Corporate Officers May Be Personally Liable for Some Taxes

Corporate officers have been held personally liable for remitting certain taxes to state and federal authorities.

A California Court of Appeals Decision, State Board of Equalization v. Wirick, reminds us that there are corporate tax liabilities for which individual corporate officers may be personally responsible. Probably the most infamous of these liabilities is federal payroll taxes withheld from the wages of employees. Failure to remit these so-called “trust fund” taxes is a breach of fiduciary duty and will result in an assessment against individual corporate officers for the full amount, plus penalties and interest -- none of which is tax deductible!

A lesser known but just as devastating liability is the one for unpaid state sales taxes. Like federal payroll taxes withheld from wages, sales taxes are collected and held by a vendor as an agent -- with a fiduciary duty to the taxing authority. States take a dim view of failure to promptly remit those collections, as demonstrated by the sad case of Stanley Wirick, an officer of a company in California that did not remit its sales taxes. He resigned, and even negotiated an indemnification agreement for the unpaid taxes with the remaining shareholders. All to no avail. When the other shareholders did not pay, the court forced Wirick to pay the unremitted sales taxes personally.

If you have questions about your personal liability for collected or withheld taxes, not remitted by the business responsible for their payment, please call our office right away. We may be able to help you reduce your liability and/or negotiate reasonable payment terms with the IRS or state taxing authority.