Bankruptcy – Chapter 13 and Chapter 7 – Can I Get Rid of Payroll Taxes?
A person cannot wipe out payroll taxes in Chapter 13 or Chapter 7. Payroll taxes are not considered property of the business. The business is considered to have held the payroll taxes in trust for the government. Failure to pay payroll taxes will be treated as a nondischargeable debt.
Using payroll tax money for any purpose other than paying to the IRS is a considered a crime. There are people who have actually gone to jail for failure to pay payroll taxes to the Internal Revenue Service. The Internal Revenue Service has published a great article on this subject. Click here to read it.
I recently met with a client who worked for a small company that owed over 50,000 to the Internal Revenue Service in payroll taxes. Since she allowed herself to be listed with the state as an officer of the corporation, she was held liable for the taxes along with the other officers of the corporation. If she had been a merely an employee of the corporation, she would not have been held liable. Her mistake was that she allowed to owner to list her as “secretary” of the corporation. After spending thousands of dollars in attorney fees trying to fight the IRS, the client finally was able to work out a payment schedule with the Internal Revenue.
Whenever a business ever gets to a point where it becomes difficult to pay payroll taxes, it is time to close the business. Never miss a payroll tax payment. No business is worth risking jail.
My practice is strictly limited to Chapter 13 and Chapter 7. I do not specialize in tax law.