Counselor’s Corner
By: Susan Berson

Q: I owned a business with a friend until she bought my interest, and I resigned. Over the last quarter, I slowly transitioned my projects and clients over to her so that we would ensure a smooth adjustment period. I just learned that during the last quarter I was there, and during first quarter after I had already resigned, she was not paying over the withholding taxes to the government. During the five years we were in business together, she always had the responsibility for handling our payroll. I never handled the payroll or tax returns. Can the IRS come after me for what she did even though I am no longer an owner and I was never handling the payroll taxes when I was an owner?

A: Section 6672 of the Internal Revenue Code permits the IRS to assess a penalty equal to the amount of the unpaid taxes upon all person(s) who were responsible for paying over the withholding taxes to the government. As a general rule, because you had ownership status, you would qualify as a responsible person within the meaning of Section 6672. In conducting a Section 6672 investigation, there are several criteria that the IRS will scrutinize to determine whether you should be assessed a 6672 penalty. The bottom line from your factual scenario, however, is that if you were an owner during the time period the taxes were unpaid and you had check signing authority on the bank account, the IRS could likely assess a Section 6672 penalty against you. Depending on the evidence that exists, it may be possible for you to argue that your liability should end when your ownership of the company ended (and presumably the signature authority on the company checking account also ended). Any evidence that would show that you took appropriate steps to see that she was paying the taxes would also be important to your argument.

Susan Berson is a partner in the Business Litigation Section of Shook, Hardy & Bacon LLP based in Kansas City. The answers expressed are those of Ms. Berson and should neither be attributable to the firm, nor a substitute for seeking your own attorney’s advice for any exceptions or additional facts that may be applicable to your situation.

If you have a question for Susan Berson, please send it via email to editor@flourishmagazine.com.