I am going to take a break from 2010 and Estate Tax Stories and devote my next tale to the 100% penalty under Section 6672 of the Internal Revenue Code of 1986. A similar penalty is also present in almost every state tax statute. Usually a corporation affords its owners, employees, and officers complete immunity for corporate debts and acts. However, once the Federal Government started having employers withhold taxes at the source and State Governments started collecting taxes on sales and also having income taxes withheld, they noticed that corporations would simply not pay the taxes and then go bankrupt leaving everyone holding the bag but the officers and directors of the Corporation who diverted the funds. So they put in statutes which hold personally responsible employees, officers and directors responsible for INTENTIONALLY failing to pay over withholding taxes. The key word is of course intentionally. In this case ignorance of the law or ignorance of the facts is an excuse. Therefore, an owner who has an employee or a partner embezzle money or lie about paying the taxes, may and I emphasize may, get off the hook. An owner who didn’t know about the rule (the common law of stupid) might be relieved of personal liability. The rule is that a conscious choice must be made to prefer another over paying the withholding taxes. This leads to some rather interesting results as some tax tales will show.