The IRS takes a dim view of organizations that fail to turn over their withholding taxes, not only because the organization has failed to meet its own financial obligation, but also because it has diverted (some might say stolen) funds from the employees, part of whose pay has been withheld as their personal contribution to Social Security and Medicare.  Although the corporate form normally insulates directors from personal liability for organizational debts, the federal tax law provides that a person “responsible” for failing to pay over the required funds may be personally liable for the obligation.  The IRS can look long and hard to find a responsible person with the funds to make the payment.  Insurance usually excludes coverage for a tax claim so it is important to try to work out a deal for payment with the IRS.

Some states are also vigorous in pursuing unpaid withholding taxes. 

It is tempting to fail to make withholding payments when there is a cash flow problem and needy families to help.  But it entails personal financial risks that are not pleasant to contemplate.