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Woman May be Held Personally Liable for Former Employer’s Unpaid Trust Fund Recovery Penalties in Pending Federal Case

Woman May be Held Personally Liable for Former Employer’s Unpaid Trust Fund Recovery Penalties in Pending Federal Case

In Ransier v. U.S., a woman filed a lawsuit in federal court seeking to recover $3,600 in trust fund recovery penalties that were withheld from the woman’s 2011 federal income tax refund by the U.S. government. The plaintiff also asked the court to rule that she was not a responsible person under 26 U.S.C. Section 6672.


The U.S. Tax Code directs American employers to withhold certain payroll taxes from each employee’s paycheck. The funds withheld are normally called “trust fund taxes” because they are held “in trust” for the worker until the money is remitted to the Treasury.  The law states an individual who is responsible for collecting or accounting for any trust fund taxes withheld by an employer that are not timely submitted to the U.S. Treasury may be held personally liable for the unpaid amounts. In general, whether an individual is deemed to be a responsible person under the Code requires a “totality of the circumstances test.”



In response to the woman’s lawsuit, the U.S. government filed a motion for partial summary judgment. According to the government, the funds taken from the woman’s tax refund were appropriately collected and applied to the nearly $300,000 in unpaid trust fund recovery penalties that were owed by the woman’s former employer. The government also claimed the undisputed facts of the case demonstrated that the woman was at all relevant times a responsible person who willfully failed to remit the overdue payroll taxes.


According to the Idaho court, Rule 56(a) of the Federal Rules of Civil Procedure states summary judgment may be granted in situations where no genuine material facts are in dispute and the moving party is entitled to judgment as a matter of law. All material facts used to create a dispute must also be admissible into evidence. In addition, any evidence provided to the court must be viewed in the light that is most favorable to the non-moving party.


After addressing the applicable standard of review, the federal court examined the facts of the woman’s case. The court stated the woman did not dispute the amount of trust fund recovery penalties owed by her former employer. The woman also conceded that she could be viewed as a responsible person under current law. Despite this, the plaintiff argued that she did not act willfully. As a result, the Idaho court granted the government’s motion and held that the woman was a responsible person for purposes of the statute. The federal court also held that the amount of the trust fund taxes owed could not be contested at trial. Finally, the court ordered the parties to engage in a trial regarding whether the woman acted willfully when she failed to collect and remit her former employer’s payroll taxes to the U.S. Treasury.


Successfully navigating the Internal Revenue Code on your own can be difficult. To discuss your payroll or other tax obligations with a certified tax law specialist, call attorney William Hartsock today at (858) 481-4844. Mr. Hartsock is a veteran tax lawyer with more than three decades of experience advising clients across Southern California about their income and other tax issues. You may also contact Mr. Hartsock through his website.


Additional Resources:

Ransier v. U.S., Dist. Court, D. Idaho 2014



Photo Credit: ronnieb, MorgueFile


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