THE SHORT ANSWER: If an accountant or payroll company takes money that was supposed to be paid to the IRS, the business generally still owes the payroll taxes. The IRS may also charge penalties and interest, and certain owners or other responsible individuals may face personal liability.
The business may have a claim against the payroll provider, but that does not ordinarily stop the IRS from collecting the unpaid taxes. Paying a payroll company is not the same as paying the IRS.

What Did the IRS Say?

In a September 4, 2026 announcement, the IRS encouraged employers to review their payroll-tax procedures. The agency reminded employers that they are responsible for withholding the correct taxes, making federal tax deposits electronically, filing employment-tax returns on time, keeping payroll records for at least four years, and protecting payroll information from theft or unauthorized changes.

Using an accountant, bookkeeper, or payroll company can be a sound business practice. It does not eliminate the employer’s need to monitor whether returns and deposits were actually completed.

Does Hiring a Payroll Company Transfer the Tax Liability?

Usually, no.

The IRS states that an employer that outsources payroll is still ultimately responsible for federal employment-tax deposits and payments. If an ordinary payroll provider receives the money but fails to transmit it, the employer generally remains liable for:

•  the unpaid payroll taxes;
•  failure-to-deposit and other applicable penalties;
•  interest on the unpaid tax; and
•  the costs and consequences of IRS collection activity.

The answer may differ under certain specialized arrangements, such as with a certified professional employer organization or another party that assumes statutory responsibility. Most ordinary payroll-service agreements do not transfer the employer’s federal tax liability.

THE PRACTICAL RULE: A bank withdrawal or payment to the payroll company proves only that the provider received the money. The employer should separately confirm that the government received it.

What If the Payroll Company Stole or Diverted the Money?

The business may be an innocent victim of fraud. That does not automatically erase the federal payroll-tax debt. The IRS may still assess the taxes and pursue collection while the business separately tries to recover the missing money from the provider, an insurer, or another responsible party.

That recovery effort may take years and may not make the business whole. The tax problem therefore has to be addressed on its own track, even when a civil lawsuit or criminal investigation is also underway.

Preserve the original records, including:

•  payroll-service contracts and engagement letters;
•  bank statements and withdrawal records;
•  payment confirmations and provider reports;
•  emails, text messages, and correspondence;
•  Forms 940, 941, W-2, and W-3; and
•  all IRS and New Jersey notices.

Do not alter, recreate, or backdate records to fill a gap.

This Is Not Just a Hypothetical Risk

A recent Essex County case, Spin Capital, LLC v. Evangelos Drosos and Drosos & Associates, demonstrates how serious payroll-provider fraud can become. Evidence presented at a proof hearing indicated that an accountant and related firms diverted payroll and employment-tax money, supplied false Forms 940 and 941, concealed a rejected IRS offer in compromise, and provided forged IRS correspondence. In its unpublished August 6, 2026 trial-level decision, the court entered a $31,425,128 default judgment.

A judgment against the provider does not necessarily satisfy the employer’s tax debt. The IRS can still look to the employer for the unpaid taxes and may separately investigate whether an owner, officer, or other responsible person should be assessed personally.

Can the IRS Remove the Penalties for Reasonable Cause?

Possibly – but relief is not automatic.

IRS guidance says that, depending on the facts and circumstances, it may abate certain failure-to-file, failure-to-pay, and failure-to-deposit penalties when a payroll provider’s failure or fraud caused the problem. Simply stating that the business relied on its accountant or payroll company usually is not enough. The business must establish reasonable cause with credible facts and supporting documents.

The IRS may consider whether the business had enough money available when the taxes were due, whether the provider timely received or withdrew those funds, whether the provider used fraud or deception to conceal the noncompliance, whether the owner knew of a pattern of missed deposits, how quickly the business acted after learning of the problem, whether the provider was replaced, and whether current deposits are being made.

Proving those facts can be a lengthy and expensive process. A business may need to reconstruct multiple quarters, obtain bank and payroll records, collect contracts and communications, document reports to law enforcement or insurers, submit a detailed written abatement request, respond to follow-up questions, and pursue an administrative appeal if the request is denied.

IMPORTANT LIMIT: Even if the IRS removes some or all civil penalties, the employer generally still owes the underlying payroll taxes. The IRS also states that interest cannot be removed for reasonable cause. Penalty abatement does not automatically eliminate a possible Trust Fund Recovery Penalty assessment against a responsible person.

Can the Owner Be Held Personally Responsible?

Possibly. Payroll taxes include amounts withheld from employees’ wages for federal income tax and the employee share of Social Security and Medicare taxes. Those amounts are held in trust for the United States.

