South-Western Legal Studies in Business

Company Officer Personally Liable for Failure to Pay Company Taxes
Description Appeals court held that a company officer was personally liable for the taxes owed by a company he worked for. His defense that he was only an employee responding to orders from superiors did not hold, as he was an officer of the company responsible for payroll and taxes.
Topic Agency
Key Words Corporate Officer; Responsible Person; Taxes
C A S E   S U M M A R Y
Facts Lubetzky joined MediaForum as an employee and was appointed treasurer and chief financial officer. He had check-signing authority and prepared payroll checks and tax returns. A year later, MediaForum, a subsidiary of a British company, was sold in pieces and Lubetzky served as president while the company was dissolved. The IRS sued Lubetzky for failure to pay federal withholding taxes for MediaForum for more than a year. The trial court held that Lubetzy was a responsible person, given his position in the corporation, and was personally liable for a $90,000 judgment for the unpaid taxes. He appealed.
Decision

Affirmed. Lubetzky's defense is that for most of his time at MediaForum he was under the control of the company president. He had told him that taxes had not been paid, but was told to wait. As such, he contends that he did not have sufficient authority, on behalf of the corporation, to pay taxes. That defense is not available. Under federal tax law, a person is personally liable for willfully failing to pay federal withholding taxes if the defendant knew that the taxes were due from his employer yet failed to pay the taxes. Lubetzky was an officer of the corporation with check writing authority, so he was a responsible person. Hence, he assumed personal liability for taxes due from MediaForum when he failed to pay the taxes.

Citation Lubetzky v. U.S., 393 F.3d 76 (1st Cir., 2004)

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