The IRS can pursue your family for unpaid employment taxes even after you’re gone.
In United States v. Guy, 5-23:cv-500 (E.D.N.C.), the government sued a deceased man’s family to try to recover the trust fund recovery penalties. A recent filing in the case offers several reminders for small business owners and corporate officers. One, the IRS’s interview to determine who is a “responsible person” for failing to remit employment taxes is critical. Two, make sure your labels and authority accurately reflect your role at your company. Three, unlike most business debts, the IRS can hold “responsible persons” individually liable for the taxes. Four, if you change roles, those changes should be memorialized in writing.
Samuel Guy was a board member and company secretary for Preferred Alternatives, Inc. In 2005, the company filed bankruptcy and underwent a reorganization, after which Mr. Guy’s financial authority was removed. His authority at the company was limited to managing and maintaining the company’s fleet.
From 2008-2010, the company failed to pay its employees’ quarterly employment taxes (i.e., Social Security, Medicare, and federal income tax withholding) to the IRS. When this happens, the IRS tries to find “responsible persons” (essentially anyone in the chain of collecting, accounting for, and paying the employment taxes) and imposes trust fund recovery penalties under I.R.C. § 6672 against them. See Brounstein v. U.S., 979 F.2d 952 (3d Cir. 1992); Internal Revenue Manual 5.17.7.1 (liability of third parties for unpaid employment taxes). The IRS set its sights on Mr. Guy. That penalty allows the IRS to recover up to 100% of withheld employment taxes not paid over to the government from any responsible person.
The IRS interviewed Mr. Guy and, based on that interview, concluded that he was a responsible person. In 2013, the IRS assessed $2.1 million against him for the trust fund recovery penalties. In 2022, Mr. Guy died. To recover the funds, in 2023, the Department of Justice, on behalf of the IRS, went after the property in his estate and sued his widow, his kids, and his sisters (initially brought as USA v. Doe, 5:23-cv-500 (E.D.N.C.) (Sept. 11, 2023)). By 2023, because of interest, the tax bill was $3.9 million, which continues to grow.
Mr. Guy’s son, on behalf of the estate, challenged the summary of the interview, noting that before 2006, Mr. Guy was responsible only for maintaining and managing the fleet; he was specifically not responsible for finances. Significantly, the estate challenged that the interview questions failed to distinguish Mr. Guy’s reduced authority during the period at issue (post-bankruptcy).
While the outcome of the case is still unresolved, the four takeaways for business owners are clear:
- Unpaid employment taxes create direct personal exposure. Unlike many business debts, the IRS will pursue any “responsible person” – even after death – for unpaid employment taxes. Any individual with financial authority for a company should ensure that employment taxes are paid to the government on time. If you cannot do so, it might be time to consider leaving the entity before incurring potential personal liability.
- Titles create exposure. Courts look at actual authority, not job titles. If, however, a job title is broad, it leaves the door open to argue that an executive has broad signing power, payroll control, or influence over which bills get paid. Business owners or executives without control over financial operations of a company but with financial-like titles (similar to Mr. Guy) should consider having their job re-labeled, especially if the company is on questionable financial footing.
- Document authority changes. If an individual’s role or control shifts (through restructuring, delegation, or bankruptcy), the individual should keep clear records of the exact authority, including acknowledgment from other corporate officers, board members, or other authoritative figures of the exact parameters of the individual’s authority (or lack thereof).
- Don’t do IRS interviews without legal counsel. The IRS’s interview to identify responsible parties is critical to the IRS’s investigation of trust fund recovery penalties. Witnesses are asked to sign the IRS’s summary of the interview (IRS Form 4180). Based on the filings in the case, Mr. Guy was not sophisticated enough to understand the statements in the summary, he was not sophisticated enough to understand the IRS’s questions, and the IRS’s questions reflected a lack of understanding of the timeline of his roles at the company. Because he signed the interview statement, admitting to the authority in writing, Mr. Guy gave the IRS strong evidence to hold his estate liable for the unpaid employment taxes. Millions of dollars of penalties and potentially hundreds of thousands in legal fees could have been avoided had Mr. Guy brought legal counsel in early, which would have helped ensure that potential misstatements weren’t made and to evaluate Mr. Guy’s exposure (which would have reduced more than a million dollars in interest to the IRS).
Bottom line: If you have any authority or control over company finances, understand your exposure. If your position or title might suggest that you have control, maintain contemporaneous documentation of the limits of your authority. If you are contacted by the IRS for an interview, consider speaking with an attorney before the interview.
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If you are contacted by the IRS as part of its investigation of employment tax liability and trust fund recovery penalties, please reach out to our team at K. Tyson Law. This article does not establish an attorney-client relationship, should not be construed as applying to a particular tax situation, and should not be construed as legal advice. This article reflects the state of the law as of the date on this notice. Subsequent developments in the law may affect the conclusions herein.
July 20, 2026. Written by Kim Tyson, J.D., LL.M.