Professional Services

Responsible Person Liability for Professional Service Firms

When payroll taxes go unpaid, the state can hold managing partners and administrators personally responsible.

Medical groups, dental practices, law firms, and consulting companies often focus on clients and patients first—but in California, failing to manage payroll tax compliance can quickly turn into a personal financial nightmare. The Employment Development Department (EDD) and Franchise Tax Board (FTB) aggressively pursue individuals under Responsible Person Liability when a professional firm fails to pay withheld payroll taxes or misclassifies its workers.

If you’ve received an EDD Personal Assessment Notice or a CDTFA or FTB Determination, it means the state believes you personally owe your firm’s unpaid employment or payroll taxes.

How Responsible Person Liability Works

When a business fails to remit payroll taxes or withholdings, the EDD investigates who had control over the company’s finances and employment decisions. In professional firms, that often means managing partners, firm administrators, CFOs, and practice managers. The EDD doesn’t have to prove you committed fraud—it only needs to show that you had the authority to pay and failed to ensure the taxes were remitted. Once you’re designated as a “responsible person,” the state can assess the entire tax amount, plus penalties and interest, directly against you.

Why Professional Firms Are Targeted

Professional service firms are prime enforcement targets because they frequently handle large payrolls, contractor relationships, and complex internal accounting. The most common triggers include:

• Employee misclassification – Treating associates, hygienists, or staff as independent contractors.
• Unpaid withholdings – Using withheld payroll taxes for cash flow or overhead expenses.
• Delayed payroll reporting – Failing to file or remit on time, even temporarily.
• Entity transitions – Mergers, dissolutions, or practice sales where payroll taxes weren’t reconciled.

The EDD views unpaid withholdings as trust funds—money that was never the firm’s to begin with—so it pursues individuals aggressively, even after the business closes.

Common Scenarios That Lead to Personal Liability

• A managing partner signed payroll checks while taxes went unpaid.
• The firm used withheld taxes to cover rent or malpractice insurance.
• Associates or staff were reclassified as contractors after an audit.
• The practice administrator failed to remit payments during a transition.
• The firm dissolved, leaving unpaid payroll or employment tax liabilities.

How to Protect Yourself

1. Respond quickly. EDD notices have strict protest and appeal deadlines.
2. Clarify your role. Show who had actual control over payroll and tax remittance.
3. Review employment classifications. Make sure your 1099 and W-2 categories are accurate.
4. Get legal guidance early. A focused tax defense strategy can limit your exposure and prevent escalation to personal liability.

Protecting California Professionals from EDD and Tax Liability

Attorney Steve Baghoomian represents managing partners, administrators, and firm owners across California facing EDD and CDTFA responsible person assessments. He understands how professional practices operate—and how small administrative oversights can spiral into personal exposure.

Steve’s goal is simple: to stop the state from converting a firm’s payroll or compliance mistake into your personal debt. Whether through administrative appeals, settlements, or judicial review, he works to protect the individuals who keep professional firms running.

If you’ve received an EDD or CDTFA notice, or suspect your firm’s payroll issues could become personal, contact Baghoomian Law for a confidential consultation. When the state believes someone must be responsible, make sure it isn’t you.