Request By:
Mr. Gene R. Osselmeier, Esq.
204 Walnut Street
P.O. Box 577
Shepherdsville, Kentucky 40165
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Alex W. Rose, Assistant Attorney General
This opinion is written in response to your letter of April 19, 1983. The situation which you describe is one in which taxes were withheld from the wages of one particular employee of the Salt River Water District, but the monies withheld for the period of January 1, 1973 through June 30, 1979 were never reported or remitted. Since this period of time, new commissioners have been appointed and they desire instruction on how to rectify this situation.
Your specific questions will be answered in order as follows:
1. What duty and responsibility do the present commissioners have in collecting the funds representing withholding taxes as herein described?
Both Kentucky tax statutes [KRS 141.330(3)] and the Internal Revenue Code [Section 3402(d)] provide that an employer who fails to withhold, report or remit any taxes is personally liable for the payment of all taxes which he was responsible for withholding.
The federal government imposes certain penalties for failure to withhold, failure to file and failure to pay the taxes due. These penalties are deemed a personal personal liability of the employer.
Section 6651 of the Internal Revenue Code imposes a five percent (5%) penalty of the net amount of tax due for each month that the filing is delinquent [twenty-five percent (25%) maximum penalty]. If assessed for failure to file, the penalty runs from the return's due date to the date the withholding form is filed. This penalty may be adjusted if the failure to file was not based on willful neglect.
In cases where the employer fails to pay the tax withheld, interest is charged at twenty percent (20%) [twelve percent (12%) before February 1, 1982] per annum from the date the tax became due until paid. (See Internal Revenue Code, Section 6601(1)). An additional penalty is imposed for failure to pay the amount shown as tax on any return to which the penalty for failure to file applies, and also for failure to pay a deficiency after notice; the penalty is one-half percent (1/2%) of the unpaid tax (less credits) for each month or fractional month of delinquency, with a maximum of twenty-five percent (25%) unless the failure to file or pay is due to reasonable cause and not willful neglect.
Additionally, in cases where an employer fails to withhold or remit any sums required to the Commonwealth of Kentucky, the Commonwealth has a lien upon all of the property of the employer. This lien accrues as of the date the amounts withheld were required to be paid to the Revenue Cabinet pursuant to KRS 141.335(4).
Penalties are also assessed upon an employer who is required to:
. . . "withhold taxes on wages, file returns and make payment of amounts withheld to the department, who fails to withhold such taxes, or to file such returns when due or who fails to remit amounts collected to the department when due, or when filing the returns understates the amount due." KRS 141.990.
Such employer shall:
"be subject to a civil penalty equal to five percent (5%) per month or fraction thereof not to exceed twenty-five percent (25%) of the amount of taxes that should have been properly withheld and paid over to the department, or ten dollars ($10.00), whichever is greater, for each such failure. . ." KRS 141.990.
Criminal penalties are also provided in cases of willful failure to withhold, account for, or remit the required taxes. Section 7202 of the Internal Revenue Code provides that:
"Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than five (5) years, or both, together with the costs of prosecution."
Section 7203 of the Internal Revenue Code further provides that:
"Any person required under this title to pay any estimated tax or tax required by this title . . . to keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation) or imprisoned not more than one (1) year, or both, together with the costs of prosecution." (This section does not apply if there is no additional tax due.)
Similarly KRS 141.990(11) provides that in addition to the penalties herein prescribed:
". . . any taxpayer or employer who willfully fails to make a return or willfully makes a false return or who willfully fails to pay taxes owing or collected, with intent to evade payment of the tax or amount collected or any part thereof, shall upon conviction thereof be fined not less than five hundred ($500) nor more than five thousand dollars ($5,000) nor confined in the penitentiary for not less than twelve (12) months or more than five (5) years, or both."
Employer is defined for federal and Kentucky tax purposes (KRS 141.010) in Internal Revenue Code Section 3401(a) as the individual for whom service is performed by the employee or the individual who controls the payment of wages. While the employer in this situation appears to be the Salt River Water District, some particular individual must have been responsible for payment. The present commissioners, as agents of the employer are now responsible for insuring that all obligations are fulfilled, even though they did not hold office during the years in question in that Section 7203 of the Internal Revenue Code imposes penalties upon all those who are required to pay tax, keep records, or supply any information and fail to do so. If the present commissioners willfully fail to remit the monies presently, they could also be subject to those penalties contained in KRS 141.990(11). Additionally, if the former Water District Commissioners can be shown to have willfully failed to report and remit the taxes withheld, they may be subject to the aforementioned penalties as the agents of the employer who controlled the payment of wages.
2. Do the provisions of KRS 74.990 apply to the payment of federal withholding taxes?
The penalties contained in KRS 74.990 apply to the failure of a collecting officer to settle and pay any installments of water district assessments and not applicable installments of water district assessments and are not applicable to withholding tax provisions of either the United States or the Commonwealth.