Corporate Officers at Personal Risk: Unpaid Federal Corporate Taxes

It is no secret that corporations face a host of tax obligations. In a time of economic uncertainty, you might wonder what the implications are for you personally when your corporation fails to pay. In America, a corporation is considered a “legal person” making the corporation itself distinct and separate from its owners. It’s important to keep in mind this does not completely absolve responsible persons within the corporation from liability.

When corporations get behind on fulfilling their tax obligations and the Internal Revenue Service (IRS) comes knocking, it is not uncommon for corporations to file bankruptcy and dissolve operations in an effort to avoid racking up more debt. Often, the IRS is left unsatisfied and is forced to look elsewhere for repayment.

Federal and state laws determine who might be next in line to foot the bill. Anyone within the company who is responsible for financial decisions or company funds should be on high alert when something as minute as a professional title can determine personal liability. Responsible parties can include bookkeepers, financial officers, accounting department personnel, and payroll supervisors.

Once the IRS determines who is responsible for acquiring the debt on behalf of the company, they will send a Notice and Demand of Payment. If this bill is not satisfied, the IRS imposes a federal tax lien. A federal tax lien is the government’s legal claim against an individual’s property for an unpaid tax debt. These liens encumber all property owned or acquired by the individual from the date of assessment onward. These liens are public record and can keep individuals from selling or mortgaging property, wreak havoc on credit scores, and affect future employment. In the event an individual is not able to satisfy the lien filed against their property, the government can seize and sell the property to fulfill the debt. Some liens are not dischargeable in bankruptcy. In 2019, the IRS filed a total of 543,604 federal tax liens.

In some serious circumstances, if a person is found to have willingly misrepresented taxation documents or willingly taken steps to avoid payment thereof, that person will be charged with a felony. If convicted, the penalty comes with a $10,000 fine, five (5) years imprisonment, or both.

The easiest way to avoid these harsh penalties is to ensure your company is correctly assessing and paying their taxes on time. When this is not possible, it is important to be steadfast in correcting the problem. The next best option is to familiarize yourself with the IRS code, get in contact with a competent tax attorney or CPA, and keep detailed and accurate records.

If you have questions regarding corporate tax and liability, please feel free to contact Attorney and CPA, Cody Walls at Denton Law Firm located in Paducah, Kentucky, at (270) 443-8253.

Researched and Prepared by Morgan Wiggins