Failing to pay your payroll taxes is a big deal and a felony.
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Sec. 6672(a) provides that “any person required to collect, truthfully account for, and pay over any tax imposed by” the Internal Revenue Code who willfully fails to do so, will, “in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax … not collected … and paid over.” Therefore, payroll tax penalties can be imposed on any responsible person, regardless of the entity type or even whether the person owns any part of the entity.

Although the responsible person and the willful failure tests have to be met for the trust fund recovery penalty to apply, once the penalty is assessed, the person held responsible has the burden of disproving these two elements.

If your company is not paying payroll taxes timely you need to be aware that the IRS is aggressive in pursuing these cases and in assessing the trust fund penalty. The IRS sees payroll taxes as the government’s money and believes those who have not paid are taking their money. Unpaid trust fund taxes can add up quickly, and the trust fund penalty is not dischargeable in bankruptcy. In fact, failing to pay trust fund taxes can lead to criminal charges. Under Sec. 7202, a willful failure to pay over or collect tax is a felony punishable by up to a $10,000 fine or five years in prison, or both.