What you don't know can hurt you. Witness Waymon Leon Howard. In April of 1978, when Howard signed on as executive vice-president and general manager of Eden Marketing Corp. in Dallas, he had no idea the company was so close to bankruptcy. But, after a few days on the job, he learned the truth.
Eden, a distributor of skin-care products, owed money to its vendors and was overdrawn at the bank. Worse still, it had failed to make its federal Social Security and income tax withholding deposits. Howard knew something had to be done about the matter, so, in May, he mailed $8,000 to the Internal Revenue Service.
Trouble was, to come up with the money, Howard had to skip a week's payroll. And that stratagem made Paul Jennings, Eden's chief executive officer, see red. Jennings called Howard on the carpet and ordered him not to send any more money to the IRS. Then he suspended Howard for several weeks without pay.
Afterwards, Howard followed his boss's instructions to the letter, but he continued to fret about Eden's growing withholding tax liability. By early fall, he had had enough of the company's tax problems and resigned from his job.
A week or so later, he dashed off a letter to the IRS in Dallas. "Due to the heavy debts that I was faced with paying," he wrote, "and Eden not having any original capital, I was unable to pay any further moneys due to [the] Internal Revenue Service. I believe that you will find the amount still due to be something in excess of $30,000. I am enclosing a copy of my formal resignation. . . ."
Evidently, Howard assumed the letter would absolve him of any responsibility for his former employer's long overdue withholding taxes. No such luck. Two years later, with Jennings nowhere to be found, the IRS moved against Howard. It slapped the former executive vice-president and general manager with a bill for Eden's payroll tax deposits -- plus a 100% penalty.
Howard fought the assessment in court, but to no avail. "The fact that Jennings might well have fired Howard had he disobeyed Jennings's instructions and paid the taxes does not make Howard any less responsible for their payment," the judge wrote. "We cannot help but feel [that] it is Jennings who should pay these taxes. However, Jennings is apparently no longer within the reach of the long arm of the IRS."
The law, the judge concluded, holds all "responsible persons" liable for the payment of those withholding taxes -- not just the chief executive officer. The judge defined "responsible persons" as anyone with the authority to remit withholding taxes, such as the comptroller or chief financial officer. "Although we recognize that our holding today may appear harsh to some," the judge said, "we are bound to follow the law."