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Illinois gets a responsible legislator. He'd rather not be.

October 09, 2008

We want our elected representatives to be responsible, but a Rockford, Illinois legislator learned that responsibility can have a steep price - in this case, $41,432. The Seventh Circuit Court of Appeals ruled that Charles Jefferson is a "responsible person" with respect to unpaid payroll taxes from a day care center.

Mr. Jefferson was the unpaid president of the board of directors of New Zion Day Care Center, Inc. Their finances were precarious, and they fell behind on payroll taxes. Mr. Jefferson secured a loan to get the taxes paid, but they got behind a second time when Velma Hayes, the center director, opted to pay other creditors first.

Because payroll withholding is such a big part of the tax collection system, the tax law lets the IRS go after those "responsible" for not remitting payroll taxes if their failure to remit is "willful." The court said that Mr. Jefferson met these standards, even though he was an unpaid board member:

Indeed, the record suggests that Jefferson was not only aware of New Zion's history of tax payment problems, but he was also aware of its current state -- Hayes generated monthly reports that were given to Jefferson and the other board members at each meeting, reports that showed a steadily increasing tax liability.2 Moreover, Hayes repeatedly informed the board that the day care was having difficulty paying its bills, including its tax obligations.

By failing to heed these warnings, Jefferson recklessly disregarded a known risk that the taxes were not being paid. It is irrelevant whether Jefferson knew the taxes were going unpaid, as he claims.

The Moral? If you serve on a board of a non-profit, and you get any hint that payroll taxes aren't being remitted, scream and shout until they are, and resign if they continue to go unpaid. The tax law gives you no credit for your good deed of serving the community without pay.

Link: Charles E. Jefferson v. U.S., CA-7, No. 06-4082

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