The Responsible Person Penalty

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The Responsible Person Penalty

By | April 2011
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Responsible Person Penalty: A Look at the Elements
By Mark Segal
CPA Journal, April 2004
Submitted: April 29, 2011
The United States Tax Code is arguably the most important government publication in existence. Comprised of hundreds of rules, exceptions to the rule; and the power to enforce each, when it comes to tax planning it’s either ‘sink or swim’. According to the IRS there are many mandatory taxes that must be paid by the corporation. Social Security, Medicare, and Unemployment are examples of such taxes. The totality of these taxes is called payroll tax, in other words, taxes that are taken directly out of your check. If the measure of importance is detailed by how severe the penalty is; it is safe to assume this tax is very important to the IRS, and is not to be taken lightly. In the article by Mark Segal, he speaks on what the responsible person penalty is, a way to defend yourself against it, and several cases that have helped to shape the enforcement of this penalty. The responsible person penalty states that “Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.” In laymen terms, if the IRS finds that the taxpayer who attempts to not pay the truthful amount of payroll tax not only has to pay the tax debt, but also a penalty of the same amount. For example, if the tax debt was $50, the penalty is equal to the tax debt so the total tax obligation now is $50+$50(penalty); for a total of $100 now owed to the IRS. For application of this penalty it has to be determined exactly what a ‘responsible person’ is. Generally it is seen to be “those persons that...

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