Most of us learn growing up that we should exercise great care dealing with the tax man. Managing this for our personal taxes is easy enough. However, when you begin running your own business and eventually must have hired employees this becomes a somewhat more complicated issue. Understanding the implied and specific responsibilities is critical managing the process.

The real key point to understand is that the government’s position protecting their tax interest comes ahead of almost all concerns. Understanding what this means is critically important for everyone who has a role in the payroll tax processing activity.

Before we get into what occurs or can occur if the taxes are not paid and the business fails, let’s quickly discuss occassions where the taxes are underpaid or mistakenly not fully paid. The key issue in this case is intent to pay and quickly remedying the situation. If this occurs, there is little to be concerned about.

In the more serious situation where the business fails or in the process of failing a significant tax shortfall is uncovered the process is both more complicated and more direct in recovering the funds. To begin with, the principals, managers, and officers should understand very very clearly that no bill takes precedent over paying the taxes. Anyone who directs payments to others instead of to the taxes creates a potential liability for themselves personally.

The Internal Revenue Service (IRS) is interested in who the officers of the company were, who signed checks, who provided cash, and where the bank accounts reside. They will want to know what if any assets exist. They will want to know the disposition of those assets. If the assets are not sufficient, the IRS will seek the same information for the officer(s) of the company and check signers of the company. If any organization acted in a way that implies fiduciary responsibility the IRS will seek the details of this relationship as well.

Based on ability to pay, actions, and intent, IRS will work out how to recover the cash due to it. If a group is working to save the company and chooses to some requirement ahead of taxes, the probability is very high that this group has just made themselves liable for the tax.

Further, the IRS does not care about how far down in the organization an individual is. If they are signing payroll checks, the potential for liability is not inconsequential.