The IRS may assess the Trust Fund Recovery Penalty against an owner, officer, manager, employee, or other person who had sufficient responsibility over the company’s finances and willfully failed to collect, account for, or pay over the trust-fund taxes. Delegating payroll duties to an accountant does not necessarily end the inquiry.

The IRS may examine whether a person:

•  controlled bank accounts or signed checks;
•  decided which creditors would be paid;
•  reviewed or signed payroll-tax returns;
•  knew that deposits were missing;
•  paid rent, vendors, or other expenses while payroll taxes remained unpaid; or
•  had authority to correct the problem.

Not every owner is automatically personally liable. Responsibility and willfulness depend on the facts. An owner should obtain legal advice before answering detailed IRS questions or signing an interview form.

How Can a Business Owner Verify the Deposits?

Do not rely only on a report created by the same person or company that was supposed to make the payment. Independently verify federal and state activity.

•  Use government records. Review EFTPS payment history and, where available, the IRS Business Tax Account or IRS account transcripts.
•  Match every payment. Confirm the employer identification number, tax form, tax period, amount, and date.
•  Compare filed returns. Obtain complete copies of Forms 940 and 941 and compare them with payroll reports, W-2 data, and bank records.
•  Check New Jersey separately. Federal confirmation does not prove that New Jersey withholding, unemployment, and other payroll obligations were paid.
•  Keep owner-controlled access. Do not change the business address of record to the provider’s address, and do not share the owner’s IRS login credentials.

What Are the Warning Signs?

•  an unexpected IRS or New Jersey notice;
•  a missing or late payment;
•  a provider that refuses to supply complete Forms 940 or 941;
•  a bank withdrawal that does not match the government payment record;
•  a request to change the business’s mailing address to the provider’s address;
•  payroll returns that do not match the company’s payroll records;
•  payment confirmations that appear only in the provider’s internal system;
•  employee complaints involving W-2s, wages, or Social Security records;
•  a request for additional money to fix an unexplained balance; or
•  an IRS transcript that conflicts with what the provider reported.

One irregularity may be an error. It may also be the first sign of a much larger problem.

FALSE DOCUMENT WARNING: If a provider supplied false returns, altered payment confirmations, or forged IRS correspondence, do not submit those documents to the government or repeat the provider’s explanation without first obtaining legal advice. What begins as a payroll-tax audit can become a criminal investigation if false records or intentionally misleading statements are given to the IRS.

What Should You Do If Deposits Are Missing?

•  Secure the accounts. Change passwords, remove unauthorized users, and preserve the original bank, payroll, and government records.
•  Determine the scope. Review every potentially affected quarter rather than assuming the problem is limited to one notice.
•  Confirm what was filed. Compare IRS and New Jersey account records with the returns and reports supplied by the provider.
•  Obtain legal advice before making statements. The explanation given to the IRS can affect the business, the owner, and other responsible people.
•  Coordinate the professional team. A tax attorney may work with a CPA, enrolled agent, or forensic accountant to reconstruct the records and determine the safest corrective steps.
•  Evaluate recovery options. Civil claims, insurance coverage, law-enforcement reports, and claims against the provider should be coordinated with the tax response.

What If the Business Has Closed or Been Sold?

Closing, selling, or dissolving the business does not automatically eliminate unpaid payroll taxes. The IRS may continue collecting from the business and may investigate whether an owner, officer, or other responsible person should be assessed personally. Former owners should not ignore notices merely because the business is no longer operating.

The Bottom Line for New Jersey Business Owners

YOU MAY DELEGATE PAYROLL WORK, BUT YOU CANNOT DELEGATE OVERSIGHT. The safest practice is to keep owner-controlled access, verify every government deposit independently, review the filed returns, and investigate the first unexplained discrepancy.

A provider report, spreadsheet, or bank withdrawal is not enough. The government account should show that the payment reached the correct tax period under the correct employer identification number.

If money is missing, prompt action matters. A coordinated response can help the business correct its records, request appropriate penalty relief, protect potentially responsible individuals, and stop the problem from spreading to additional quarters.

PAYROLL TAX PROBLEM OR IRS NOTICE? Tomes Law Firm helps New Jersey business owners respond to payroll-tax audits, unpaid employment taxes, Trust Fund Recovery Penalty investigations, and IRS or New Jersey Collection matters.

WE SOLVE TAX PROBLEMS. YOU GET PEACE OF MIND. Call us at 732-333-0681 or 833-4IRS-TAX or visit us online at tomeslaw.com