What is the IRS Trust Fund Penalty?
The Trust Fund Penalties is a business owners worst nightmare.
Many unsuspecting business owners get hit with the IRS trust fund penalty. Basically, if you do not pay your 941 taxes i.e. withholding and Social Security, the federal government has the right to impose those taxes you held in trust against you personally or any responsible persons of your corporate or entity responsible for the tax and thus collect the money from you on an individual basis.
Do not accept this penalty fight back.
It is also possible for the IRS to set up a payment agreement with you for your IRS corporate 941 taxes they can assert at the same time the trust fund penalty and collect those individually at the same time.
Most Trust fund cases involve officers of corporations.
However, a responsible person may be one or more of the following:
A. an officer or employee of a corporation
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B. a member or employee of a partnership
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C. a corporate director or shareholder,
D. a related controlling corporation,
E. employee of a sole proprietorship
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F. limited liability company (LLC) member, manager or employee
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G. a Payroll Service Provider (PSP)H. a responsible party within a PSP
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I. a Professional Employer Organization (PEO)
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J. a responsible party within a PEO,
K. a responsible party within the common law employer (client of PSP/PEO)
L. a lender, a surety, or any other person with sufficient control over funds to direct disbursement of the funds, or
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M. in some cases, a person assuming control after accrual of the liability.
How does one become responsible? Through being willful
Definition of Willfulness
1. The trust fund recovery penalty is a civil penalty so the degree of willfulness in failing to collect or pay over any tax leading to liability for this penalty is not as great as that necessary for criminal proceedings.
This is a civil proceeding.
Willfulness in the context of the TFRP is defined as intentional, deliberate, voluntary, and knowing, as distinguished from accidental. “Willfulness” is the attitude of a responsible person who with free will or choice either intentionally disregards the law or is plainly indifferent to its requirements.
Some factors to consider when determining willfulness are:
a. Whether the responsible person had knowledge of a pattern of non-compliance at the time the delinquencies were accruing,
b. Whether the responsible person had received prior IRS notices indicating that employment tax returns have not been filed, or are inaccurate, or that employment taxes have not been paid,
c. The actions the responsible party has taken to ensure its Federal employment tax obligations have been met after becoming aware of the tax delinquencies.
How does IRS make there decision and who make them
A Revenue Officer like me back in the day will do that.
If the company does not provide IRS with bank signature cards and corporate resolutions, IRS simply issues at 2039 form SUMMONS for information from the banks or financial institution.
Each trust fund recovery penalty before goes to the system must have sufficient documentation and there’s a checklist that must be attached is the case moves forward.
There is a internal form 4183, that the IRS uses to make sure the revenue officer did their due diligence to support their decision on who are responsible officer was under 6672 of the IRC code.
It is not very difficult to find out who is responsible, like I said before just follow the money and that’s it!
The use of the IRS form 4180 is very critical investigation who determine business financial policy.It is on our company website.
The principal factor that the IRS considers when examining which individuals may or may not be liable for the TFRP is who signs company checks.
As we say in IRS, follow the money and you will find the responsible.
I am former IRS agent instructor & administered hundreds upon hundreds of trust fund recovery penalties and I am an IRS expert trust fund tax situations.
How do you find out if you are responsible for the trust fund penalty
The revenue officer working the case also and you IRS notice 2751 which breaks out the trust fund liability and a forum 1153 with your appellate rights.
It is always best to appeal your tax assessment.
You must take this serious because this becomes an individual assessment and IRS has their full enforcement powers to go ahead and collect these back taxes. This is just like owing individual taxes, bad news.
