A few days letter the bank records came in and Ben and the accountant prepared all of the back tax returns that had not been filed for employment, income, sales and unemployment taxes. Ben had no money in the business at that point to pay the taxes, so he just filed the returns without payment. The total due without penalties and interest was $50,000 to IRS, $50,000 to the state for sales taxes and unemployment taxes, $10,000 for state withholding taxes, and $10,000 for county taxes.
A few weeks later, Mr. Sorbe returned to the business and asked to see Ben. Ben came out wiping his hands on his apron. “What can I do for you, Sir”. The agent then informed Ben that he needed to interview Ben to see if he was a responsible party under the Internal Revenue Code Section 6672. If he was, then Ben would be responsible for the taxes. The questionnaire asked a ton of questions and Ben answered that he didn’t know the taxes were owing and that his partner handled the finances, but he was generally aware that these taxes needed to be filed and that he signed checks occasionally and hired and fired personnel and negotiated their wages. At the close of the interview Mr. Sorbe asked Ben to check his answers and sign the form, which Ben did.
A few weeks later, Ben personally received a bill from the IRS for $33,000 plus interest of $10,000 for a total of $43,000. Ben was aghast. He called Sorbe, “what is the meaning of this bill? he asked. “Its for the trust fund monies that you diverted from the IRS that should have gone to pay for your employees taxes. You’re responsible personally for that”, the agent replied matter of factly. Ben let fly a torrent of expletives and hung up. That afternoon Ben called his lawyer. “How come the IRS is now hitting me personally. I thought that when I got incorporated that I wouldn’t have any liabilities to creditors, what’s going on?” The lawyer cleared his throat, “well that’s not entirely true. You are liable to the Federal government and the states personally for trust fund taxes that are not paid to them such as withholding taxes, sales taxes, and corporate income taxes to some states. And its worse, those taxes are not dischargeable in bankruptcy, so they stay with you for at least 10 years” “You mean to say, that I’m personally liable for $100,000 in taxes to the states and feds. I haven’t got that kind of money?” “I think you should see a tax specialist who can advise you on this”.