Are You Personally Responsible For Your Company’s Withholding Tax?

Here’s the situation — a business withholds tax from their employees, but does not remit the tax to New York State and later files for bankruptcy. It might surprise you to learn that the liability does not die with the business. Two recent New York State tax cases address this issue. In both cases, the court found that New York State can collect taxes and penalties from individuals who are considered “responsible persons” under the law.

Who is a responsible person? Basically, a responsible person is someone who has control over the situation. “Accidental” missed payments might get you out of the penalties, but little else will. A responsible person has the responsibility to make sure that the taxes are paid. Not being aware of the situation is not an excuse. In many cases, the court considers such arguments to be examples of negligence and negligence will not shield a taxpayer from penalties.

A few other things to note:

  • Anything more than an accidental missed payment will result in penalties (even if it is an accident you can still get hit).
  • The statute of limitations will not help you for if you never file the returns. The statute starts to run when the tax return is filed.
  • In New York State, the statute of limitations does not apply to these types of penalties.
  • If you are audited by the IRS you have to report any changes to NYS.
  • If NYS hits you with an assessment, its up to you have to prove that its wrong. You can’t go to court and argue that the state has no evidence to support the assessment. There are many examples of taxpayers that tried this strategy and failed. It is up to the taxpayer to make their case with “clear and convincing evidence”.


For more information, contact our office.

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