The Consequences of Not Remitting Collected Taxes

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs and forensic accounting services in Philadelphia and the Delaware Valley.

Almost every organization is responsible for collecting and remitting taxes. These taxes, which occur on the Federal, state, county or local levels, can include payroll taxes – such as income tax, Social Security tax, Medicare tax and unemployment tax – as well as sales taxes, excise taxes, fuel taxes and others.

“These taxes belong to the governmental taxing authorities,” said Certified Fraud Examiner David Anderson of the Philadelphia forensic account services firm of David Anderson & Associates, “and should not be used by the business at any time for any reason.”

He explained these tax types often are referred to as “trust fund taxes,” evoking the concept that the organization is holding the tax monies “in trust” for the government because they have been withheld from tax payers by the business.

Some organizations which are experiencing cash flow or financial difficulties have used these funds for financing operations, Anderson said, instead of timely remitting the funds to the governmental taxing authorities.

Their logic, he said, usually is that if they can’t continue to operate, then they will have to lay off employees – which would cost the taxing authorities both payroll taxes and unemployment payments – and they will lose sales – which, similarly, would cost the authorities sales taxes, excise taxes and fuel taxes.

However, taxing authorities believe the taxes become their property the minute the organization withholds them from employees or collects them from customers, said Anderson.

The failure to remit these collected taxes in a timely fashion, he said, can result in penalties and interest being charged to the organization.  In addition, such failure can trigger trust fund penalties of up to 100% of the unpaid taxes, a practice commonly known as the “100% Penalties.”

Under these penalties, Anderson said, not only is the organization responsible for the unpaid taxes, but also any person – termed by the law as “Responsible Persons” – who can effectively control the finances or determine which bills should or should not be paid and when.

Under the law, he said, the term “responsible person” is very broad and can include employees and shareholders/partners, as well as others outside of the formal organization – including, potentially, sureties and lenders.  Additionally, taxing authorities don’t have to wait to see if they will be paid by the organization; they can, Anderson said, go after the responsible persons at any time.

As if the 100% penalties aren’t enough, the fraud deterrence professional said, taxing authorities also can pursue criminal fraud complaints if they view that the owners – or officers, in the case of non-profit organizations – have used the unpaid taxes to benefit themselves.  This includes compensation, fringe benefits, expenses paid on their behalf, distributions or dividends, loan repayments and retirement plan contributions.

A failure to remit taxes collected on behalf of governmental taxing authorities in a proper and timely fashion, Anderson said, can have significant and dire consequences.  One way to avoid this issue in the case of payroll taxes is to employ a professional payroll service to withhold and pay such taxes.

In addition, many of these same companies offer similar services for sales, excise and fuel taxes.  Organizations in financial need should consult their professional advisors and other financial companies – such as lenders, factors, floor plan providers, etc. – in order to find other ways to finance the operations of their organizations without resorting to the improper use of collected and withheld trust fund taxes.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

(Editor’s Note: David Anderson’s weekly blog will be on hiatus next week for the Independence Day holiday. His column will resume Monday, July 11.)