Recent cases from Illinois and Ohio regarding the withholding of income taxes offer insights into who the responsible person rules apply to at the state level.
Illinois Responsible Party
In 2020 the Illinois Independent Tax Tribunal found that the president of a healthcare corporation was a personally liable responsible officer for unpaid Illinois income withholding tax in 2013 and 2014, (15TT236, Dalisay Sulit v Illinois Dept of Illinois, May 20, 2020). The president incorporated taxpayer in 1994. During the years at issue, she was President, her husband was vice president and son secretary-treasurer. She became ill, and son took over running the business. Despite son’s admission he was responsible for failure to pay, the tribunal found the president a responsible officer and liable for the business payroll taxes.
Ohio Responsible Party
The Ohio case involved a Vice President, one of three owners, who claimed he was not liable for the business’s unpaid payroll taxes (George J. Papandreas v. Jeffrey A. McClain, Ohio B Tax Appeals, 2019-991, 04/20/2020). He argued he lacked control, supervision, or responsibility for filing the report or making the payments. Maintained, his role was limited to store development, leasing, and preparing legal documents during Company formation. Asserted other two owners were responsible for all financial and tax aspects of business.
The Board of Tax Appeals rejected the Vice President’s contention he wasn’t liable. The Board of Tax Appeals noted that while the other owners had responsible roles, multiple people can be assessed under Ohio law. Concluded, “if more than one person…is personally liable for any unpaid liability, their liabilities shall be joint and several.”
These cases illustrate different applications of the responsible party rules. In the first case, taxpayer tried to argue that other parties were more responsible in the second authority was delegated elsewhere. In both cases, personal liability was upheld and they were deemed responsible for the payroll tax problems.
Corporate Officer Liability
These decisions incorporate many responsible person (referred to as corporate officer or responsible party) cases across the country. Business owners must ensure income tax on compensation paid to employees is withheld. Failure to do so is a serious matter. Not only is the business liable, officers and directors can be personally liable leading to substantial penalties and criminal prosecution.
These two cases spell out, responsible person is defined as someone with significant control over the business. Signs of significant control include: authority to direct taxes be paid, significant ownership interest, check signing authority, ability to hire and fire, control overcompensation and ability to enter into contracts.
In uncertain times, business owners are tempted to use collected non remitted tax to cover expenses. These cases are a reminder that if unpaid, States will hold those deemed responsible personally liable.
Need Advice with a Business Payroll Tax Problem?
Call the qualified team of Attorneys and Accountants at The W Tax Group to get the answers you need. We can help you with trust fund recovery penalties, ERC audits, ERC audit penalties, and any other issues with payroll returns or taxes. For a free consultation with one of our lawyer’s call (877) 500-4930