As a former IRS agent and teaching instructor I have conducted hundreds upon hundreds of trust fund penalty interviews  during my days as a former IRS revenue officer.

I will tell you as a taxpayer do not do this by yourself, you need to have formidable tax representation.

We have over 65 years of direct IRS work experience in the local, district, and regional tax offices of the Internal Revenue Service.

Some on are our staff were former IRS revenue officers, supervisors and teaching instructors who worked the trust fund recovery programs at the Internal Revenue Service. you will have the aid of our expertise in the matters in knowing the inside secrets of the trust fund penalty investigation and the interview itself.

The Trust Fund Tax liability

A trust fund tax is money withheld from an employee’s wages (income tax, social security, and Medicare taxes) by an employer and held in trust until paid to the Treasury.

When you pay your employees, you do not pay them all the money they earned. As their employer, you have the added responsibility of withholding taxes from their paychecks. The income tax and employees’ share of FICA (social security and Medicare) that you withhold from your employees’ paychecks are part of their wages you pay to the Treasury instead of to your employees.

Your employees trust that you pay the withholding to the Treasury by making Federal Tax Deposits (PDF). That is why they are called trust fund taxes.

Through this withholding, your employees pay their contributions toward retirement benefits (social security and Medicare) and the income taxes reported on their tax returns. Your employees’ trust fund taxes, along with your matching share of FICA, are paid to the Treasury through the Federal Tax Deposit System.

The withheld part of these taxes is your employees’ money, and the matching portion is their retirement benefit. For additional information, refer to Employment Taxes and the Trust Fund Recovery Penalty (TFRP).

Employment tax deposits are a current expense. Postponing paying them is not the same as making a late payment on your phone bill or to a supplier.

Congress has established large penalties for delays in turning over your employment taxes to the Treasury. The longer it takes to pay that money, the more it will cost you.

The trust fund tax liability in fact is not a tax but it is a pass-through liability because employers did not pay the required withholding and Social Security to the Internal Revenue Service.

Under 6672 of the Internal Revenue Code the IRS has the right to pass through a taxable withholding and one half of the social security amount to the individual or persons that should have been held responsible for this penalty.

The goal of the Internal Revenue Service is to have as many persons responsible for this penalty because that will provide the best chance to collect the money.

A seasoned  IRS revenue officer will conduct the investigation and many times want a face-to-face meeting with the person or persons they believe are responsible for the tax.

In days past you used to be able to send the 4180 form out but now is an IRS requirement that they fill out the form themselves.

it does not take long for revenue officer to make a determination as to who is responsible. after spending a couple of hours on the case when the dust settles determinations are easy to make.

It’s all about control, who had the power and who control the money and who made decisions.

No matter what your duties were within a company or corporation there are always defenses.

As a general rule, the Internal Revenue Service will have certain documents available before the 4180 interview is held.

They will usually have bank signature cards, copies of checks and the corporate resolutions and many times will have the 4180 trust fund interviews of other persons that they think may be responsible. You want to make sure you are very truthful because IRS has done some due diligence before they call you when to the interview.

Bank signature cards and canceled checks are a great way that IRS has to determine who they think is responsible.

As a general rule, whoever has the power over the money has the right to make decisions. Many times are to direct decision-makers that are set up for the trust fund penalty.

There are many cases were secretaries and employees have been trusted by management to make these decisions and often time these are great tax defenses. Do not be bullied by the Internal Revenue Service by making them think you are responsible for trust fund liabilities.

Here are the questions the IRS revenue officer may focus on:

• Did you determine the financial policy for the business?
• Did you direct or authorize payment of bills?
• Did you open or close bank accounts for the business?
• Did you guarantee or co-sign loans?
• Did you sign or countersign checks?
• Did you authorize or sign payroll checks?
• Did you authorize or make federal tax deposits?
• Did you prepare, review, sign, or transmit payroll tax returns?
• Who would you hold as being directly responsible for these taxes?
• Did you have ownership of this business?

The Statute of Limitations on Trust Fund Assessment

Pursuant to IRC 6501(b)(2), employment tax returns filed for any period ending within a calendar year are considered filed on April 15 of the succeeding year.

Employment tax returns for all four quarters of 2007 are considered filed on April 15, 2008.

The IRS has three years (beginning April 15, 2008 and ending on April 15, 2011) to complete its trust fund investigation for the 2007 returns.

WATCH OUT Single Member L L C’s

The owner of a single member limited liability company who is taxed as a disregarded entity and files a Schedule C (Profit or Loss from Business) will be held responsible for both trust and non-trust fund payroll taxes.

For any payroll tax liability resulting from wages paid before January 1, 2009, the owner of the LLC (rather than the LLC itself) is considered the taxpayer for payroll tax purposes.

The IRS collection of all unpaid employment taxes from the owner of a single member LLC was recently litigated and upheld by the U.S. Tax Court in Medical Practice Solutions, LLC v. Commissioner, 132 T.C. 7 (2009).

There is no trust fund recovery penalty process for a single-member LLC.

If you have any questions regarding the trust fund penalty call seasoned and experienced IRS revenue officer’s who can help provide your best trust fund tax defense.

Help w/ Trust Fund Penalty Interview + Do Not Do This By Yourself