Skip to main content

Another Example of Why You Need to Educate Yourself

The main function of all the activities at Seagull Technologies Inc is to education the small business community.  Here is an example of just hiring someone to take care of some of your business functions and not knowing if they are doing it right can cost you big time:

In Taylor v. Comm’r, T.C. Memo. 2024-33 (March 25, 2024), the Tax Court upheld the Trust Fund Recovery Penalty (TFRP) against Rodney Taylor for willful failure to pay employment taxes.

The IRS can assess the TFRP against a responsible person who is required to collect, account for, and pay over withheld taxes and willfully fails to do so. Mr. Taylor testified that he is not a responsible person because he has a learning disability that limits his ability to comprehend mathematical concepts. Because of that difficulty he hired an accountant whom he later successfully sued for embezzlement. In his view, the failure to pay employment taxes resulted from this embezzlement and not from any of his own actions.

(He should have asked for proof of payment from the accountant.)

The Tax Court disagreed with him, stating that as the CEO and sole shareholder of his company, Mr. Taylor was a capable individual who controlled all financial affairs, disbursed corporate funds, and exercised authority to hire and fire employees. Therefore, he had the authority to control the company’s obligations, whether or not he took personal responsibility for doing so. The tax court also found Mr. Taylor’s actions to be willful since he used available company funds, including funds from the lawsuit settlement, for other purposes such as to pay other obligations of the company, pay himself a large bonus, and transfer funds to a newly formed entity.

(You should always pay the IRS first. After all, they are the world's worst debt collector.)

The court also found that his other arguments, that he was not provided with proper notice of the TFRP assessment and that the IRS’s determination to proceed with the collection is an abuse of discretion, to be without merit. Accordingly, the Tax Court ruled against Mr. Taylor.

I always instruct my students, before you hire someone to do a job, at least learn the fundamentals by doing yourself first.  It allows you to properly interview people before you hire them and to know if they care about your business or are just another number on their spreadsheet.