Are You Liable for Your Clients' Payroll Taxes?

Source: Journal of Accountancy

CPA firms should be mindful of a recent U.S. District Court decision finding a distressed company's outside accountants liable for failure to pay the company's employment withholding taxes. The IRS may collect these taxes from a “responsible person” – that is, someone who has “significant control” over a company's finances or the payment of funds – who willfully fails to pay the taxes.

In Erwin v. U.S., No. 1:06CV59 (M.D.N.C. 2/5/13), the court ruled that a company's outside accountants were responsible persons because they managed the company's payroll and accounts payable, calculated its employee withholding tax liability, prepared quarterly payroll tax returns and made tax deposits. The court found that they had willfully failed to pay the taxes because they had issued checks to other creditors knowing that the taxes were unpaid.

For the complete article, read “CPAs and the trust fund recovery penalty.”

From Journal of Accountancy, August 2013, www.journalofaccountancy.com/Issues/2013/Aug.