July 29, 2022 12:50 am

No Innocent Spouse Relief for Unpaid Payroll Taxes

Withholding from employees’ paychecks—income taxes and FICA—is referred to as trust fund taxes because the employer is holding them in trust for employees until deposited with the U.S. Treasury. Failure to make the deposit can result in trust fund recovery liability, which is a 100% personal penalty on a “responsible person” (e.g., an owner) who willfully fails to make the deposit.

In one recent case, a spouse, who was a co-owner and secretary of a corporation, was charged with this penalty. She tried to escape it by arguing for innocent spouse relief. The Tax Court flatly rejected her claim as a matter of law (Chavis, 158 TC No. 8 (2022)). Innocent spouse relief is specifically for joint and several liability that results from filing a joint federal income tax return. There is no innocent spouse relief for payroll taxes.

Tax Glossary

Incentive stock option

Option meeting tax law tests that defers tax on the option transaction until the obtained stock is sold.

More terms