The Internal Revenue Service (IRS) expects businesses to meet their payroll tax obligations. But what happens when a business has not made these payments? Who is liable? Could the IRS go after the accountant?
The truth is that in some cases the IRS can build a successful case against a business’ accountant. This can mean the accountant is liable for the tax bill even if they are only providing accounting services for the business.
How does the IRS hold the accountant liable in these situations?
The federal agency will generally review the accountant’s role. If they find the accountant had “significant authority” over the business’ finances, they will likely attempt to hold that accountant liable for the unpaid employment taxes.
Does this really happen?
Unfortunately the answer is yes, this can and has happened. The primary example is that of Erwin v. United States. In this case, the IRS was able to build a successful argument to claim that the accountants qualified as responsible parties for tax purposes. As a result, they were able to hold the accountants liable for the business’ tax obligations. Evidence the IRS used to support their claim included the fact the accountants had the ability to pay bills using business’ funds and that they were given a signature stamp to sign off on payment on the client’s behalf.
This case serves as an example of why accountants are wise to tread carefully when a client grants such power as it will likely increase potential liability. Those who are in this position are wise to encourage their clients to pay the IRS first.
What if I face similar allegations of wrongdoing?
Take the allegations seriously. Those in this situation face more than penalties and the potential burden of the tax bill, their professional license and the future of their accounting business can also be on the line. It is wise to seek the counsel of a tax attorney to review the situation and advocate for your interests, better ensuring a more favorable outcome.