Who is a "responsible person"?

• Author: Pilcher, Eric
• Position: Under tax law for charitable organizations

Honorary positions on charitable executive boards and figurehead positions as chief executive officer or president are quite a distinction and often highly valued by those appointed, but danger exists if the company or organization fails to pay its payroll taxes. If the IRS determines that the individual is a "responsible person," not only is he or she liable for the deficient taxes, but may also be required to pay a penalty. Two recent district court cases illustrate how this might apply in situations in which clients might feel they have little (if any) exposure for such tax.

Background

Sec. 6672 states that the IRS must prove both responsibility and willfulness before it can hold a person liable for unpaid payroll taxes. Responsibility means whether or not the individual had the power and opportunity to pay the taxes; willfulness is established when the person responsible neglects to pay the taxes. Once responsibility is established, the burden falls oil the individual to disprove willfulness, even if nonpayment was not intentional.

Marino

Facts: In 1995, Daniel Myers asked James Kunkle, son of Ellen Marino, to incorporate SUSA/U.S. Financial, Inc. (SUSA), a licensed correspondence mortgage lender. Myers could not serve as an officer of the corporation due to his past credit problems. Thus, Myers asked Marino to become president, sole shareholder and mortgage lender license holder for SUSA and gave her the power to write checks on the corporation's behalf. Despite her position, Marino had little contact with the business or its employees and took no active role in the corporation's daily operations. Marino also allowed Myers to use a corporate stamp with a facsimile of Marino's signature on company checks, in lieu of Marino's actual signature. Myers ran the corporation's day-to day affairs from its inception until it ceased operations.

In 1999, IRS letters began to arrive at Marino's house, requesting information on the nonpayment of SUSA'S payroll taxes. After being alerted that SUSA was having tax problems, Marino received assurances from Myers that he and the company accountant would address the problem. In 2000, the IRS served Marino with a summons, as it had not received the requisite information, and began levy SUSA's accounts to pay for the liability.

Bankruptcy court's decision: Eventually, SUSA and Marino filed for bankruptcy. The bankruptcy court determined that Marino was not personally liable for SUSA's payroll taxes; she was...