last update 1-01-2003
Personal Liability for Payroll Taxes
One of the reasons normally given for having a corporation is that the owners
are shielded form personal liability for acts of the corporation. For instance,
if there is an accident involving the corporate auto resulting in claims of $1
million, that claim will most likely be limited to a claim agianst the assets
of the corporation and the owners will not be personally liable for it.
There are several statutes that pierce this corporate veil and specifically
make some of the principals liable for actions even if they were not directly
involved with the activity. These statutes are primarily limited to the area
of corporate taxes. The following is a discussion of some of those provisions.
Federal Withheld Taxes
Section 6672 of the Internal Revenue Code provides a 100% penalty against
certain persons for the failure to deposit or pay over the withheld taxes
from employees. Since the funds covered by this section are the monies
withheld from the employees, the employer is merely holding those funds
temporarily in trust to be passed on to the IRS. As a result, those withheld
funds are ofter referred to as "Trust Funds."
Although this provision is referred to as a 100% penalty, the purpose is to
shift the liability to the persons having authority to make the payments who
failed to do so. If that individual makes payment, then the corporation is
relieved of the liability.
The person that is generally targeted for this personal liability is the person
or persons who have the authority to sign checks to pay the taxes but who have
failed to do so. The person could be a corporate officer or just a clerical
person if they had check signing authority. Cases normally turn on whether
the person had the authority to make the payments although there was a case of
a secretary who could only sign checks when told to do so by her boss. Since
the bank had authority to accept her signature, she was held personally liable
for the taxes of her employer.
Please note that the above liability is limited to the withheld taxes only.
There is no provision for personal liability for the employer's portion of
the payroll taxes.
When you make a regualr payroll tax deposit, the IRS will always
attribute that pyament to the non-trust funds or the employer's portion of
the taxes due. If all of the taxes are not paid, then the IRS asserts that the
Trust Funds were the last funds to be paid in and personal liability may become
an issue. A way to avoid this problem if it appears that all of the taxes will
not be paid is to send a check to the IRS for the Trust Funds withheld with a
letter stating that you want the payment to be accounted for as a payment of
the Trust Funds withheld from the employees. The IRS must allocated the
payment according to your instructions and the check signer may avoid some
personal liability. In such a case, any unpaid taxes will be the employer's
portion and there will be no personal liability for those taxes.
Louisiana Withheld Employee Taxes
Louisiana Sales and Use Taxes
La Revised Statute 47:1561.1 provides a similar provision for the Louisiana
withheld taxes collected from employees by stating that the State can "hold
those officers or directors having direct control or supervision of such taxes
or charged with the responsibility of filing such returns and remitting such
taxes and who willfully fail to remit..." personally liable for the taxes
so owed. This section also provides that the personal liability attaches
to any interest, penalties and other fees.
The statute further provides that the corporation can designate by resolution
an officer or dirctor who will be responsible for this task and file such
resolution with the Secretary of State. Are there any volunteers for this
LRS 47:1641 provides criminal penalties agaisnt any person who willfully
fails to collect, account for or pay over any tax, penalty or interest relating
to withheld income taxes or sales/use taxes. It specifies that penalties can
be up to a $10,000 fine and/or imprisonment of up to five years with or without
Parish and Local Taxes
La Revised Statute 33:2845.1 provides personal liabiltiy for not filing returns
or not paying sales/use taxes to a parish that has a single sales and use tax
collector for all political subdivisions of that parish. The wording of this
section is similar to the withheld taxes provision above in that it is dircted
to the "officers and directors who have direct control or supervision of such
taxes or who are charged with the responsibility of filing such returns and
remitting such taxes and who willfully fail..." to do so.
This provision also provides that a corporation may designate a person with this
responsibility and file such designation with the Secretary of State.
LRS 33:2846 provides crimianl penalties similar to LRS 47:1641 (see above) for
any person who does not report and pay the sales/use taxes, interest
and penalties to the local governments.
Louisiana Unemployment Taxes
There are two substantially identical provisions in Louisana statutes that
create a personal liability for La Unemployment Taxes. Both LRS 12:92F and
LRs 23:1538 provide that "those officers or directors having control" of
the filing and payment of unemployment taxes shall be personally liabile for
the total of such taxes along with interest, penalties and other fees.
Both of these statutes include a provision relating to non-officer/directors
by stating that "no employee who is not an officer or director shall be found
personally liable for failure to make employer contributions as required by
======================== WARNING =======================
This information is provided for the reader's benefit in
becoming familiar with the legal matters discussed. Your
particular facts may be different from the points above.
You should not rely on the above data without consulting a
attorney to discuss the specific facts of your case
and the law of your state.
If you live in Louisiana and want to talk about your situation, please
call me at:
Marvin E. Owen
3036 Brakley Drive
Baton Rouge, La 70816
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