My Company Owes the IRS a Substantial Amount of Payroll Tax. Can the IRS Take Money from My Personal Account to Pay It?
Oct. 1, 2013
Assuming that the business is a multi-member LLC or Corporation, it owes the Payroll Tax. You don't…at least not yet.
As you know, the business withholds Social Security (FICA), Medicare and Income Tax from it's Employees' paychecks. The business holds that money and adds some if it's own to the pot. It sends the entire amount in to the IRS, or at least it is supposed to.
The IRS considers the withheld Income, FICA and Medicare tax to be “Trust Fund” money. This means that the Business is or was holding it in “Trust” for the employee and was responsible for it. The Trust Fund amount is about 50% of the total amount sent in.
Right now…you don't personally owe the IRS any money, only the Business does. In order for the IRS to treat you as a debtor and thereby gain access to your personal assets, it has to make a formal determination that you are a “Responsible Person”. This determination process usually begins with an interview and a review of documents like bank signature cards, corporate officer status etc. Once the determination is made, the IRS issues a “proposed” assessment of just the Trust Fund amount only and against you personally. You than have 60 days to submit a written protest.
Until the protest period expires, you don't owe anything. Because you don't owe it personally, i.e. there has been no assessment, the IRS can't take any collection action. It can't even file a tax lien against you.
If it is the case that you meet the criteria to be named a “Responsible Party”, the IRS will probably get around to proposing an assessment against you before the Statute of Limitations runs out on it's ability to do so. That Statute period is 3 years from the date the 941 tax return is filed. If the debt is going to be substantial, it is a good idea to discuss your options with experienced Counsel.