Responsibility for withheld taxes.RESPONSIBILITY FOR WITHHELD TAXES From a tax perspective, one ofa business's most basic responsibilities is to withhold with·hold v. with·held , with·hold·ing, with·holds v.tr. 1. To keep in check; restrain. 2. To refrain from giving, granting, or permitting. See Synonyms at keep. 3. and collect income and employment taxes from its employees' wages and to deposit them at regular intervals with authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: depositories or federal reserve banks. Sometimes, especially when a business is in financial difficulty or has a severe cash flow problem, these withheld taxes collected by the employer do not get deposited and are used for some other purpose. To ensure the collection of such delinquent delinquent 1) adj. not paid in full amount or on time. 2) n. short for an underage violator of the law as in juvenile delinquent. DELINQUENT, civil law. He who has been guilty of some crime, offence or failure of duty. or misappropriated mis·ap·pro·pri·ate tr.v. mis·ap·pro·pri·at·ed, mis·ap·pro·pri·at·ing, mis·ap·pro·pri·ates 1. a. To appropriate wrongly: misappropriating the theories of social science. funds, the Internal Revenue Service has the authority to take direct action and swiftly go after the employer. One of the major weapons the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. has is the right to assess individuals personally for the full amount of taxes due; this is known as the "100% penalty." The IRS may go after not only the employer and its employees but also any other third party associated with a business who may be considered a "responsible person." RESPONSIBLE PERSONS A responsible person is the individual (or those individuals) who is required to collect and pay over taxes and who willfully willfully adv. referring to doing something intentionally, purposefully and stubbornly. Examples: "He drove the car willfully into the crowd on the sidewalk." "She willfully left the dangerous substances on the property." (See: willful) fails to. Basically, the responsible person has the overall authority for ensuring the collected funds were paid over in the proper manner and has the ultimate decision as to which bills and creditors should be paid and when. (This control need not be exclusive, as long as it is significant.) While there is no specific title or position within a company that will always identify the responsible person for a business, certain factors determine which individual has responsible person status. All these factors center on who has sufficient control over the company's financial dealings and affairs: * Those individuals responsible for general financial affairs, as evidenced by an individual's title, job description, the ability to sign checks for the business or responsibility for preparation of the company's tax returns. * Those individuals with the broad authority to operate the company, such as corporate officers or directors. * Those individuals with an entrepreneurial stake in the business. The IRS may assess penalties against more than one individual. Any or all persons with authority over payroll and withholding Withholding Any tax that is taken directly out of an individual's wages or other income before he or she receives the funds. Notes: In other words, these funds are "withheld" from your wages. matters may be considered responsible persons. Because the basic criterion is sufficient control of a business's financial affairs, under appropriate circumstances, third parties (such as shareholders, investors, creditors, insurance companies, accountants or attorneys) might be deemed responsible. NET PAYROLL FINANCING There are certain situations in which third-party lenders provide companies with money by directly paying wages to employees; in such situations, often only net wages (that is, not including the taxes that should be paid) are paid to the employees. Lenders (and others who assume responsibility for expressly paying a company's employees) are directly liable for paying the taxes due the IRS. In addition, the lender who supplies funds may be liable if he or she has "actual notice or knowledge" that the responsible person who should be paying the taxes is not. WILLFULNESS To be considered a responsible person, in addition to having financial authority, an individual must have acted willfully. However, this has come to mean the responsible person was aware of the outstanding taxes and knowingly and intentionally in·ten·tion·al adj. 1. Done deliberately; intended: an intentional slight. See Synonyms at voluntary. 2. Having to do with intention. used the funds for other purposes (even if they were business-related). While lack of knowledge that payroll taxes Payroll Tax Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee. In most countries, including the U.S., both state and federal authorities collect some form of payroll tax. are due may be reasonable cause that an individual's actions in not paying taxes were not willful Intentional; not accidental; voluntary; designed. There is no precise definition of the term willful because its meaning largely depends on the context in which it appears. , the applicability ofthisjustlfication is extremely limited. For a discussion of responsible persons, see "The 100% Penalty," by Darshan darshan or darsan In Hindu worship, the beholding of an auspicious deity, person, or object. The experience is often conceived to be reciprocal and results in a blessing of the viewer. Wadhwa, in the September 1992 issue of The Tax Adviser. Nicholas Fiore, editor The Tax Adviser |
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