Yes, the IRS Trust Fund Recovery Penalty (TFRT) is often called the “100% penalty” because the penalty equals the amount of the payroll trust fund taxes owed, making this one of the most significant and most impactful penalties in the IRS arsenal. Internal Revenue Code section 6672(a) allows the IRS to hold an owner or employee at a company personally responsible for the tax debt.

Most other IRS penalties are pale compared to the TFRT penalty; therefore, it is not wise to take it lightly. Getting professional advice may be prudent if the IRS charges you or other members of your organization with this penalty.

How Does the IRS Trust Fund Penalty Come About?

If an entity does not timely deposit its trust fund taxes, the IRS may assess TFRP against those deemed responsible within that entity. More on responsible parties later.

What Do Trust Fund Taxes Consist of?

When something is put into a trust, it is done for a beneficiary. W2 Employees have payroll taxes withheld from their pay by their employer, which they entrust to remit these funds to the IRS; hence the concept of payroll trust funds arises. Payroll trust funds consist of your employment taxes such as FICA taxes (employee portion of Medicare and Social Security taxes), federal income withholding taxes, and any excise taxes which are withheld. Once these are collected, the employer is responsible for remitting them in full to the IRS by a specified period.

For example, let’s say you have an employee who earned $2,000 before taxes. You will withhold total trust fund taxes of $ 353.00, consisting of:

• Employee Federal Income withholding tax of $200.00,
• Employee FICA taxes of $153.00
  • Medicare premiums of $29.00
  • Social Security contributions of $124.00

Employers must also match employees’ Social Security and Medicare withholdings and remit to the IRS along with the Payroll Trust Fund taxes withheld. Since employer matching is not being withheld from employees, it is not considered part of the Payroll Trust Fund, therefore, not included in that type of IRS penalty. However, failing to remit the employer FICA portion will enact penalties and interest to occur.

How Much Will the IRS Charge for Payroll Trust Fund Recovery Penalty?

As mentioned earlier, the IRS Payroll Trust Fund Penalty is known as the “100% Penalty”, as your tax burden has just doubled! Like in the previous example, if you owed the IRS $353.00 in trust fund taxes, you would now owe the IRS $706.00. Because the trust fund balance represents other taxpayers’ payroll tax withholdings, the IRS comes down extremely hard on violators.

To compound this issue, the IRS not only seeks retribution from businesses but also may go after anyone in a joint and several liability fashion it deems to be held responsible for the infraction. Understanding how the IRS determines individual liability for this penalty is essential.

Who Can Be Held Liable for Paying the Payroll Trust Recovery Fund?

For the IRS to pursue the Payroll Trust Fund Recovery penalty, it must establish that willful misconduct existed to prevent the payroll taxes from being timely paid. Therefore, the IRS can only go after individuals who could remit the payroll tax trust funds but reneged on doing so. Based on a company’s makeup and structure, there could be varying responsible parties to whom the IRS could go after. The parties responsible could include:

• A Director, officer of a corporation, shareholder, or employee,
• Partner of a partnership or employee of a partnership,
• A trustee or board member of a Nonprofit organization,
• Third-party payer or another corporation,
• Another person with control and authority over payroll tax funds to oversee their disbursement, or
• Payroll service provider or professional employer organization.

The IRS needs to assess if the failure to remit the payroll trust fund taxes was willful. To establish if the action(s) were willful, the IRS must prove that the responsible person should have been mindful of the delinquent payroll taxes and intentionally ignored the tax or was uncaring about the tax remittance requirements.

An excellent example of someone who had both the authority and acted willfully would be someone in charge of finances in an organization who decided to use the employee trust fund taxes to pay something else rather than remitting the funds to the IRS. Conversely, the IRS most likely would not hold an employee responsible if they were following payment disbursement directions of a superior and did not have autonomy over that decision.

How Does the IRS Respond to Entities Who Have Unpaid Trust Fund Taxes?

Once the IRS determines that an entity has not paid its payroll trust fund taxes, it will typically have a revenue officer open a case and start research to determine the relevant parties and obtain facts surrounding the circumstances. The IRS may request financial documents to acquire information from the entity, such as bank statements, payroll records, canceled checks, agreements, contracts, articles of incorporation documents, and other 3^rd party information.

