Can the IRS hold me personally responsible for unpaid payroll taxes?

Yes. Failing to properly file and pay payroll taxes is a serious matter. If an employer fails to timely file and pay payroll taxes, the IRS is authorized to collect these taxes from the business or even a person who was responsible for withholding and paying these payroll taxes to the IRS.

In situations where a corporation incurs a payroll tax liability, and the IRS is unable to collect the taxes from the entity itself, the IRS may seek to collect the payroll taxes from individuals within the corporation. To accomplish this objective the IRS will interview different individuals of the corporation to identify who should be assessed the Trust Fund Recovery Penalty (TFRP). An individual is not responsible for a corporate payroll tax liability unless the IRS assesses a TFRP. The TFRP is the amount equal to the tax that an employer withheld or should have withheld from employees’ wages and failed to pay over to the IRS. It is important to note that payroll taxes and this penalty cannot be discharged in bankruptcy.

When the IRS tries to identify who should be assessed this penalty and made personally liable for the tax, the IRS looks to see who was responsible and willfully failed to pay the federal payroll taxes. The IRS is suppose to conduct a formal interview called a Form 4180 interview to determine if they are personally liable. The liable person is only responsible for the TFRP amount and not both the TFRP and the payroll tax amounts.

The IRS looks at many factors in determining whether someone is responsible for a payroll tax liability. However, one of the most important factors is control. Generally, the IRS considers anyone who has the authority to sign checks or the authority to operate the business on a day-to-day basis as someone who would have control over the business sufficient to assess a TFRP. Therefore, owners, officers, executives and payroll personnel may be considered responsible parties.