Who is liable for payroll taxes in a corporation?

Question

We have had an employee for many years. He takes care of all of the books. Money has been a little tight, but still manageable. About 7 years ago the accountant decided that he would not pay the payroll taxes and would cut the checks but never send them. He never told anyone and continued as usual as if everything was fine. He reassured us everything was going good. Last week he handed in his resignation with a letter stating that the payroll taxes have accumulated to $250k and apoligized for it saying he let things get out of hand. How accountable is he for what he has done? Can we bring him to court for fraudulence?

Answer 1

If payroll taxes were not paid, the corporation would have been notified, and probably shut down before seven years and $250K of payroll taxes had elapsed.   The Social Security Administration would also have noticed a shortfall of this amount, since the W-2s sent to them were inaccurate.  Employees would see that the tax had not been remitted for SS and Medicare on their annual statements from SSA.

However, all officers of the company, past or present, with financial responsibility are liable for unpaid payroll taxes, plus a 100% penalty.  If the assets of the corporation cannot cover the taxes, the IRS may hold responsible parties personally liable for the payroll taxes.  

In such an unlikely scenario, you need an attorney because of the legal problems.  Suing the departed accountant will get you nowhere at this point.  

Answer 2

If he was cutting checks and not sending them, they were not getting cashed.  Consequently, he would never have been able to reconcile the bank account...unless that money was going somewhere else.

Are you sure that in addition to not paying the taxes, he was not pocketing the money....

Answer 3

Sad to say, your company is still responsible for the payment of the taxes to the government.  Have you never examined your annual P&L, along with a bank statement  for your accounts ?  If you didn't pay any closer attention than you did to what was apparently happening, you are also considerably at fault.

You can inquire of  an attorney, but my guess is that you won't have a case, since this employee didn't steal anything from you.  Me just misled you.

Answer 4

The taxpayer is liable.  That is the corporation.  

If a corporation is unable to pay, the responsible persons in the corporation who should have made sure the taxes were paid can be held liable for a penalty equal to the unpaid withholding tax.  This obviously includes the person directly responsible but could be extended to other officers who should have known and turned a blind eye. In my state, the same people can be held liable for all the state employment and sales tax including penalty and interest.  

The remaining officers need to figure out if they could be held liable and take steps to avoid any proposed personal assessments.