How Does the IRS Inform Those Responsible for Payroll Trust Fund-Related Infractions?

The IRS will send Letter 1153 (Trust Fund Recovery Penalty Proposed) to those it deems potentially responsible for payroll trust fund violations. If you receive this letter,

you have ten days from the letter date to file an informal protest and 60 days (75 days if the letter was addressed outside of the United States) to file an appeal with the IRS Office of Appeals. In either case, if mailing in the response, use certified or registered mail to prove the mailing date if needed.

If you agree with the notice assessment, you can sign off on Form 2751 Proposed Assessment of Trust Fund Recovery Penalty, provided with the 1153 letter. Within 14 days of receiving form 2751, the IRS will send you Letter 1155, Notice of Agreed Trust Fund Recovery Penalty.

It may be ideal to consult with a tax attorney-CPA before signing off on this letter. A tax attorney-CPA can adequately assess your situation to ensure you are on the correct path to obtain the best possible outcome.

How Does the IRS Obtain Information Relating to Payroll Trust Fund Violations?

The IRS uses what is known as a Trust Fund Recovery Interview. The IRS Form 4180 to obtain information to help it determine responsibility. One of the main issues the IRS factors when deciding whether or not the entity could have paid the payroll trust fund depends on whether or not other liabilities were being paid. Therefore, some questions will be geared to establish whether the company was paying other expenses instead of remitting payroll taxes withheld. The IRS can summon anyone it deems could be a responsible party involving payroll trust fund tax violations. Here are some of the questions asked during the interview:

• Are you an authorizer for payroll payments?
• Are you a financial policymaker for the company?
• Do you pay other bills for the company?
• Were you aware other expenses were being paid? Who authorized?
• Were you aware payroll taxes were not being paid?
• Do you make payroll tax payments?
• Are you a signor or submitter of payroll tax returns (Quarterly 941 and Annual 940)
• Who is in charge of handling IRS responses in your company?
• What is your role with the company’s electronic banking?
• When did you hear about the payroll tax issue?
• What did you do after you heard about the payroll tax issue?

The main gist of the questions is to assist the IRS in determining whether you were responsible for paying the payroll taxes.

To avoid the IRS Form 4180 interview, you can either pay the payroll trust fund taxes and associated penalties or sign off on Form 2751 to admit responsibility.

Consulting with a tax attorney-CPA would be beneficial, especially if you believe you are not responsible for the payroll trust fund taxes.

What If I am Not Able to Pay the Trust Fund Recovery Penalty?

There may be some IRS tax resolution options if you cannot afford to pay the IRS Trust Fund Recovery Penalty. You may qualify for:

• Installment Agreement (IA)– full pay on balance (tax and penalties) over time
• Partial Pay Installment Agreement (PPIA)– pay you can set up an installment agreement to pay the tax and penalty in monthly payments.
• Currently Not Collectible (CNC) status – If you cannot pay anything. IRS will require a complete financial report to establish your inability to pay. This will be reviewed every two years to determine if your financial situation has changed.
• Offer in Compromise (OIC). A full financial determination is made to see if you qualify for settling the payroll tax debt for less than the full amount owed.

It’s essential to fully understand your rights and options when dealing with the IRS regarding Trust Fund Recovery Penalty issues.

Get Trusted Professional Tax Help with IRS Trust Fund Recovery Penalty– Make the Call

To ensure you get the best possible IRS Trust Fund Recovery Penalty outcome, have an experienced tax attorney-CPA expert make it happen. Call today (772-418-0949), or complete an online inquiry form for a free consultation with experienced IRS Trust Fund Recovery Penalty Tax Attorney-CPA-EA, Will Harmon of Harmon Tax Resolution, LLC. He will handle your IRS issue so you can return to doing what matters most.

For additional information, please see the following blog articles:

• “What Are IRS Tax Resolution Services?“
• “When Should You Hire a Tax Lawyer?“

Make the Call Today So That You Steer Your Path Tomorrow!

