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Federal District Court Rules that CFO’s Mental Health Issues Are Not a Defense for Non-compliance with IRS Order

CFO and Mental Health Issues

A Federal District Court has ruled that a CFO’s mental issues were no excuse for the non-collection of a wage garnishment order for taxes.  The CFO in the case had received a certified mailing from the IRS ordering him and the company to garnish and send a substantial amount of the wages of one employee in satisfaction of a tax debt to the IRS.

The CFO did not comply with the mailing and later left the company, not mentioning the order to anyone upon leaving.  Eventually, the IRS took issue with the noncompliance and filed suit against the company.  The two defenses available in such a case are lack of possession and lack of obligation to perform under the order of the IRS.  The company showed neither and the company ended up paying the tax for not complying with the order.

Editor’s Comment

It is easy to lose a piece of mail in an office, especially if an employee is chronically disorganized.  In this case, the CFO of the company merely disregarded the order of the IRS.  NOT GOOD from any standpoint!  However, the CFO, being a responsible officer, was obligated to inform the company of the obligation.  The company therefore had the obligation to act, which it did not.  It is our recommendation that any IRS mailings received on behalf of an employee be sent to a responsible person.  If you suspect issues with an employee, address them fast and deal with them quickly.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors