Turnabout is Fair Play: Payments by a Hospital to Former Residents in FICA Dispute are Subject to Indemnification

N.Y. & Presbyterian Hosp. v. United StatesThe Federal Insurance Contributions Act (“FICA”), I.R.C. §§ 3101-3128, requires employers to deduct a tax from the wages paid to employees, but it has an exception for wages paid to students. See I.R.C. § 3121(b)(10). For a number of years, the question whether medical residents qualified for this exception was disputed. The official position of the IRS was that medical residents did not qualify for the student exception, but it allowed both residents and hospitals to file protective refund claims. Then on March 2, 2010, the IRS issued an announcement that it would honor refund claims previously filed for periods prior to April 1, 2005, when a relevant regulation took effect.… Read More

Trust Fund Recovery Penalty: The Sixth Circuit Concludes that Responsible Parties Were Not Willful Due to Remedial Measures that Followed Late Deposits

shutterstock_176498321When an employer fails to withhold and pay over FICA and income taxes from employees’ wages, individuals associated with the business may be subject to liability for the employer’s tax obligations under section 6672(a) of the Internal Revenue Code, which imposes the trust fund recovery penalty. Specifically, “the officers or employees of the employer responsible for effectuating the collection and payment of trust-fund taxes who willfully fail to do so are made personally liable to a ‘penalty’ equal to the amount of the delinquent taxes.” Slodov v. United States, 436 U.S. 238, 244-45 (1978). Liability is therefore tied to two distinct requirements: First, the individual must be “responsible,” and second, he must act willfully.… Read More