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High-risk loans: the folly of stiffing IRS on payroll taxes

August 06, 2009

Perhaps the worst move you can make as a business owner is skip paying your withholding tax liabilities. The penalties for delay are nasty; worse, anyone "responsible" for not remitting employment taxes to IRS can be personally liabile for them.

A former CEO of a florida hospital learned that the hard way Monday. When cash got tight, he used money withheld from employee paychecks to pay vendors, rather than the IRS.

There is no dispute that Plaintiff was the president and CEO of GHCH during the tax quarters in question. He admits that he knew that the payroll taxes collected from hospital employees had not been turned over to the government in their entirety for the quarters ending in March and June 2003. He acknowledges that he had the authority to make payments on behalf of the hospital. In fact, Plaintiff admits that he signed checks totaling over 2.9 million dollars (see Gov't Ex. 26), paying other creditors, rather than the government, while he knew that payroll taxes were delinquent. Thus, he decided to use the money withheld for payroll taxes to pay suppliers or other creditors when he knew that payroll taxes were due and owing to the government.

The bottom line:

The two legal issues informing the resolution of this case are 1) whether Plaintiff was a person responsible for paying over to the government payroll tax funds collected from hospital employees for the May and June 2003 tax quarters, and 2) whether Plaintiff acted willfully in failing to pay over those funds. Because the court has now ruled for the government as to each issue as a matter of law, the clerk is directed to enter judgment in favor of the United States and against James Doulgeris in the amount of $1,935,204.33.

The Moral: If you don't remit withheld taxes, you're on the hook, down to the last 33 cents.

Cite: Doulgeris, USCD-MD-FL, No. 8:08-cv-00282