If you think the IRS can collect unpaid taxes only up to a maximum of 10 years, you need to revisit the assumption. No matter the time lapsed, if the IRS finds out that someone owes them taxes, they leverage all possible means to recover the amount. In a recent case of unpaid employment taxes – “Beeler vs. the IRS” – the federal body went after three individuals as their employer failed to pay the withheld payroll taxes. What is surprising is that the IRS went after one of these employees 30 years after the company defaulted. You might be wondering why the employees had to suffer? To understand why the employees were held accountable, let’s start by explaining the concept of a “responsible person”, as viewed by the IRS.
Who is a “Responsible Person”?
Every year, employers withhold federal income and payroll taxes (also known as “trust fund taxes”) from the salaries of their employees and pay them to the IRS. Failure to make the payment may lead to penalties. According to Section 6672 of the IRS tax code, if the “responsible persons” fails to withhold taxes or default willfully, they may be liable to a penalty equivalent to the amount of the unpaid payroll taxes. A “responsible person” is someone who can, or has the authority to direct someone, to collect, account for, or pay over the trust fund taxes.
Implication in the “Beeler vs. IRS” case
In 1982, a company called Equidyne Management failed to pay employment taxes. Later, in 1985, the IRS assessed 100 percent penalty against three of its employees – Joel Beeler, Robert Liebmann and Stuart Ross. The three were held accountable for the failure, as they were the “responsible people” entrusted with the job of withholding taxes from the salaries of employees and paying it to the IRS. Now that you know who is a “responsible person”, you would know why these three were held responsible.
Later in 1995, the IRS collected $81,000 from Ross and awarded judgements against Beeler, Ross, and Liebmann for $154,000, $117,000 and $154,000 respectively. The IRS, however, made a mistake in 2001. It released the tax liens against all three, which should have ideally lasted for 10 years. After 6 years, upon realizing the mistake, the IRS went after Beeler to collect the outstanding dues and was able to prove that neither Liebmann nor Ross had fulfilled their obligations, and therefore, the court permitted the agency to collect the dues from Beeler.
The Lesson Learned
Businesses must ensure that they file their payroll taxes accurately and on time. Failure to pay taxes not only attracts financial penalties, but may also lead to criminal charges if the issue is ignored for long enough or in the presence of other aggravating factors. If you are having a tough time managing your employment taxes and need expert help, The Law Offices of Nick Nemeth will be happy to help. Feel free to contact us for all your questions and concerns related to IRS taxes. Simply call (972) 734-1171 or fill out our contact form and we’ll take it from there.