Liability For Payroll Taxes are not Limited to the Business

Payroll taxes are different from all other taxes.

Payroll taxes don't belong to the business—they belong to the government but more importantly, a large portion of that money was never the business's money to begin with...it was the employees'.

So when the business uses payroll taxes for something other than paying the IRS, the IRS considers that theft.

And they're in no mood to mess around.

But here's what professionals might miss: It’s not just the business at risk. The owners of the company are too, as well as anyone else involved in payroll.

Why this matters: Many CPAs, attorneys, and financial advisors know payroll taxes need to be deposited—but they don’t always know how dangerous payroll liability can become.

A business owner who thought they were saving their business by paying vendors instead of the IRS could find themselves personally on the hook for unpaid trust fund taxes—and potentially criminal charges as well.

If you’re an advisor to a business owner who’s missed payroll tax deposits, here's what you need to know.

5 Truths You Must Understand About IRS Payroll Tax Enforcement

1. It Doesn't Matter Why the Payroll Taxes Weren't Deposited

Whether your client used the funds to keep the lights on, make employee payroll, or cover rent...it doesn’t matter. The IRS sees unpaid trust fund taxes as theft.

Individuals responsible for depositing the taxes with the IRS and who willfully did not do it are assessed with the Trust Fund Recovery Penalty, even if they own the business.

2. Personal Liability Is the Norm

Business owners are often shocked to learn that their business entity doesn’t shield them from personal liability for payroll taxes. Even if the business is in a resolution to pay back the IRS, the IRS is still going to assess the liability against someone personally.

Why? Because the business may shut down. The individual may have more cash or have equity in assets. The IRS may be able to get money faster from the individual. Or get paid by both the business and the individual simultaneously.

3. More Than One Person Can Be Found Liable

The Trust Fund Recovery Penalty doesn't come down to just one person. Multiple people can be assessed with personal liability if they're deemed a “responsible person” under Section 6672(a), which allows the IRS to go after them all to collect what's owed.

A "responsible" person may mean officers, it may mean owners, or it may mean directors but it can also mean anyone who has decision-making authority about paying the taxes or anyone else with bank check signing authority.

4. Criminal Charges Are on the Table

The Trust Fund Recovery Penalty isn’t limited to civil enforcement. The IRS very well may bring criminal charges. The government recently found a Maryland business owner guilty on 16 counts of not paying payroll taxes. The owner was required to pay over $1 million and faced a potential sentence of five years for each count. That’s 80 years in jail if the court wanted to send a message.

5. Payroll Services Don’t Guarantee Protection

Outsourcing payroll doesn’t mean outsourcing liability. Some employers think using a payroll provider shields them. But if that provider goes rogue—or just screws up—the IRS still comes knocking on the business owner’s door or some other responsible person.

TL;DR: Too Long, Didn't Read

⏩ The IRS views unpaid payroll taxes, specifically trust fund taxes, as theft.

⏩ Personal liability is the standard, not the exception.

⏩ Multiple people deemed "responsible" can be held personally responsible, not just the business owner.

⏩ Criminal charges do happen in egregious cases.

⏩ Payroll providers don’t eliminate exposure—they add another layer of risk.

Let's Talk...

➤ Have you ever had a client who was found personally liable for payroll tax debt?

➤ What happened—and how did you help them recover?

➥ Contact Attorney Stephen A. Weisberg for a free Tax Debt Analysis.

Contact Me Here: https://www.weisberg.tax/contact-1

Email: sweisberg@wtaxattorney.com

Phone/Text: (248) 971-0885

Address: 300 Galleria Officentre, Suite 402, Southfield, MI 48034