“A company’s CFO is liable for its past-due employment taxes, a court says.
He had control over the company’s bank account and oversaw all aspects of the firm’s operations and finances, including payroll, tax return preparation and personnel matters.
The man also knew that the firm failed to deposit payroll taxes and file tax returns when due. He had check-signing authority and paid creditors before the IRS. That makes him liable for the tax shortfall” (The Kiplinger Tax Letter, Feb. 8, 2019).
The Church Law & Tax Take
The case referenced by The Kiplinger Tax Letter involved a motion for summary judgment by the government against the company’s CFO, a certified public accountant who was caught in 2009 embezzling from the company. The CFO’s actions resulted in more than five years of unpaid payroll withholding taxes by the company, or more than $11 million total. Throughout the scheme, the CFO told the company’s board the company was financially strong and meeting all of its tax obligations.
The CFO was charged with first-degree felony theft of property worth over $200,000 in 2013, pled guilty, and was sentenced to 10 years in prison.
$4.3 million in penalties
Separately, the IRS instituted $4.3 million in penalties against the company’s founder, indicating he faced personal liability as a “responsible person” of the company.
The estate of the founder, who had since died, legally challenged the penalties, prompting the government to file a counterclaim naming both the founder and the CFO. Earlier this year, a federal district court in Texas found the now-imprisoned CFO was a “responsible person” and ruled his “failure to pay taxes was willful,” making him responsible for the $4.3 million, plus interest.
Why is this issue relevant to churches?
The IRS watches this issue closely, doling out billions of dollars in fines and penalties for unpaid employment taxes every year. This means pastors and church board chairs must make certain all employment-related taxes are being withheld and remitted, on time and in full, every quarter. Failure to do so can lead to fines and penalties for both churches and individuals alike.
Get more help on payroll matters through CPA Elaine Sommerville’s book, Church Compensation – Second Edition: From Strategic Plan to Compliance.
