Sixth, Horne participated in decisions regarding the hiring and firing of employees.
B. Willful Action
From 2006 to 2010, Horne was aware of the Company’s unpaid employment tax liabilities as they accrued. However, she continued to prepare and sign checks to pay other creditors in preference over the United States. Accordingly, the Court finds that Horne acted willfully in failing to pay over to the Service the taxes withheld from the wages of the Company’s employees.IV. CONCLUSION
For the aforementioned reasons, the Court will GRANT the Motion. Horne is, thus, liable to the United States in the amount of $2,926,809.51, plus statutory interest accruing from December 23, 2013.
It’s hard to save $2.9 million even on the best office manager salary.
Update: An excellent point made in the comments: “I feel for anyone placed in the tough position of losing a job to avoid liability for an employer’s inability to pay its tax liability to the IRS, but the 100% penalty imposed by Section 6672 on responsible persons makes it clear that the job is not worth the tax problem arising from a company’s failure to pay its trust fund taxes.”
Starting in January 2015, the IRS will no longer make direct deposits of more than three tax refunds into one financial account, Commissioner John Koskinen told tax return preparers at the IRS Nationwide Tax Forum in Chicago July 1.
The move is meant to enhance the IRS’s efforts to combat stolen identity refund fraud, Koskinen explained in prepared remarks for his address to the forum.
Any refund after the third will automatically be converted to a paper check and mailed to the address on the tax return, Koskinen told preparers. “We will send out notices to those taxpayers that their refunds are being mailed and they should expect to receive them in about four weeks from the time of mailing,” he said.
That’s a good start. Perhaps next the IRS can flag multiple refunds being sent to the same address – like the 655 refunds to a single apartment in Lithuania. Baby steps. Like this:
The IRS also plans to end the practice of a small number of preparers who serve as banker to their clients or who take fees from the refunds, Koskinen said. “We’ve identified about 4,400 personal accounts held by tax preparers where multiple refunds were deposited,” the commissioner said. “We’re putting a stop to that, too.”
No doubt some of these are full service firms that do your taxes, collect your refund — and spend it for you.
William Perez, Divorce and Taxes. “We take a look at tax planning principles for property settlements, alimony and child support.”
Howard Gleckman, A Payroll Tax Math Error Adds $5 Billion To The Deficit (TaxVox). “But the current law for the self-employed allows the full deduction of 7.65 percent—not only for earnings below the Social Security cap but, remarkably, even for earnings subject only to the 1.45 percent Medicare tax.”
David Brunori, A Revenue Department Behaving Badly (Tax Analysts Blog). “Documents (except for taxpayer information of course) produced by the “government” belong to the citizens.”
Kelly Davis, Kansas: Repercussions of a Failing Experiment (Tax Justice Blog). “But the Governor’s experiment now appears to be in meltdown mode: revenues for the last two months have come in way under projections and may leave the state short of the cash needed to pay its bills.”
Lyman Stone, Scott Eastman, Liz Emanuel, Tyler Dennis, Courtney Michaluk, Independence Day Brings Fireworks Taxes to Light (Tax Policy Bl0g). Hey, Iowa, if they aren’t legal, it’s harder to tax them.
Robert D. Flach, MORE INFO ON THE NEW IRS ANNUAL FILING SEASON PROGRAM. “I still think in its current form it is stupid, and that very few tax preparers will actually ‘volunteer’.”
Robert is right.
This weekend, William Taylor III, Lerner’s lawyer, went on television and described Lerner’s experience. Lerner came in one morning in 2011, he said, turned on her computer and got a blue screen.
That interested me, because the description is quite specific. What he seems to be describing is the famed Microsoft Windows “blue screen of death.”
Well, because as I mentioned above, the Blue Screen of Death is an operating system error. The operating system lives on the hard drive. Which raises a question: If Lerner’s hard drive was so thoroughly malfunctioning that no one could even get the data off of it, how was it booting up far enough for the operating system to malfunction?
She comes up with some potential explanations — which mostly assume it didn’t quite happen the way the lawyer describes.
John Hinderaker, More on the IRS’s Illegal Destruction of Evidence
True the Vote’s brief points out that the first lawsuit alleging discriminatory targeting of conservative groups was filed by a pro-Israel group called Z Street, Inc., on August 25, 2010. On that date, at the very latest, the IRS had a legal duty to take measures to ensure that no emails, correspondence, memoranda, notes, or other evidence of any sort that could be relevant to the case was lost or destroyed…
But, according to IRS representatives who have testified before Congressional committees, the IRS ignored the law. Instead of making sure that relevant information was preserved, the IRS blithely continued erasing back-up email tapes every 90 days. Further, the IRS continued its policy of assigning each employee a ridiculously small space on an email server, and then authorizing employees (like Lois Lerner) to delete at will to keep space open. And, finally, when Lerner’s hard drive crashed ten months after the Z Street case was commenced, the IRS made no effort to preserve it, but rather, by its own account, recycled the hard drive in a business-as-usual manner.
Don’t try this at home, kids.
TaxProf, The IRS Scandal, Day 419
You should never be to busy to file correct tax returns. Appeals court upholds Beavers’ tax conviction.
Tags: Courtney Michaluk, David Brunori, Howard Gleckman, IRS disclosure scandal, Janet Novack, Jason Dinesen, John Hinderaker, Kay Bell, Kelly Davis, Liz Emanuel, Lyman Stone, megan mcardle, Payroll tax, Peter Reilly, responsible persons, Robert D Flach, Scott Eastman, tax administration, tax crime, TaxGrrrl, Tyler Dennis, William Perez