A good friend of yours, John Smith, has been asked to take over management of a small
business that makes customized bicycles. The business has been shaky financially. The
company has managed to survive by using the income tax and FICA tax that it has withheld
from its employees' paychecks to meet its day-to-day expenses. John has spent many hours
talking with managers and workers at the bicycle company and, using what he has learned in
getting a degree in mechanical engineering at as well as a master's degree in Business
Administration from the school, he has some plans that he believes will enable the company to
become profitable and still pay the taxes that are withheld from its employees' earnings.
However, John, during the course of his investigation regarding the company, has discovered
that the total amount of past taxes that were withheld from employee's checks but not paid
over to the U. S. Treasury totals \$126,782.55. The company also owes another \$38,644.22 in
matching FICA taxes that it owes but was not paid.
John is concerned about whether, if he takes over management of the bicycle company, he
will have any personal liability for the unpaid withholding taxes and employer's share of FICA
taxes, the bulk of which are those that were withheld from the employee's earnings, which are
often referred to as the \"trust fund tax assessment\" or \"941 tax\" in reference to the form used
to report such payments.
Evaluate John's concerns about his potential personal liability for the taxes that the company
failed to pay over to the U. S. treasury. Find at least three cases that deal with this issue and
also cite relevant federal statutes. The library subscribes to Commerce Clearing House
(CCH) tax service which you can access on line. There are various articles that you may find on
this topic, as well, that area in CCH, tax journals, or even from a general search on line. Not
only do you need to find sources that deal with the issue of whether John will have personal
liability if he continues the company's past practices regarding the diversion of trust fund taxes
but also whether he will have liability for the existing delinquency if, after he were to take over
management of the company, he were to use funds received by the company to pay other bills
and salaries rather than paying the delinquent trust fund taxes and delinquent employer's
share of FICA taxes and also, address the penalty that the company will incur for being
delinquent on those taxes as provided in the Internal Revenue Code (IRC).