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Des Moines businessman 'responsible' for nearly $700,000 payroll taxes not remitted by his bookkeeper

March 03, 2010

EFTPS.JPGImagine how it feels to suddenly find out that your trusty bookkeeper has fallen three years behind on remitting payroll taxes for your business, and the IRS wants it now. That may have happened to Charles Colosimo, the owner of a Des Moines delivery business with 30 employees; now a federal judge has ruled that Mr. Colosimo is personally on the hook for back taxes of nearly $700,000.

Mr. Colosimo is stuck with the taxes even though the court found that his bookkeeper may have gotten him in trouble to begin with. The problem came to light when Mr. Colosimo asked his outside accountant to follow up on IRS notices looking for missing payroll tax returns. The judge said that once he got the bad news, the tax problems should have been his only priority:

It is undisputed that Colosimo knew of the unpaid taxes by June 4, 2004. It is also undisputed that between June 4, 2004 and Labor Day 2004, C&C Distribution disbursed funds totaling $902,084.99 to creditors other than the United States. C&C Distribution made further large payments to creditors other than the United States after that time. Under any view of the facts, Colosimo knew about these payments. This evidence is proof of willfulness as a matter of law.

Because he was considered a responsible person who "willfully" paid other creditors while owing the taxes, the judge says Mr. Colosimo is on the hook.

What could he have done differently? Here's a hint:

Colosimo’s role as president and treasurer was that of an overseer of the different components of C&C Distribution. Colosimo did not know the password to the EFTS system. Colosimo did not have the technical knowledge to pay the payroll taxes through the EFTS.

"EFTS" here means the Electronic Federal Tax Payment System, usually known as EFTPS. Taxpayers with EFTPS can go online to check the status of their payroll tax accounts.

It's too late for Mr. Colosimo, but it's not too late for you. Whether you use a payroll service or you do your payroll taxes in-house, learn how to go online to EFTPS; then check regularly to make sure your employment taxes are being paid. If you don't do so now, the IRS will make sure you do later.

Cite: Colosimo vs. United States, DC-SD Iowa, No. 4:08-CV-00397.

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The IRS has a low burden of proof in making a responsible person assessment under Section 6672 of the Internal Revenue Code. Mr. Colosimo's offense is one of neglect. As the owner of the business, he was responsible for oversight and was negligent in allowing $700,000 in withholding taxes (meaning probably about $1 Million when you include the employer's share of FICA and Medicare taxes) to go unpaid. He stuck his head in the sand and this is what happened.

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