Many employers across the country are responsible for withholding certain taxes from employee compensation and sending those funds to the IRS. The IRS has the authority to issue liens, impose penalties, and even levy property, if you have not turned over the funds entrusted to you. If you have received a notice from the IRS that it intends to assess a Trust Fund Recovery Penalty against you, you must speak with a tax attorney/CPA. Contact the experienced tax attorney/CPA/EA at Harmon Tax Resolution, LLC, to learn about your rights and how to avoid harsh penalties.

TRUST FUND RECOVERY PENALTY

The Trust Fund Recovery Penalty allows the IRS to penalize anyone responsible for withholding, accounting, depositing, or paying specific payroll and employment taxes if they fail to turn those funds over to the agency. Specifically, the IRS can penalize any responsible party who willfully fails to execute their duties. The penalty exists because employers are essentially entrusted to collect and hold an employee’s taxes on behalf of the IRS. Congress empowered the IRS to take this action to deter employees from using these reserved funds.

RESPONSIBLE PARTIES

The IRS can assess a penalty against anyone responsible for the entrusted withholdings. Penalty’s range has been construed rather broadly and can apply to just about anyone with the duty and power to direct the funds somehow. Individuals who may be considered responsible parties and therefore subject to the Trust Fund Recovery Penalty include:

• Officers and employees of corporations and partnerships;
• Sole proprietors (Independent Contractors).
• Board of Trustees members; and
• Certain third-party agents.

If you have the (1) duty and (2) power to direct withholdings that have been entrusted to you or your organization, you will be considered to be a responsible party.

What Does Willfully Failing to Direct Funds Mean?

The IRS can only assess a Trust Fund Recovery Penalty if you have willfully failed to send them the withholdings. You will be considered to act willfully if:

• You knew about the outstanding taxes due to the IRS and
• intentionally disregarded your obligation to disperse the funds to the agency, or
• You should have been aware of the outstanding taxes due to the agency and were indifferent to your responsibilities.

Willful conduct can exist when you act intentionally or extremely negligently. You are not required to act with an illicit motive or bad intent. As long as you knew, or should have known, about the outstanding debt to the IRS and failed to act, you will be considered to have acted willfully.

ASSESSING THE TRUST FUND RECOVERY PENALTY

When the IRS determines that you have failed to turn over the taxes you have been entrusted with, it will send you a notice of its intent to impose the penalty. The penalty will generally equal the amount of the withholding plus interest. IRC 6672 applies to the employee’s portion of employment tax, the withheld income tax, and the employee’s share of FICA. If you disagree with the agency’s decision to impose the penalty, you have 60 days to appeal their decision. The agency will send you a Notice and Demand for Payment if you do nothing. Currently, the IRS has the authority to issue tax liens and levies to enforce the collection of payments. We can help you avoid this.

WHAT TO DO IF YOU’VE RECEIVED NOTICE OF A TRUST FUND RECOVERY PENALTY

If you have received notice of an impending Trust Fund Recovery Penalty, it is essential to act quickly. You have 60 days to file an appeal in which you contest the agency’s findings and propose an alternative resolution. Hiring an experienced tax attorney-CPA intimately familiar with the Trust Fund Recovery Penalty process will increase the chances of securing a positive outcome.

Get the Trusted Representation You Deserve!

Let Harmon Tax Resolution, LLC help you resolve your Trust Fund Recovery Penalty issue before further IRS escalation occurs. Call Today at 772-418-0949 or complete our online form to request a free consultation with a Trust Fund Recovery Penalty Lawyer –William Harmon, Attny-CPA-EA. Take action Today so that you can sleep well tonight.

Take the First Step to put this behind you so you can move on with your life!

Already in payroll tax trouble? Contact us to schedule a free, no-obligation consultation, and let’s get your payroll tax issue resolved.

Why Small Business Owners Get Into Payroll Tax Trouble In The First Place

It’s hard being a small business owner today, trying to pay your employees their weekly paychecks and pay the IRS all those payroll taxes!

A lot of times, when money is short, you pay the employees first. It’s a natural thing to do—you must take care of your employees, even if you must skip paying yourself! Besides, if you don’t pay them, they’ll quit, and you will have to hire new people all the time.

