Delinquent payroll taxes could be one of the most serious financial hurdles facing a business and the corporate officers or responsible persons. Congress enacted the” Trust Fund Recovery Penalty Statute” to encourage prompt payment of withheld and other collected payroll taxes by allowing the IRS to assert a liability against responsible third parties under code Section 6672. As a former Revenue Officer I set up thousands of these cases and know what it takes to get our clients off the hook. The amount of the trust fund penalty imposed by the federal statute for failure to comply with its provisions is measured by the payroll taxes required to be collected or collected and not paid over. That is why the liability is referred or called the “100% Penalty”. It is 100% of the taxes that you held in trust. The IRS penalty is civil in nature, not criminal in nature.The trust fund tax formula is usually all the withholding and one-half of the social security tax. This is a general rule.
Congress clearly restricted the provisions of IRC 6672 to the so called”Trust Fund” taxes as defined in IRC . In other words, the penalty only applies to collected or withheld payroll taxes that are imposed on persons other than the party who collects payroll taxes, accounts for payroll taxes, and pays over such payroll taxes. Excise taxes are the trust fund as well.
There are two major tests to determine if someone is subject to the provisions of IRC 6672 of the Code.
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Whether the party against whom the penalty is proposed had the duty to account for payroll taxes, collect payroll taxes, and turn over trust fund payroll taxes; and (2) Whether he or she willful failed to perform this duty relating to the trust fund payroll taxes.
In general, the IRS has the right to pursue any person who, meets the tests, even if he was not an officer or employee of the corporation which originally collected the payroll taxes. Most times however, it is usually the corporate officers.Form 4180 is used to determine responsibility and the revenue officer assigned the case fills out the form with responsible persons.
The penalty can be assessed against more than one person. It is not unusual for the IRS to assess the penalty for payroll taxes against several responsible persons. In the event that the IRS assesses several persons for trust fund payroll taxes, it may collect the entire liability from any of those persons. most of the time the bank signature cards are used to determine who is responsible and is almost an acid test for the IRS. Those who sign bank signature cards have a hard time being removed from the penalty.
When a corporation and its officers fails to pay payroll taxes, the IRS may proceed against the persons responsible for the nonpayment of such payroll taxes. IRC 6672 provides statutory authority for imposing a Trust Fund Recovery Penalty on “any person required to collect payroll taxes, truthfully account for payroll taxes, and pay over collected payroll taxes ” who willfully fails to collect such payroll taxes or willfully attempts in any manner to evade or defeat such payroll taxes or payment thereof. Generally, two conditions must be met in order to assess and collect the Trust Fund Recovery Penalty tax: (1) The taxpayer must be a responsible person for such payroll taxes, an (2) The taxpayer’s conduct must be willful in relation to the mishandling of such payroll taxes
The key to liability for payroll taxes under Section 6672 is control of  checks,the monies, who paid the bills, who authorized the bills to be paid, the power to control the decision-making process by which the employer corporation allocates funds to other creditors in preference to its withholding payroll taxes obligations. Liability attaches to those with power and responsibility within the corporate structure for seeing that the taxes withheld from various sources are remitted to the IRS. This duty is generally found in  corporate officials or employees charged with general control over corporate business affairs who participate in decisions concerning payment of creditors and disbursal of funds.
The IRS must prove and establish a second element for liability under the Trust Fund Recover Penalty for payroll taxes. That element is “willfulness.” A responsible person need not have failed to pay the payroll taxes with a fraudulent or evil purpose. That person must merely be shown to have knowingly and intentionally disregarded the duty to pay trust fund payroll taxes to the IRS. “Willfulness” can be defined as “‘an act is willful if it is voluntary, conscious, and intentional. A responsible person acted willfully if he ‘knowingly’ used available funds to prefer other creditors to the IRS.
There are many factors used by the IRS to determine who is / are the responsible persons. After a review of corporate documents, bank signature cards, interviews, completion of the form 4180 and reviewing the canceled checks it is very easy for an experienced Revenue Officer to make such a determination.
Control is ultimately found in who controlled the money.We can tell you today if you will be found responsible by telling us your set of facts. Appeals hearing are available with Trust Fund cases.
Fresh Start Tax can help you in the very sensitive situation. Call us today so we can evaluate your case.