Limited Liability: Statutory Exceptions Part 2

Many incorrectly believe that if you form a limited liability entity such as an LLC that there is no personal liability. This is untrue.

There are federal statutory and usually state statutory obligations. The relevant federal ¬†statutes provide that so called “responsible parties” are personally liable for the non-payment of trust fund taxes. IRC Section 6672.

Trust fund taxes are the taxes withheld from employees paychecks to be paid to the federal government on behalf of the employee. These taxes include social security, medicare and income.

The responsible party is the person(s) who is responsible for collecting or paying over these taxes and who willfully fails to do so. The parties can include: officers or employees of a corporation and the equivalent persons in LLCs and other entities. Often these persons have to prove that they are not the person who has this responsibility.

This personal liability should it arise can not be erased through personal bankruptcy. That is these debts may never go away.

Many small business owners who are struggling  financially find this a convenient source of funds. This is the last source of funds that one should use.

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