Accounting Firm Hit with Trust Fund Penalties for Payroll Taxes Owed by thier Client

We mentioned in a previous blog that individuals such as corporate officers and employees can be held responsible for back taxes if the company fails to pay payroll taxes.  However, other parties not within the company can be held responsible for back taxes such as lenders and accounting firms.  In this case, the accounting firm hired to manage the client’s payroll was held responsible for $325K of Trust Fund Penalties.  This is an interesting case because it shows that the IRS can go after third parties for trust fund penalties.

For more information on what are Trust Fund Penalties, view this blog.

According to the case in the US District Court Middle District North Carolina, the accounting firm Buddy Light Accounting & Tax Services was held liable for unpaid payroll taxes owed by GC Affordable Dining, Inc.  The accounting firm was hired to manage the payroll and accounts payables for GC Affordable Dining.  When GC Affordable Dining, Inc started to have financial difficulties, IRS payroll taxes were left unpaid.  The accounting firm repeatedly informed GC Affordable Dining that payroll taxes were due.  The accounting firm assisted GC Affordable Dining on setting up payment arrangements with the IRS.

During the time the payroll taxes were owed, Buddy Light Accounting & Tax Services continued to issue payroll checks to employees and pay vendors.  This is the main sticking point on the case.  The accounting firm knew that payroll taxes were owed, but the accounting firm continued to issue checks to employees and pay vendors.  It was determined by the district court that the accounting firm intentionally paid creditors other than the IRS.  Therefore, Buddy Light Accounting & Tax Services was held liable for $325K of Trust Fund Penalties.

The other interesting fact on this case is that the owner of GC Affordable Dining, Inc, is a plaintiff along with the IRS.  As a result, the $325K of trust fund penalties will be jointly owed by the owner of GC and the owners of Buddy Light Accounting.   The IRS will have the authority to personally go after any of the owners responsible for the trust fund penalties.  If the IRS collects $325K from one owner, then all owners receive credit for the payment.

If you are held liable for trust fund penalties and need help, call ALG Tax Solutions 855-MI-Tax-Help (855-648-2943) or provide your contact information online.  We can evaluate your situation to determine if the IRS rightfully assessed trust fund penalties.

IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.