Officers must use unrestricted funds to pay withholding

Article Abstract:

Deliberate non-withholding or non-payment over employment taxes is punishable under Section 6672(a). In Honey, 69 AFT2d 92-xxx, 92-1 USTC paragraphs xx,xxx (CA-8, 1992), the corporate officers who knew about their firm's unpaid employment tax, but chose not to pay it even when they had the funds to do so, were held liable for the firm's unpaid unemployment tax by the court. It was established that there was willful nonpayment of the tax since there was a deliberate and conscious decision on the part of the taxpayer to pay other creditors first before the IRS. The officers claimed that the firm's bank deposits were encumbered because they borrowed from their bank. The court ruled that these funds were unencumbered since the bank did not restrict the company's discretion over the deposits and, therefore, should have been used to pay the employment tax.

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Withholding credit not allowed for tax paid in later year

Article Abstract:

TAM 9602005 held that a taxpayer did not have the right to avail of withholding credits for taxes a corporation paid on his behalf on unreported wages for previous years. Meanwhile, TAM 9602003 indicated that the corporation cannot avail of an interest-free adjustment in paying back employment taxes because it was aware of the underreporting. The case involved a corporation that knowingly participated in a tax-avoidance scheme and an underreporting of taxes. The IRS decided that the credit cannot be allowed to the taxpayer because the withholding happened too late. Sec. 31(a)(1) holds that credit is available only against tax for the year of the withholding. Sec. 6205(a)(1) indicates that correction can be made without paying interest if the employer has made an error and underpaid without its knowledge.

Tax planning, Tax credits, Withholding tax

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Lender's liability for payroll taxes requires knowledge

Article Abstract:

The Tax Court decided in the 'Swiftships Inc.' case that a payroll lender is not liable for employment taxes if there is no actual knowledge within its organization that the borrower does not have an intention to pay the taxes. In reaching on a decision, the court determined whether or not the lender has the responsibility to examine outside of its own organization to find out if the borrower could or would pay employment taxes. According to Sec. 6323(i)(1), a lender has notice or knowledge of the inability or unwillingness of the borrower to pay taxes if the individual responsible for the loan is aware of this or anything that would have been discovered if the organization exercised due diligence.

Lender liability

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