IRS Trust Fund Penalty Solutions
Resolving IRS Trust Fund Penalties with Confidence and Expertise
IRS Trust Fund Penalty Solutions
If you’re looking to challenge this penalty, reach out to us today and consult with tax professionals and teaching instructors who are thoroughly versed in the system. With our understanding of every possible tax defense to combat the IRS trust fund penalty, we stand ready to assist. Our background as tax professionals has equipped us with comprehensive knowledge of IRS methodologies, systems, and the formula for settling this tax issue.
Many individuals are caught off guard by the IRS’s authority to impose the trust fund recovery penalty (TFRP) on individuals within corporations who have neglected to pay their payroll taxes.
These penalties are designed to ensure timely payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes, or collected excise taxes.
Congress has enacted legislation providing for these so-called trust fund taxes. Referred to as trust fund taxes because they represent the employee’s money held in trust until a corresponding federal tax deposit is made.
The TFRP may be applicable to you if these unpaid trust fund taxes cannot be promptly collected from the business, even if the business continues to operate. It’s not a requirement for the business to have ceased operations for the TFRP to be assessed.
WHO CAN BE RESPONSIBLE FOR THE TRUST FUND TAXES, CODE SECTION 6672.
The individuals typically found liable by the IRS for this issue are often those who were:
- An officer or an employee within a corporation;
- A member or employee of a partnership;
- A corporate director, shareholder, or member;
- A member of a nonprofit organization’s board of trustees, or anyone else deemed responsible;
- Other persons who had authority and control over funds, enabling them to direct their distribution;
- Those who, willfully and knowingly, chose not to pay the payroll tax liability.
- Those who opted to use available funds to settle other debts when the business was unable to fulfill the employment taxes, an act indicative of willfulness.
If faced with this situation, you may be required to undergo an interview to ascertain the full extent of your roles and responsibilities. Responsibility is determined based on whether an individual wielded independent judgment concerning the financial affairs of the business.
An individual is not considered responsible if their sole function was to manage bill payments as instructed by a superior, rather than exercising discretion over which creditors would or would not receive payment.
HOW DOES THE IRS FIGURE OUT WHAT THE PENALTY WILL BE?
The penalty’s total sum is equivalent to the unpaid remainder of the trust fund tax. The computation of this penalty includes:
- The amount of income taxes that were withheld but remain unpaid; plus
- The portion of the withheld FICA taxes that pertain to the employee;
- Any payments made on time will be deducted from the total amounts due;
- Any taxes specifically designated as “trust fund only” will also be subtracted from the overall sum owed.
CHECK LIST OF WHETHER YOU CAN BE HELD RESPONSIBLE. THIS IS THE LISTED CRITERIA THAT THE INTERNAL REVENUE SERVICES USES: DID YOU….
- determine financial policy for the business
- direct or authorize payments of bills to creditors
- open or close bank accounts
- guarantee or co-sign loans
- sign or counter-sign checks
- authorize payroll
- authorize or make Federal Tax Deposits
- prepare, review, sign, transmit payroll tax returns
- right to hire/fire
- this is not a full list but is a great starting point
THE IRS WORKS THIS CASE BY THE FOLLOWING METHOD:
You might be required to complete an interview, utilizing form 4180, to ascertain the full extent of your roles and obligations. The determination of responsibility hinges on whether an individual had the autonomy to make decisions regarding the business’s financial matters.
An employee is not deemed responsible if their sole duty was to handle bill payments as instructed by a higher authority, rather than making decisions about which creditors should or should not be paid.
Before identifying the responsible parties, the IRS will gather statements from various individuals. They will review the corporate resolutions, bank signature cards, and canceled checks of the specified corporation to decide who the responsible persons are.
CALL US TODAY TO FIGHT THE ASSESSMENT BY THE IRS. STOP THIS PENALTY AND THE DAMAGING EFFECT IT CAN HAVE ON YOUR LIFE AND CREDIT.
THE TRUST FUND RECOVERY PENALTY, ALSO CALLED THE 6672 PENALTY
Here are three strategies to potentially overcome the trust fund recovery penalty (TFRP):
- Submit a timely appeal;
- File an 843 Claim after the tax has been assessed;
- Make an offer in compromise, citing doubt as to liability.
Many individuals are taken aback to discover that the IRS possesses the authority to levy the trust fund recovery penalty (TFRP) against individuals or corporations that have neglected to remit their payroll taxes.
These penalties were instituted to foster the prompt remittance of withheld income and employment taxes, encompassing social security taxes, railroad retirement taxes, and collected excise taxes. Congress enacted legislation creating what are referred to as trust fund taxes.
Named as such because these funds are essentially held in trust by the employer until deposited as a federal tax payment, trust fund taxes have particular rules.
The TFRP might be applicable if the unpaid trust fund taxes are not immediately collectible from the business. It is not a requirement for the business to have ceased operations for the TFRP to be levied.
FOR WILLFULNESS TO EXIST, THE RESPONSIBLE PERSON:
The criteria for being considered liable in this context include:
- Being, or reasonably expected to have been, aware of the outstanding taxes; and
- Either deliberately ignoring the law or showing clear indifference to its requirements (note that fraudulent intent or malicious motive is not required.)
The act of using available funds to settle debts with other creditors while failing to pay the employment taxes, when the business is incapable of doing so, can be seen as an indication of willfulness.
CHECK LIST OF WHETHER YOU CAN BE HELD RESPONSIBLE.
THIS IS THE LISTED CRITERIA THAT THE INTERNAL REVENUE SERVICES USES: DID YOU….
- determine financial policy for the business
- direct or authorize payments of bills to creditors
- open or close bank accounts
- guarantee or co-sign loans
- sign or counter-sign checks
- authorize payroll
- authorize or make Federal Tax Deposits
- prepare, review, sign, transmit payroll tax returns
- right to hire/fire
- this is not a full list but is a great starting point
THE IRS WORKS THIS CASE BY THE FOLLOWING METHOD:
To evaluate the extent of your job duties and responsibilities, you might be required to participate in an interview and complete form 4180. Your level of responsibility will be assessed based on whether you exercised your own judgment concerning the financial affairs of the company. If your sole function was to follow instructions and pay bills without deciding which creditors should receive payment, you will not be considered a responsible person. The IRS will gather information from several sources to identify responsible parties. To determine the responsible parties, the IRS will examine corporate resolutions, bank signature cards, and cancelled checks of the corporation.
HOW DOES THE IRS FIGURE OUT WHAT THE PENALTY DOLLAR AMOUNT WILL BE? HERE IS THE FORMULA:
The penalty sum is equivalent to the outstanding balance of the trust fund tax, and it’s calculated as follows:
- Including the unpaid income taxes that were withheld;
- Adding the employee’s share of the withheld FICA taxes;
- Subtracting any payments that were made on time;
- Deducting any taxes specifically designated to the “trust fund only” from the total amount due.
These points represent just a selection of the existing criteria that an IRS agent will examine to determine if you are accountable for the trust fund tax and its associated penalty.
CALL US TODAY TO FIGHT THE ASSESSMENT BY THE IRS.
STOP THIS PENALTY AND THE DAMAGING EFFECT IT CAN HAVE ON YOUR LIFE AND CREDIT.
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