It can seem easy to “just pay the 941 taxes next pay period” and give yourself a little cash flow cushion but skipping paying your employee’s payroll tax deposits is never a good idea.

What happens too often is that 1 pay period turns into 2, 3, and 4, and eventually, you’re so deep in payroll tax debt that the only thing you want to do is completely ignore your problem.

Except the IRS doesn’t care about your financial problems. They just want you to pay your payroll taxes!

The IRS doesn’t care if you can’t pay your employees. They don’t care if they put your employees out on the street. They don’t care if you can’t collect your receivables. They don’t care if one of your largest and best customers just went “belly-up.” All they care about is you have money that belongs to them, and they will do whatever they have to, even put you out of business, to collect it. They don’t care who you are or even what business you are in.

Penalties are The Kiss Of Death When It Comes To Back Payroll Taxes

Penalties for failing to file and pay your payroll taxes are the “kiss of death” for any small business owner. They tack on penalties totaling 33% in just the first 16 days! And it doesn’t stop there. The IRS adds interest on top of the penalties too. It is not uncommon that a payroll tax liability doubles in short order. And if you don’t pay them or work something out, they will shut you down! It’s much less work for the Revenue Officer, as most are lazy, to simply close you down than work out an arrangement with you.

The IRS Will Collect Or They Will Shut You Down

It’s as simple as that. The IRS is the most brutal collection agency on the planet. They have more authority than the President of the United States! And they have all the ways and means to do whatever it takes to collect what’s owed to them. You didn’t wake up in the morning, go to work, and say to yourself, I’m not paying my payroll taxes because you didn’t want to. The money simply wasn’t there. It’s not your fault. One week you’re short of cash. It was a slow week, a customer’s check bounced, or any number of legitimate reasons that just prevented you from paying the IRS. You’re a good person. You figure you will make it up the following week. But then next week comes and goes, and you realize you still don’t have enough money to make that payroll tax deposit. And then the entire situation starts “snow-balling” into an avalanche.

Should You Call The IRS To Get Your Payroll Issue Fixed?

If you were to call the IRS and were able to get through after waiting on “hold” for an hour or two and trying to explain your situation—you might as well have a conversation with the wall—because they don’t care. The IRS representative you’re talking to probably makes less than $20 an hour and is poorly trained. Do you think they ever had to make a payroll in their life? Do you think they know what it’s like to run a small business? Do you think they will have any sympathy for you?

Not only is the answer “NO,” but they can also dictate the fate of your case. They will try to get all your personal and financial information while you’re on the phone. They want to know where you bank; they’ll want to know all about your customers who owe you money; they’ll want to know the value of all your assets, like your home, cars, motorcycles, etc. Why? Because now they have all the information, they need to levy your bank accounts, take your receivables, and seize your property.

Now that you know you shouldn’t be talking to the IRS because they will not help you, you might wonder what you should do. Where should you turn for help? The smartest thing you can do to protect your business and family is to have someone represent you—someone who deals with the IRS for a living. You need help—but not just from anyone—you need help from someone who is an experienced, competent professional who deals with the IRS daily, helping small business owners keep their businesses and settle IRS payroll tax problems.

Would you go to court without a lawyer if you were charged with a serious misdemeanor or felony? You don’t want to represent yourself before the IRS, either. You need professional, expert representation.

Reach out to our firm, and we’ll schedule a no-obligation confidential consultation to explain your options to resolve your tax problem permanently. Our expert tax resolution professionals know how to navigate the IRS maze.

Once you decide to retain us, we step into your shoes and protect you from the IRS’s abusive tactics. We take over all communications from the IRS on your behalf. You don’t have to speak with the IRS anymore. We do. Not only that—they are not allowed to talk to you once you’ve signed our Power of Attorney! Once they realize you have someone on your side protecting you, who knows their tricks as well as they do, they have to step back and follow the law. Not only can we protect you from the IRS harassing you, calling you, and showing up at your front door, we can get those penalties reduced and, in some cases, completely removed!

Contact us now, and let us get your payroll tax issue resolved!