Personal Liability Creep Properly forming and capitalizing a business generally provides broad protection from personal responsibility for the debts and liabilities of the respective entity. However, with the recession and increasingly more statutory requirements regarding trust fund taxes, personal liability is creeping in as the “corporate veil” is thinned. The advice of a seasoned Seattle tax attorney will provide welcome guidance on many aspects of Seattle litigation and protective business practices. Personal liability creep occurs in the private sector. Predictably, when money becomes tight during economic downturns, conflicts between businesses rise and courts explore equitable ways to compensate those it determines were “wronged.” Given the recession, it is increasingly more important for business owners to protect themselves and follow all business formalities. This will maintain a formal, legal separation between business and personal affairs. For example, corporate business owners must have annual corporate meetings; all business meetings and other key decisions should be properly documented with minutes and consents; all required filings should be executed; finances should be kept separate from personal finances. It is ill-advised to comingle business funds with personal funds such as paying personal bills with corporate checks or vice versa. Failing in just one of these areas could provide a court with justification to pierce the corporate veil and allow creditors to begin a dreaded personal liability creep. An experienced Seattle tax attorney has the knowledge to help business owners sift through these recommended business practices, improving the security of a corporation’s integrity and overall protective shield against personal liability. Creditors may be a lender, a prevailing party in a lawsuit, or an unpaid vendor. A notable area of personal liability creep occurs between the private and public sectors when the government is wronged and trust fund taxes are not properly remitted. Generally, trust fund taxes are those withheld by a business for some government entity such as sales or use taxes, excise taxes, unemployment taxes, or even payroll taxes. Such taxes are statutorily nondischargeable in bankruptcy and can expose personal assets. The biggest surprise occurs when a business owner contracts with its worker to be an independent contractor. When upon investigation by the IRS it is determined that the worker is an employee and all FICA taxes are now due. While some saving grace exists for businesses that follow a host of other requirements, there are many penalties and taxes the business is statutorily required to pay even if the worker properly paid all the taxes via their personal tax return. Furthermore, a
reclassification from “independent contractor” to “employee” might give such employee recourse to sue its employer for a potential discriminatory act making the formalities discussed above important once again. Personal liability creep can occur in other ways. It occurs voluntarily when business owners personally guaranty debt acquired by the company. This is increasingly more common given the recent lending meltdown. Personal liability creep can also remain with business owners long after the sale of the business occurs to the extent consistent with the discussion above. To insulate your business from personal liability creep, consult a Seattle tax attorney. Darin T. Jensen is a Seattle tax attorney with the firm Lasher Holzapfel Sperry & Ebberson, PLLC. Eliminate the confusion associated with Seattle litigation and secure representation to protect your business interests at Lasher.com.
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Published on Nov 28, 2011
Personal liability creep occurs in the private sector. Predictably, when money becomes tight during economic downturns, conflicts between bu...