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Tax Audit and business fraud?

Business partnership between husband, wife, and another person. The other person did not handle any finance just invested the money. The husband and wife handled the books and paid bills. The other partner finds out that taxes for the business was not paid for 3 years.

How responsible is the third person to the IRS audit. Do they still have to pay the taxes owed or will the husband and wife have to pay it since they were responsible for the fraud?

All general members of the partnership are wholly liable for the entire amount. The IRS will go after all parties and collect whatever they can from whomever they can collect it. If any one partner his hit for more than their proportional share of the debt it will be up to them to sue the other partners for recovery directly from them.

Limited members may escape some if not all liability. The amount of their investment is undeniably at risk but beyond that it can get complicated. How they will be impacted will depend upon the partnership agreement and how much knowledge of the operations they have and how much control they exercised in the operation of the partnership. Even if the partnership agreement describes then as limited partners with no access to daily operations or decision making authority, if the facts at hand indicate otherwise they may share full liability along with the other general partners.

your all in the same bath. hired an attorney.
The IRS will go after the whole amount owed from whoever looks like they have it - will try with each of them until they collect the total amount.
Check your local yellow pages for a tax attorney, call around and find one who will give you the first 30-60 minute consultation free. You may need to contact your state's bar association to find one.

Your personal liability is dependent upon several factors--whether you a general or limited ptr; your percentage of ownership; whether and/or how the partnership ownership and duty responsibilities are delineated in writing; etc.

In general, all business owners/officers/partners have a responsibility to ensure business debts (including taxes) are being paid appropriately and timely. If you truly didn't have anything to do with the financial aspects of the business, get a free consultation from a tax professional to see where you may stand. Then talk to the IRS person handling the case to see what's really going on. It very well might not be as bad as you think; or it could be worse.