"A" Rated

IRS Trust Fund Penalty - The 6672 Penalty

Most individuals are very surprised that the IRS has the right to collect the trust fund recovery penalty (TFRP) against individuals of corporations who failed to pay their payroll taxes. The penalties are set up to encourage prompt payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes or collected excise taxes. Congress passed a law that provides for the so called trust fund taxes. These taxes are called trust fund taxes because you actually hold the employee's money in trust until you make a federal tax deposit in that amount. The (TFRP) may apply to you if these unpaid trust fund taxes cannot be immediately collected from the business. The business does not have to have stopped operating in order for the TFRP to be assessed.

Who Can Be Responsible for the Trust Fund Taxes, code section 6672

The trust fund recovery penalty may be assessed against any person who:

• Is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes; and
• Willfully fails to collect or pay them

A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be or had some of the following powers:

• An officer or an employee of a corporation;
• A member or employee of a partnership;
• A corporate director or shareholder or member;
• A member of a board of trustees of a nonprofit organization,or anyone deemed to be responsible;
• Another person with authority and control over funds to direct their disbursement.

For willfulness to exist, the responsible person:

• Must have been, or should have been, aware of the outstanding taxes; and
• Either intentionally disregarded the law or was plainly indifferent to its requirements (no fraudulent intent or bad motive is required).

Using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness.

You may be asked to complete an interview in order to determine the full scope of your duties and responsibilities. Responsibility is based on whether an individual exercised independent judgment with respect to the financial affairs of the business. An employee is not a responsible person if the employee's function was solely to pay the bills as directed by a superior, rather than to determine which creditors would or would not be paid.

How does the IRS figure out what the penalty will be?

The amount of the penalty is equal to the unpaid balance of the trust fund tax. The penalty is computed based on:

• The unpaid income taxes withheld; plus
• The employee's portion of the withheld FICA taxes;
• Any timely payments will be subtracted from the amounts owed;
• Any taxes designated to "trust fund only" will be subtracted from the total owed.

Three ways to beat this trust fund recovery penalty:

• file a timely appeal
• file an 843 Claim after the tax is assessed
• file on offer in compromise, doubt as to liability

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 may be asked to complete an interview, form 4180 in order to determine the full scope of your duties and responsibilities. Responsibility is based on whether an individual exercised independent judgment with respect to the financial affairs of the business. An employee is not a responsible person if the employee's function was solely to pay the bills as directed by a superior, rather than to determine which creditors would or would not be paid. The IRS will secure statements from many persons before it determines who the responsible parties are. The IRS will pull the corporate resolutions, bank signature cards and canceled checks of the said corporation to determine 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.

1-866-700-1040

 

The Trust Fund Recovery Penalty, also called the 6672 Penalty

Three ways to beat this trust fund recovery penalty:

• file a timely appeal
• file an 843 Claim after the tax is assessed
• file on offer in compromise, doubt as to liability

Most individuals are very surprised to learn that the IRS has the right to collect the trust fund recovery penalty (TFRP) against individuals of corporations who failed to pay their payroll taxes. The penalties are set up to encourage prompt payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes or collected excise taxes. Congress passed a law that provides for the so called trust fund taxes. These taxes are called trust fund taxes because you actually hold the employee's money in trust until you make a federal tax deposit in that amount. The (TFRP) may apply to you if these unpaid trust fund taxes cannot be immediately collected from the business. The business does not have to have stopped operating in order for the TFRP to be assessed.

Who Can Be Responsible for the Trust Fund Taxes, code section 6672.

The usual suspects found liable by IRS are usually those that were:

• An officer or an employee of a corporation;
• A member or employee of a partnership;
• A corporate director or shareholder or member;
• A member of a board of trustees of a nonprofit organization, or anyone deemed to be responsible;
• Other persons with authority and who had control over funds to direct their disbursement;
• Those who willfully and with full knowledge chose not to pay the payroll tax liability.

For willfulness to exist, the responsible person:

• Must have been, or should have been, aware of the outstanding taxes; and
• Either intentionally disregarded the law or was plainly indifferent to its requirements (no fraudulent intent or bad motive is required.)

• Using available funds to pay other creditors when the business is unable to pay the employment taxes is 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:

You may be asked to complete an interview, form 4180 in order to determine the full scope of your duties and responsibilities. Responsibility is based on whether an individual exercised independent judgment with respect to the financial affairs of the business. An employee is not a responsible person if the employee's function was solely to pay the bills as directed by a superior, rather than to determine which creditors would or would not be paid. The IRS will secure statements from many persons before it determines who the responsible parties are. The IRS will pull the corporate resolutions, bank signature cards and canceled checks of the said corporation to determine who the responsible persons are.

How does the IRS figure out what the penalty dollar amount will be? Here is the formula:

The amount of the penalty is equal to the unpaid balance of the trust fund tax. The penalty is computed based on:

• The unpaid income taxes withheld; plus
• The employee's portion of the withheld FICA taxes;
• Any timely payments will be subtracted from the amounts owed;
• Any taxes designated to "trust fund only" will be subtracted from the total owed.

These are just a few of the existing criteria that the IRS agent will use to see if you are responsible for the trust fund tax and it's 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.
1-866-700-1040