In re Vaughn, 2011-2 U.S.T.C. ¶50,681 (E.D.N.C. 2011)
Background. A federal court in North Carolina ruled that a minister met the definition of a "responsible person" under section 6672 of the tax code, and therefore the IRS could assess a penalty against her in the amount of 100 percent of the payroll taxes that were not withheld or paid over to the government by the church. Church leaders should be familiar with this case and its implications.
Without question, the most significant federal reporting obligation of most churches is the withholding and reporting of employee income taxes and Social Security taxes. These requirements apply, in whole or in part, to almost every church. Yet many churches do not comply with them due to either unfamiliarity or financial pressures. This can trigger various penalties. One of the most serious penalties is found in section 6672 of the tax code. This section specifies that "any person required to collect, truthfully account for, and pay over any [income tax or FICA tax] who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable for a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over."