Federal Case Reminds San Diego Executives to Closely Monitor Payroll Tax Payments
The Southern District of Florida has dismissed an individual’s case against two business owners who allegedly used payroll taxes to fund their lifestyle. In Goldberg v. United States, a former Chief Executive Officer of a professional services company was ordered to pay a trust fund recovery penalty to the Internal Revenue Service after the Agency determined he was a responsible person for tax purposes. This penalty allows the IRS to hold an individual personally liable for any unpaid federal, social security, Medicare, and other payroll taxes if the funds cannot be collected from a business or other employer. The IRS normally utilizes a totality of the circumstances test to determine whether a party is a responsible person for trust fund recovery penalty purposes. Typically, a responsible person is anyone who has decision-making authority over the organization’s payment of creditors.
After the man paid a portion of the trust fund recovery penalty assessed, he filed a Form 842 Claim of Refund and Request for Abatement with the IRS. The Agency denied his request, and he instituted a lawsuit against the United States government. According to the man, he was entitled to recoup the trust fund recovery penalties he paid to the IRS after it erroneously determined he was a responsible person for the now-defunct professional services company. In addition, he argued that the former owners of the business were solely responsible for remitting the organization’s payroll taxes to the IRS. As part of his case, the man alleged that the former business owners used the so-called trust fund taxes for other purposes without his knowledge. Because of this, the man joined them as third-party defendants in his lawsuit.
In response to the man’s complaint, the former business owners filed a motion to dismiss the case against them based on a lack of personal jurisdiction. Under the Federal Rules of Civil Procedure Section 12(b)(2), a nonresident party to a lawsuit may not be sued in a state unless the case arises from some sort of minimum contacts or actions taken in that state. Normally, engaging in substantial activity within a state is required before a nonresident defendant may be forced to appear before a specific court. Although the man argued the former business owners conducted business for the professional services company within the State of Florida, the federal court found that the corporate shield doctrine applied to the case. The corporate shield doctrine generally prohibits a court from using the acts of an employer as a basis for personal jurisdiction over an employee. Although state corporate laws will not shield a party from being charged with a trust fund recovery penalty, they will usually limit a court’s personal jurisdiction absent some sort of fraud. Since the Florida court did not have personal jurisdiction over the former business owners, the Southern District dismissed the man’s case against them without prejudice and allowed his lawsuit against the U.S. to proceed.
If you are under examination by the IRS, you need a certified tax law specialist on your side. Attorney William Hartsock has more than three decades of experience representing and advising clients in San Diego and across California about their federal and international tax issues. To speak with a skilled tax lawyer, give Mr. Hartsock a call today at (858) 481-4844 or contact him through his website.
Goldberg v. United States, Dist. Court, SD Florida 2014
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