Ask Pete: Can I Be Liable for my Company’s Debts?
I’ve been the Officer-Secretary to my husband’s company whose President was his friend at the time the company was paying its creditors but not its payroll taxes to the IRS. Neither I nor my husband, who was not an officer, had authority to write checks without the President’s consent. The President left the firm, which has since folded up, and the IRS has assessed me over $100,000 for a “100% penalty” for the payroll tax the company didn’t pay. The revenue officer contends that since I signed the company’s checks, I’m liable for the 100% penalty.
What are my rights? What should I do?
Answer: Do not attend the initial meeting with the revenue officer without legal tax counsel. The mere fact that you had the physical power to write and sign checks is not enough to trigger the 100% penalty. You had no legal authority from the company, i.e., from its chief operating officer, the President, to sign checks without his prior consent. If you can prove that, you may dispel the inference that because you signed checks you had such authority. Handled correctly by our legal counsel, the IRS should “back off” from assessing you and leave you alone. Tax law case decisions are in your favor, although their pamphlets and regulations don’t give you solace.
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Disclaimer: The information herein contained is intended to be for general education purposes only, and should not be relied upon without the advice of an attorney familiar with the facts of the real-life situation.