CAN A LENDER BE RESPONSIBLE FOR UNPAID PAYROLL TAXES?
When I was employed at the Internal Revenue Service (IRS), a push was made in the last 10 years concerning unpaid payroll taxes.
Approximately 81% of the tax revenue into the United States Treasury comes from payroll taxes and federal withholdings. Because of its importance, the United States Congress gives the IRS broad powers to collect taxes, especially payroll taxes.
But how far has Congress allowed the IRS to go in collecting?
Can the IRS go after employers to collect unpaid payroll taxes?
Yes.
What about employees who are responsible parties for the unpaid payroll taxes?
Yes.
What about those who lend money to businesses for payroll?
Yes. I know.. It sounds bizarre.
Title 26, United States Code, Section 3505 is a provision of the Internal Revenue Code which allows the IRS to collect from lenders for unpaid payroll taxes incurred by borrowers.
So, let’s take into consideration the father who helps his son start a landscaping business. The son hires employees, and times are tough during the winter season.
The son asks his father for a loan to make payroll, with the father knowing that what is borrowed is going to pay for net wages, and not for payroll taxes.
In this case, the father could be held responsible for the unpaid payroll taxes that the son did not pay to the IRS.
Who would have thought that being nice comes with such a risk?
But wait there’s more….
The provisions of section 3505(b) do not apply in the case of an ordinary working capital loan made to the employer. Because the loan can be used for many other purposes, the lender is not obligated to determine the exact purpose.
However, section 3505(b) is applicable where the person supplying the funds has actual knowledge at the time of the advance that the funds are to be used specifically to pay net wages whether or not the written agreement under which the funds are advanced states a different purpose.
Whether or not a lender has actual notice or knowledge that the funds are to be used to pay net wages, or merely that the funds may be so used, depends upon the facts and circumstances of each case.
So, in essence, knowledge of the circumstances and the type of loan do make a difference in whether the lender can be held liable for unpaid payroll taxes.
Want to learn more??? Or do you have payroll tax problems???
If you are having unpaid payroll tax problems, you need to get professional advice to help you navigate these types of landmines. Nordlander CPA, PLLC can help.
Summary
Unpaid payroll taxes can be tricky. Small business owners and their families can find themselves in a complete mess if they don’t have adequate advice.
If you have a need for resolving your tax problems, Nordlander CPA, PLLC can help. Located in the Greensboro NC area, the firm is a boutique forensic accounting and tax resolution firm that helps clients with their complex financial matters.
