Business Owners Personally Liable for Business Taxes?
Recently, our firm gave a talk at the local Rotary Club here in Greenville, SC. After the session, one of the members who is a financial adviser to small businesses asked about a certain part of our presentation. Specifically, he wanted to know if business owners could really become personally liable for the taxes owed by the business.
Lawyers like to call this piercing the corporate veil. This is because one of the positives in performing your work from within a corporation is that your personal assets, etc. are protected from corporate creditors. Therefore, if you own a contracting company that is incorporated and you tear up someone’s property, they can only sue the corporation and get damages from the corporation - not from your personal checkbook.
In some instances, creditors (including the IRS) can “pierce the corporate veil” to reach in to the assets of the owners of the business personally.
The IRS can reach into the personal assets of a business’ owners if the corporation fails to pay the payroll taxes that it holds in trust from employees’ wages. This does not include corporate income taxes, just the portion of the taxes the corporation is supposed to withhold from the employee and hold in trust for the government. The IRS calls this the trust fund penalty, and it allows them to collect from anyone who has authority to write checks, or who is in charge of payroll.
I have written a couple of trust fund recover penalty articles:
What is the Trust Fund Recovery Penalty
Who is Responsible for the Trust Fund Recovery Penalty
Can I Reduce My Trust Fund Recovery Penalty with an Offer in Compromise?