If you’re just joining us, parts one and two of this series discussed Internal Revenue Code Section 6672. The law allows the IRS to assess penalties equal to 100 percent of the amounts due against individuals who are responsible for collecting or paying withheld taxes and who willfully fail to collect or pay them.
This article, part three, will analyze four court decisions that resolved Section 6672 disputes, two of which were decided in favor of the IRS, and two of which were decided in favor of the taxpayer.
Let’s start with Ted Neckles, one of the cofounders of Task Enterprises. When the IRS first became aware that Task had failed to remit hundreds of thousands of dollars in withheld taxes, the agency could do little to get its mitts on the money. Task had folded within a year of incorporation. The IRS scrutinized the pockets of former officers, but found nothing. Then the IRS zeroed in on Neckles, who was one of the original investors in Task, but not one of its officers or employees.
IRS sleuths discovered that Neckles had exercised considerable control over disbursements of funds. Although untitled and unsalaried, he was authorized to draw on all corporate accounts and signed most of the checks on the firm’s general account. Neckles decided which creditors would be paid and when. More important, he knew of the withheld-but-unpaid tax money.
The IRS forced Neckles to pay the withheld funds. When he filed suit to recover the payment, the court concluded that he was what the lawyers call a de facto (that is, in reality) employee of Task. Clearly, he could’ve seen to it that the withheld taxes were paid. Because Neckles had the power and the authority to pay any creditors and was aware of the tax arrears, he was a “responsible person” and was, therefore, liable for the taxes.
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