The case described below is a perfect example why it is extremely important to be vigilant about the people you hire and the intricacies of how your business is being ran, regardless if you are willfully involved in the illegal act or not. You don’t ever want to get too comfortable.

A corporation’s president was held as a responsible person liable for the trust fund recovery penalty. The individual was the corporation’s sole shareholder, assigned corporate contracts and had the authority to hire and fire the business’s manager. The individual also had the authority to order the payment of the delinquent taxes. His delegation of the corporation’s financial management to the business manager, who had been embezzling from the business, did not relieve him of his responsibility since he controlled the business manager.

Moreover, the individual acted willfully because he was aware of the corporation’s unpaid payroll taxes but used after-acquired funds to pay other creditors instead of paying the IRS. The court rejected the individual’s argument that his conduct was not willful pursuant to the exception under Slodov, SCt. because that case applies only to the situation where new management assumes control when a delinquency for trust fund taxes already exists and the withheld taxes have already been dissipated by the prior management. Since the individual was found to be a responsible person throughout the period during which withholding tax liability accrued and thereafter, the Slodov exception was not applicable.

W.R. Shore, DC Ida., 2014-2

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