Monday, April 26, 2010

Payroll Tax Responsibilities - A Gentle Reminder

A recent Tax Court memo decision serves as a good reminder that an organization is ultimately responsible for payroll tax deposits and filings even if the duties are delegated to an outside provider. In McNair Eye Center, Inc. v. Commissioner, TC Memo 2010-81, the owner of the eye center was held to be ultimately responsible for the timely deposit of payroll taxes despite the fact he hired an outside CPA to take on those responsibilities. The CPA filed the 2005 Forms 941 in February of 2006 and failed to pay the 2005 payroll taxes. The IRS determined, and the Court agreed, that the ultimate responsibility for the payment of the payroll taxes was the owner of the eye center. Therefore, there was not a reasonable cause to abate the penalties related to the late payment of the payroll taxes and the late filing of Forms 941.

While this case involves a for profit entity, the rules are the same for nonprofit organizations. Organizations should take seriously all responsibilities surrounding payroll. The ultimate responsibility for the payment of the payroll taxes is often attributed to the board of directors of the nonprofit or the officers of the nonprofit. This is true even if the organization has hired someone to handle all of the payroll functions of the organization and even if the organization uses an outside payroll service to process its payroll.

Not only are the related penalties a concern for an organization, but anyone deemed to be a "responsible person" can be held personally liable for unpaid payroll taxes. Therefore, it is in everyone's best interest to institute procedures to confirm the organization's compliance in regards to its payroll tax deposits and its payroll tax filings.

7 comments:

  1. The payment of payroll taxes is an essential element of payroll management. It's not good to illegally borrow from the government. As taxes are the lifeblood of the government, I am pleased to know that most of the payroll staff working for payroll Colorado firms are dependable in terms of payroll tax deduction and payment. According to my research, most payroll managers providing for payroll processing services are mindful of payroll tax payment.

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  2. I think it's wise to check on payroll outsource service provider when it comes to timely tax payment and submission of tax forms. It's an essential process in order to avoid future liabilities. The in-house payroll team who use accounting software packages, like Peachtree Quantum and Peachtree Quantum 2011 should also be monitored just to make sure all is well.

    Thanks for the incredible reminder, Elaine!

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