As a former IRS Revenue Officer and Former IRS Instructor / Trainer I have worked thousands of trust fund cases. IRS is tough on payroll and trust fund cases. In almost all payroll and Trust Fund cases I will always recommended professional help because of the nature of the cases.
The Trust Fund Tax came into play for companies that owed payroll taxes ( 941 ). These companies have a two fold IRS problem. Not only was the company liable for back payroll taxes but if the company was a corporation, responsible officers/ persons would be held responsible for the trust fund portion of the tax.
The Trust Fund Tax comprises of the withholding tax and one half of the the social security portion that is found on the 941. It was actually the money placed in trust or the care of the corporation in which its officers/ persons were to be turned over to the IRS in the form of a tax deposit.
(What is not the trust find portion is the social security matched by the employer, the penalties and interest as well as the 940 taxes.)
The Revenue Officer working the case to collect the money from the corporation is mandated to set up the trust fund penalties from responsible officers or persons. IRS will ask questions that can be found on for a form 4180 and will complete this 4180 interview to determine which of the officers or persons were actually responsible to actually pay over the tax to IRS. Usually persons in control, had check signing authority or run the day to day operation are held responsible.
The IRS on a regular basis will try to impose the trust fund penalty on all persons who were on the bank signature cards. IRS wants to throw a blanket around all persons it can and have as many person responsible for he tax.
BEWARE: Do not let IRS impose this penalty against you. Fight it at all cost. If this penalty is imposed IRS will attempt to collect the tax by means of bank and wage levies if you do not work out a creditable method to pay IRS back the tax.
IRS can collect from the corporation as well as the individuals at the same time to get full payment of the payroll taxes.
It is best to get professional tax representation to avoid the trust penalty. IRS has an appeal process as well if it deems you are responsible. Use full advantage of the appeal process as well.
If the IRS sets up the trust fund penalty against you as an individual, you can expect not only enforced collection action against you but also the Filing of a Federal Tax Lien that will remain in your name for the next ten years or until the tax is paid in full.
When getting a tax representative it is always best to hire former IRS Revenue Officers because of their vast knowledge of the system.
