Trust Fund Recovery Penalty Details2017-04-18T13:14:16+00:00

Trust Fund Recovery Penalty Details

Below we discuss the Trust Fund Recovery Penalty details not a covered in the landing page.

The IRS and State have determined that any person or persons that was “willful” in not paying payroll tax liability is a “responsible person”.  What this means is that a responsible person is personally liable for the Trust Fund portion of payroll taxes withheld from employees’ pay.

The employee’s tax withholding as well as their portion of Medicare and Social Security tax withheld is referred to as the “Trust Fund” portion of the payroll tax liability.  If payroll tax liability is not paid; in addition to the company being held liable, the responsible person will also be held liable.  If you are deemed responsible, you may be forced to personally pay for any shortfall that exists.  A person may be deemed responsible regardless of the type of entity under which the business operates including LLC’s and sole proprietorships.

Keep in mind that a there may be more than one responsible person and they not need be a business owner.  A responsible person may be anyone including a CFO, payroll manager or bookkeeper.  They may also be considered to be responsible solely because they are listed on the company’s bank signature card.

The Tax Resolution Institute not only helps businesses address a company’s Trust Fund Recovery issues by entering them into an agreement with the taxing agencies, but we also help individuals tied to the company that may in the future or already have been deemed a responsible person.

It is extremely important that you act quickly if you have not yet been deemed a responsible person.  If we can get you “off the hook” personally, it will greatly work in your favor when looking at the overall picture as it relates to your tax matters.  If you have been deemed responsible prior to coming to us, there are ways we can keep the IRS from coming after you personally… Read in detail about the Trust Fund Recovery Penalty

Given the severity of the IRS trust fund recovery penalty, you need the Tax Resolution Institute on your side.  Payroll tax problems result in huge IRS penalties and interest that can financially devastate successful companies and often cause them to cease operations.

There is a reason why the IRS trust fund recovery penalty was formally known as the 100% penalty. Forever closing the doors to your business, the 100% trust fund recovery penalty needs to be mitigated by seasoned professionals and the Tax Resolution Institute has tax attorneys and CPA’s ready to meet the task at hand.

The Trust Fund Recovery Penalty (formerly known as the “100% Penalty”)

The Trust Fund Recovery Penalty (formerly known as the “100% Penalty”)

As a business owner or other responsible person, there is no time to waste.  With penalties and interest accruing at an alarming speed (doubling in a short period of time), it is crucial to take immediate action. With the exception of fraud, there is no taxation issue that IRS Revenue Officers take as seriously as unpaid payroll taxes.

It is important to remember that the amount of income tax, Medicare tax and Social Security you withhold from an employee does not belong to you. It is held by you in “Trust” and is expected be paid to the government in a timely fashion.  The amounts withheld as described above are referred to as the “Trust Fund” portion.  This Trust Fund portion plus penalties and interest on the penalties is assessed to a person or persons deemed responsible for not paying the tax commonly referred to as the trust fund recovery penalty.  A “Responsible Person” is typically a decision maker for the company that decided “willfully” (as defined by the IRS) not to remit the Trust Fund portion of the liability.  In addition, the responsible person may be considered solely because they are a signee on the company’s bank account.  They do not need to be an owner or officer of the company.

Congress enacted the Trust Fund Recovery rules to encourage prompt payment of taxes withheld by employers.  The Trust Fund Recovery statute imposes a Civil Penalty on persons deemed responsible (see code section below):

IRC Section 6672(a): Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such a tax, or truthfully account for or pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.

As implied above, when you withhold payroll taxes from an employee, you literally become a government trustee.  As a result, when you willfully fail to perform your duties and properly remit the payroll taxes, you are committing a serious felony.  Since you are holding the payroll taxes in trust for the government as a trustee, you become personally responsible for the payroll taxes and the complete recovery by the IRS of the entire trust fund portion.

If you owe back IRS payroll taxes because you failed to make timely payroll tax deposits, the Tax Resolution Institute will help by implementing a comprehensive strategy to cover both you and the company.  We will negotiate with the IRS to minimize your personal exposure and if you choose, make sure your doors can remain open.