Taxes for your Company = Taxes for your Person

Posted by Bill Bockwoldt on November 8, 2010

We at Vibato have posted about this topic before but some of our customers just don't seem to want to believe it.  I thought I'd post again since there is now recent case law to support our claim.  The IRS may hold people responsible for overdue taxes that you wouldn't typically suspect - what this means is if you are an accountant, administrative assistant, CEO, etc at a company and you sign the tax return, you could be held liable for the tax due from your company.  Yes - you could be liable.  This happened to a customer of ours; when the company ran out of money and didn't pay the tax bill, the IRS came to the office and told the Jr. accountant that because she signed the tax return, she was personally liable for the taxes due. 

Now, on Nov. 1, 2010, this type of issue went to trial and again, the employee of a company was found to be liable for the outstanding sales and use tax incurred by the company they work for.  Here is a snippet of the ruling:

5.InPhonic had an in-house tax department and also hired and relied upon outside accountants with regard to tax compliance and other matters. InPhonic’s tax personnel reported to its chief financial officer (CFO) who in turn reported to petitioner. Petitioner hired the approximately eight persons at InPhonic who reported directly to him, and he recommended the person who was hired by the board of directors as Inphonic’s CFO.

6.While not disputing that he had authority with respect to the operations of InPhonic, as described, petitioner maintained that given the size of the company and the volume of its transactions he could not as a practical matter personally oversee all aspects of Inphonic’s operations. Instead, petitioner relied upon those who reported to him including, with regard to tax matters, InPhonic’s CFO and its outside auditors and tax professionals. Petitioner also noted that as the result of the Sarbanes-Oxley Act of 2002 (see 15 USC § 7201, et seq., Pub L 107-204-4[2002 HR 3763, July 30, 2002], 116 Stat 745), InPhonic’s internal audit functions and tax functions were handled by different outside firms (KPMG for audit work and Ernst & Young for tax work, respectively) and that his direct interaction with InPhonic’s operating finance employees was discouraged if not prohibited.

CONCLUSIONS OF LAWA. Tax Law § 1133(a) imposes upon any person required to collect the tax imposed by Article 28 of the Tax Law personal liability for the tax imposed, collected or required to be collected. A person required to collect tax is defined to include, among others, corporate officers and employees who are under a duty to act for such corporation in complying with the requirements of Article 28 (Tax Law § 1131[1]).

Long story show, the founder and CEO of this publicly traded company was found to be personally liable for the outstanding sales and use tax.  Read more about this case here:

Tags: Sarbanes-Oxley Articles & Information, Tax Information