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Who's Responsible When Payroll Taxes Aren't Paid?


Business owners who owe payroll taxes should be prepared to pay the IRS at the beginning of the new year. In this article, which is part two in a three-part series on withheld tax, Julian Block explains whom the IRS holds responsible for collecting or paying these taxes.

Dec 16th 2021
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If you're just joining us, part one in this series discussed Internal Revenue Code Section 6672, a potent weapon in the IRS’s arsenal. It authorizes the IRS to assess a penalty equal to 100 percent of the amount due against the people who are responsible for collecting or paying withheld taxes and who willfully fail to collect or pay them. Part two will focus on who are “responsible persons” and how the IRS defines “willfulness.”

Incidentally, the IRS previously referred to its most severe penalty as the “l00-percent penalty.” The image-conscious agency eliminated that term and now refers to it as “the trust fund recovery penalty.” The reason for the replacement: An employer pays income tax withholding and the employee’s share of Social Security and Medicare taxes into a trust fund maintained by the government for the employee’s benefit.

Who gets targeted when payroll taxes aren’t paid? Usually, “responsible persons,” the individuals who decide which creditors to pay and when, are targeted. They’re also jointly liable for the entire amount owed. This holds true even when they’re somehow able to establish that other persons were more responsible than they were for the collection, accounting and payment of the missing taxes; their liability in no way lessens.


The IRS’s definition of the term is quite liberal. Responsible persons include:

  • Officers/employees of corporations
  • Members/employees of partnerships
  • Corporate directors or shareholders
  • Members of boards of trustees of nonprofit organizations
  • Other individuals who have some authority and control over funds to direct their disbursement

IRS staffers aren’t totalitarians. When the IRS imposes trust fund recovery penalties, it generally pursues the owners or top officers of organizations. The agency says it doesn’t assert penalties against “non-owner employees of the business, who act solely under the dominion and control of others, and who aren’t in a position to make independent decisions of behalf of the business entity.” Employees in this grouping include secretaries, clerks and bookkeepers.


The IRS and the courts set the bar low when they define willfulness. It requires only a conscious, voluntary act, not intent to defraud. 

An Act of Omission

Another way to meet the willfulness requirement is through an act of omission, such as when a person fails to investigate or correct mismanagement after noticing that taxes are due and other creditors have been paid. If it sounds dire, that’s because it is. Even personal bankruptcy won’t relieve an individual of responsibility for his or her company’s failure to pay withheld taxes.

Here’s what happens when the IRS hits several people with the same bill. Predictably, the IRS tries to collect from the one with the deepest pockets, rather than the most culpable party. When someone targeted as a responsible person requests information, the IRS must reveal who the other parties are, whether it tried to collect from them, the nature of those efforts and how much it received. The party who pays more than his or her proportionate share to the IRS can sue in federal court to collect from the others.

Help for Volunteers

 Section 6672(e) confers protection on people who serve as unpaid members of boards of schools, museums and other tax-exempt groups. The IRS can’t impose penalties on members who satisfy three requirements. First, they solely serve in an honorary capacity. Second, they don’t participate in the day-to-day or financial activities or the organization. Third, they don’t actually know of the failure to collect and relay taxes on time to the IRS.

Reminders for Volunteers Who Join Boards

They assume potentially dangerous responsibilities, regardless of whether they are enticed by entering the corridors of power, burnishing their resumes, mixing and mingling with movers and shakers or reciprocating for past favors. While volunteers needn’t perform due diligence for organizations that do good, they should assiduously avoid involvement in the collection or payment of withheld taxes, lest they become embroiled in IRS investigations undertaken to ferret out the identities of those worthy of designation as personally liable for unpaid taxes.

What’s Next

Part three will discuss court decisions involving liability for unpaid taxes.