- Hardship Candidate,
- Monthly payment agreement candidate or
- An offer in compromise (and IRS payroll settlement) candidate.
Immediately – to show the IRS good faith – get current and stay current on all payroll tax deposits.
Be prepared to give the IRS a current financial statement;
Make sure your personal tax liabilities are filed and paid;
Have all the documentation required on the financial statement prepared for presenting to the IRS.
The TFRP may be assessed against any person who:
- Is responsible for collecting or paying withheld income and employment taxes, or
- Is responsible for paying collected excise taxes, and
- Willfully fails to collect or pay them.
A responsible person is a person or group of people who have the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be:
- An officer or an employee of a corporation,
- A member or employee of a partnership, A corporate director or shareholder,
- A member of a board of trustees of a nonprofit organization,
- Another person with authority and control over funds to direct their disbursement,
- Another corporation or third-party payer,
- Payroll Service Providers (PSP) or responsible parties within a PSP
- Professional Employer Organizations (PEO) or responsible parties within a PEO, or
- Responsible parties within the common law employer (ie. a client of PSP/PEO).
For willfulness to exist, the responsible person must have been, or should have been, aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required!).
- Using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness. You will be asked to complete an interview to determine the full scope of your duties and responsibilities.
- Responsibility is based on whether an individual exercised independent judgment with respect to the financial affairs of the business.
An employee is not a responsible person if the employee’s function was solely to pay the bills as directed by a superior, rather than to determine which creditors would or would not be paid.
The amount of the penalty is equal to the unpaid balance of the trust fund tax. The penalty is computed based on:
- The unpaid income taxes withheld, plus
- The employee’s portion of the withheld FICA taxes. For collected taxes, the penalty is based on the unpaid amount of collected excise taxes.
If the IRS determines that you are a responsible person, they will provide you a letter stating that they plan to assess the TFRP against you. You have 60 days (75 days if this letter is addressed to you outside the United States) from the date of this letter to appeal their proposal.
The letter will explain your appeal rights. Refer to Publication 5, “Your Appeal Rights and How to Prepare a Protest if You Don’t Agree” (a pdf file), for a clear outline of the appeals process. If you do not respond to their letter, they will assess the penalty against you and send you a Notice and Demand for Payment.
Once they assert the penalty, the IRS can take collection action against your personal assets. Two popular alternatives of collection action the IRS takes: they can file a federal tax lien, levy your bank account or wages, or seize your assets.
Businesses that are currently operating and owe payroll taxes will find that the IRS will be very aggressive with their collection process of these type of taxes.
The IRS looks at this type of payment as monies that were held in trust by your company and meant to be paid to the IRS for the benefit of the employees.
These actually are not actually taxes. The government has placed its trust in the company to collect and remit these monies to the IRS. The IRS and its agents keep a watchful eye out for repeat offenders and companies that run up deficits quarter after quarter.
These for “repeat offender” companies are prime targets for the IRS. If the payroll taxes are not paid, the IRS could close the company and sell off the assets of the company to obtain the payment due. The IRS could also get a copy of the company’s accounts receivable list and send levies out to all people who owe the company money.
For their Revenue Officers, IRS also haS a special “call alert” system and FTD (federal tax deposits) system alert to let them know who, in their area, is behind on payroll taxes. 941 Payroll Taxes or Trust Fund Cases are one of the IRS’s top priorities.
The IRS can file a Federal Tax Lien locally against the company that owes the payroll taxes. In addition, IRS may file a Federal Tax Lien under the UCC (Uniform Commercial Code), in the state capitol where the business is located.
This will affect the credit, the ability to borrow, and how vendors check on and deal with your company. With any economic downturn or volatility, many companies are going to find themselves dipping into the employee payroll taxes to make ends meet.
Doing something like this only creates a larger problem. It is only a matter of time before the IRS comes knocking at the door.
If you find yourself in this situation, our professional tax team will be able to help your company avoid forced collection from the IRS and negotiate a livable payment agreement. Because of the high priority the government places on delinquent payroll taxes, you should only enlist the help of a professional tax resolution company if you find yourself in a situation like the ones described on this page.
The tax never goes away until the payroll tax (the Trust Fund Liability) is paid — in full.
The IRS will investigate to find out who is responsible for paying the Trust Fund Liability.
They want to find out who was the decision maker, who authorized and who was responsible for paying the bills. After the investigation, the IRS sends out a letter to those individuals they found responsible.
These individuals will get a chance to appeal those findings. Once the determinations are made, the assessments become final, and IRS will personally go after the assets of the individuals who are responsible for paying these taxes.
If you are a responsible officer or party of a corporation that owes back payroll taxes, the IRS will look not only to the company but also to you personally for the amount due.
This is known as the Trust Fund Recovery Penalty and it will not go away until the amount due is paid. In addition, the amount owed cannot be discharged in bankruptcy.
The IRS will pursue you until they are paid in full — from whatever source available.