20% withholding on eligible rollover distributions

[Guest Molly CRP]

Does anyone know the potential liabilities for employer or participant if the 20% withholding is not deducted from an eligible rollover distribution?

[Tom Poje]

Employer Liability Under IRC 6672

Internal Revenue Code Section 6672 mandates an employer to withhold federal income taxes and social security taxes from employees’ wages. The employees are given a credit against their tax liability for taxes withheld whether the employer remits the funds to the government or not. The IRS can’t collect this tax from the employee even if the employer does not pay the tax to the government. To protect the government when the employer does not pay this tax, section 6672 of the Internal Revenue Code subjects all “responsible persons” for the withholding and payment of the taxes to a penalty equal to the amount of the taxes due where the employer failed to pay such taxes to the government. Section 6672 imposes the penalty on anyone who is required to collect, administer and pay over the tax and who willfully fails to do so. To be liable under Section 6672, the person must meet two requirements: 1- He/she must be “responsible person” 2- He must “willfully” fail to pay over the taxes due

The ERISA Outline Book would note that any penalties are usually not enforced if the taxes are actually are paid actually paid by the individual.

for more info:

http://www.irs.gov/irm/part8/irm_08-025-001.html