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What is personal liability of minority shareholder of S Corp when Payroll taxes not paid?

Burbank, CA |

Minority shareholder in S Corp left company employment as President in 2006 and has not been involved in running company since departure. Company did not submit payroll taxes in late 2008 or 2009 to IRS or State Franchise Board but continues to operate. What is the extent of personal liability of majority or minority shareholders?

Attorney Answers 3


  1. The responsible party rules are designed to hold the people who are making the decision to prefer creditors over the IRS responsible for certain payroll taxes. If you are not involved with running the company you will not be found to be liable.

    However, hopefully you resigned in 2006 as President, because the IRS often initially attempts to assert responsible party status on all officers of the Corporation. So if you were the President in 2008 and 2009, you may have to explain away your activities or lack thereof and may have to hire tax counsel to prove it.

    Hope this helps.

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  2. In a corporation, those that are deemed responsible parties have personal liability for payroll taxes. Responsible parties include officers of the corporation, check signers, and those that have signed the tax returns. The theory is that these people had the ability to direct the funds elsewhere other than to the IRS. If you are a responsible party you can be responsible for the entire unpaid portion of the trust fund recovery penalty, which includes federal tax withholding for employee taxes, and the employee portion of FICA.

    Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.


  3. This is a serious matter and you should seek tax counsel immediately. The so called "responsible party" rules of the IRS are complex. If you had signature authority over checking accounts, even as a minority shareholder, you can have responsible party liability for unpaid payroll taxes, even after you left employment.

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