The Eleventh Circuit Court of Appeals rejected a unique twist on the “my boss ordered me not to pay the trust fund taxes” defense in the case of Myers v. United States, CA 11, Case No. 18-11403.  In this case the party Mr. Myers claimed ordered him not to pay was an agent of the Small Business Administration (SBA) that had been appointed as a receiver of his employer.

In the case of United States v. Ulasi, et al, USDC SD Texas, Case No. 4:17-cv-01164, we once again revisit the issue of the trust fund penalty found in IRC §6672 and what can make a person a “responsible person” who ends up on the hook for the withheld payroll taxes.

The Sixth Circuit Court of Appeals in the case of Byrne v. United States, CA6, No. No. 2:06-cv-12179 had to decide if the president and CEO had acted recklessly in not insuring that trust fund taxes had been deposited when they were aware of issues with the quality of work performed by the controller.  If they had, they would be liable personally for the undeposited trust fund taxes under IRC §6672.

Any responsible person may be held personally liable by the IRS for unpaid trust fund taxes (that is, federal income taxes and FICA taxes withheld from employee’s paychecks) if the IRS can show that individual either:

• Had actual knowledge that the taxes had not been paid and had the ability to pay the taxes (even if that meant not paying other bills) or
• Recklessly disregarded known risks regarding a failure to pay such trust fund taxes.

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In the case of United States v. Liddle, 119 AFTR 2d ¶2017-381 (USDC, ND CA) the CEO of two different companies that each had failed to remit trust fund taxes argued that while he was clearly a responsible person for purposes of the trust fund penalty, he should not be liable because he had acted with reasonable cause.

Some Circuit Courts of Appeal have taken the position that a responsible person may be relieved of liability for the trust fund recovery penalty under IRC §6672 based on a reasonable cause defense.

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To most practitioners, at first glance the facts in the case of Fitzpatrick v. Commissioner, T.C. Memo. 2016-199 would appear to doom Christina Fitzpatrick to being liable for the 100% trust fund penalty related to unpaid payroll taxes for the wine bar that was partially owned by her husband and for which she worked.

These “bad facts” included the fact that:

• Christina had signature authority over the bar’s checking account
• Christina signed payroll checks regularly
• Christina selected and arranged to hire Paychex to handle the restaurant’s payroll

However, despite that apparent level of control, the Tax Court found that Christina was not a responsible party based on other facts in the case.

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The case of Arriondo v. United States, USDC SD Texas, Case No. 4:14-cv-02734 illustrates the dangers posed even to someone without an ownership interest in the company for unpaid withholding taxes under IRC §6672. In this case a taxpayer who was the CEO, president, treasurer and director of a company was found liable for the unpaid trust fund taxes due to a failure to inquire about the possibility of unpaid payroll taxes once he became aware the company was in financial difficulty and for paying other bills (including the salaries of employees) during the short period from the date he became aware of the unpaid taxes until the company filed bankruptcy.