Who is Liable for Trust Fund Taxes?

When a contractor or subcontractor is forced to liquidate because of cash flow problems, there may remain a significant financial liability to the federal government for collected, but unremitted, employment taxes. The Employee Federal Insurance Contribution Act (“FICA”) taxes and withholding taxes may have been improperly used to pay the businesses’ “more pressing” creditors instead of being paid over to the Internal Revenue Service (“IRS”). While it is clear the actual employer, whether partnership, corporation, or other, is liable for the taxes, other “responsible parties” are also liable. This paper examines many cases involving the court’s determination of who may be considered “responsible parties” for the taxes and penalties, penalties that can be as high as 100% of the taxes due.