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Unpaid business payroll taxes.

When a business failure results in unpaid payroll taxes, the Internal Revenue Service has a powerful remedy in IRC section 6672. This statute allows assessment of any unpaid trust-fund payroll taxes against the responsible individuals. How powerful is the statute? Even personal bankruptcy does not discharge the liability. With this strong authority at its disposal, the IRS often aims at multiple individuals involved with a failed company, assessing the 100% penalty against officers, directors and key employees.

But this broad-brush approach has now backfired. In May, the Tax Court found, in Andersen v. U.S., that a group of corporate directors lacked sufficient control over corporate finances to be responsible for the penalty. Rather, the corporate president was held to be the sole responsible party.

The directors then brought suit to recover costs and legal fees from the IRS under IRC section 7430. And now an Ohio court has authorized reimbursement, noting the IRS position was not justified.

Observation: The IRS assessment had no reasonable basis in law because no court had ever held corporate directors, per se, responsible under this penalty. (Andersen v. U.S., 912 USTC 50,503, S.D. Ohio 9/30/91)
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Title Annotation:Andersen v. US and small business failures
Author:Biebl, Andrew R.
Publication:Journal of Accountancy
Date:Jan 1, 1992
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