Tax Brake with Robert G. Nath, Esq.

How's that? It goes like this. When a corporation fails to pay all of its payroll taxes, the IRS comes after the corporation. But if the corporation can't pay or is out of business, the IRS can (and does) impose PERSONAL liability on certain corporate officers for a portion of the payroll taxes. That portion is equal to the withheld monies that were not paid: employee income and employee FICA. (You are not liable for employer FICA).

When the agent comes around, he or she will investigate all persons who were “responsible” for the default. Normally, the agent will start with officers, shareholders and directors. People who could and did sign corporate checks are at great risk. Others at risk for this liability are those who managed employees, made financial decisions, made decisions on which creditors to pay, and when.

So, Spouse 2 happens to be “treasurer,” or “vice president” and also a director and 50% shareholder (at least during the time the corporation was operating). The revenue officer will certainly examine Spouse 2. If Spouse 2 also had signature authority at the bank, the danger is even greater. The revenue officer will naturally assume that husband and wife were running the business together; therefore Spouse 2 is liable.

To make matters worse, the “innocent spouse” rules do NOT apply to this liability.

So, when the couple separates, it's wise to review the payroll tax situation of the corporation. At least, make sure Spouse 2 is NOT a signatory, officer, etc. If he or she is (or was during the periods of delinquency), that should be a red flag, and should alert all parties to discuss the matter and make arrangements to protect Spouse 2.

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