Personal Liability on Trust Fund Taxes

Employers are obligated under the Internal Revenue Code (“IRC”) to withhold federal income and social security taxes from the wages of their employees, and to hold such taxes in trust for the United States. See 26 U.S.C. §§ 3102, 3402, 7501. These withheld sums, often referred to as “trust fund” taxes, must be paid over to the government on a quarterly basis. The government is required to credit employees for the taxes withheld from their wages regardless of whether they are actually paid by the employer. See In re Ribs–R–Us, Inc., 828 F.2d 199, 200 (3d Cir.1987) (citing Slodov v. United States, 436 U.S. 238, 243, 98 S.Ct. 1778, 56 L.Ed.2d 251 (1978)). Because of this, and to ensure employer compliance with the foregoing obligations, Congress enacted IRC § 6672 which enables the government to seek payment of unpaid trust fund taxes directly from officers and employees of such employers who are responsible for nonpayment. 26 U.S.C.A. § 6672 provides: “Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax” shall be liable for a penalty equal to one hundred percent of the taxes due.

The statute therefore establishes two general requirements for personal liability for unpaid corporate trust fund taxes. First, a court must determine whether a particular individual is a “responsible person.” Second, a court must analyze if that person’s failure to collect and pay over the requisite taxes was willful. See, e.g., Brounstein v. United States, 979 F.2d at 954; Quattrone Accountants, Inc. v. IRS., 895 F.2d 921, 927 (3d Cir.1990). Under section 6672(a), willfulness is  “a voluntary, conscious and intentional decision to prefer other creditors over the Government.” Quattrone, 895 F.2d at 928. A responsible person acts willfully when he pays other creditors in preference to the IRS knowing that taxes are due, or with reckless disregard for whether taxes have been paid. Once the IRS assesses a tax, a rebuttable presumption arises that the assessment is correct. Psaty v. United States, 442 F.2d 1154, 1160 (3rd Cir.1971).

In determining whether an individual should be considered a responsible person under section 6672, courts have considered the following non-exclusive factors:

(1) contents of the corporate bylaws,

(2) ability to sign checks on the company’s bank account,

(3) signature on the employer’s federal quarterly and other tax returns,

(4) payment of other creditors in lieu of the United States,

(5) identity of officers, directors, and principal stockholders in the firm,

(6) identity of individuals in charge of hiring and discharging employees, and

(7) identity of individuals in charge of the firm’s financial affairs.

Brounstein v. United States, 979 F.2d at 954–55. In general, “[i]ndicia of responsibility includes the holding of corporate office, control over financial affairs, the authority to disburse corporate funds, stock ownership, and the ability to hire and fire employees. It is undisputed that more than one person may be a responsible officer of the corporation under § 6672.” Thibodeau v. United States, 828 F.2d 1499, 1503 (11th Cir.1987); see, e.g., Brown v. United States, 591 F.2d 1136, 1138 (5th Cir.1979). It is important to observe that an individual may be held responsible even if he does not satisfy all of the factors just noted. See In re Treacy, 255 B.R. 656, 663 (Bankr.E.D.Pa.2000) (“The question of control over the employer’s finances must be answered in light of the totality of the circumstances; no single factor, or the absence thereof is determinative.”).


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