Who is responsible for business taxes?

Ignorance is not necessarily bliss for a Minnesota business owner when it comes to regulatory compliance responsibilities such as the preparation and filing of taxes. Owners may be liable for the errors or even malfeasance of entrusted employees and representatives.

For example, U.S. law imposes very strict liability and responsibility for taxes. It requires employers to withold incomes and Social Security and Medicare taxes from their workers’ wages when their wages are paid. These funds cannot be used for other purposes and the government can take action against the company’s responsible officers, individually, for any unpaid taxes along with penalties and interest.

A responsible officer has the status, duty and authority to assure that the business does not default on the collection or payment of federal taxes. Penalties may also be imposed if a responsible person acts willfully by conscious failure to pay taxes and by knowing these funds will be used for another purpose.

For example, the U.S. Eight Circuit Court of Appeals — with jurisdiction over Minnesota — ruled in 2011 that a president and treasurer of a business was liable for not filing federal unemployment and employment tax returns for 2000, 2001 and 2002. Although the company’s bookkeeper believed that tax notices sent to the company were a mistake, the president and treasurer was still the responsible person for nonpayment of taxes.

This officer held half of the corporate stock in addition to hold check-signing authority, signed the corporations tax returns, decided which creditors would be paid, could borrow money and made decisions on large expenditures for the company. In addition to finding that this officer was responsible for the tax liability, the court found that this officer acted willfully because he met with the bookkeeper in 2004 and learned about the unpaid tax liability and that the funds were paid to other creditors.

Other rulings have been more severe. In 1994, the Eighth Circuit ruled that a company’s founder, officer and director who held check-signing authority was responsible for the nonpayment of taxes even though a subordinate embezzled funds.

Minnesota business owners and officers, accordingly, should seek legal assistance to help assure that its legal responsibilities are carried out and all regulatory compliance issues have been taken care of. Prompt legal advise during a business formation can help avoid penalties and fines.

Source: US Courts, Colosimo v. United States of America, No. 10-1593 (8th Cir., January 25, 2011), Assessed March 23, 2015

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