Trust Fund Recovery Penalties
Want some entertaining reading? The official IRS website proffers this enlightening discussion of the Trust Fund Recovery Penalty (“TFRP”): To encourage prompt payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes, or collected excise taxes, Congress passed a law that provides for the TFRP.
“Encouraging prompt payment” is about as understated a declaration as you’re ever going to hear from the IRS. If you’ve been hit with a TFRP, you know that the rates are stiff, 100% penalty – the highest of any assessed by the IRS, in fact. The rate alone should motivate you to ensure that your business’s employee taxes are turned over to the IRS, in full, promptly, regularly, and without fail.
What exactly is the TFRP? Uncle Sam calls employee taxes “trust fund taxes” because the funds are held in trust by the employer until the employer pays them over to the government. If by due date the employer doesn’t provide the taxes to Uncle Sam through the Electronic Federal Tax payment System (“EFTPS”), Uncle Sam will assess penalties and interest on the amounts withheld.
And if the situation continues unresolved for an extended period, Uncle Sam will knock on your door – sometimes office, sometimes residence – and interview you (and maybe others as well) about the party who is responsible for making sure the transfer of employee taxes to the government takes place. This party is known to be “responsible” for the TFRPs.
Usually business owners, officers, directors, and account signers are the persons tagged by the IRS as responsible for TFRPs. Occasionally the business’s accountant may be called responsible. In worst-case scenarios, the employees charged with the task of making the EFTPS payments, such as untrained bookkeepers who hold zero authority to make financial decisions for the business, are unfortunately labeled as responsible. Even those who know that EFTPS payments are not being made as required, but who are not in a position to make the payments themselves, can be held responsible if they do not intervene to ensure pay over of the employee taxes.
The process by which the IRS determines the responsible party may seem unreasonable to the recipient of the TFRPs. IRS may conduct interviews with those who have a vested interest in shoving responsibility onto others’ shoulders. Obtaining documentation from such interviews can be difficult, as the IRS can claim privacy issues when handing over evidence for your defense. At times corporate paperwork to prove your innocence goes missing or is held in confidence.
When the IRS has determined who that responsible person is, the IRS assesses to that person TFRPs equal to the principal amount of taxes due. For a responsible person of even a small business, the total can be staggering.
The fallout of TFRPs is devastating financially and personally, especially for a salaried employee without ownership interest in the company. The IRS can place levies and tax liens against your assets, including your property and your paychecks. The debt attaches to you for many years and cannot be discharged through bankruptcy. If the IRS has determined you a responsible person for employment taxes, you should act immediately to protect your interests.
If you have been assessed TFRPs, calling Law Offices of Christy Lee, P.C., will help ensure that your rights are observed. We may advise you to pursue an offer-in-compromise or to request a tax lien release or subordination. It may be necessary to appeal the IRS’s decision or to litigate the case in federal court. No matter the approach to resolution of the tax issues, we will consult with you regularly, prepare all necessary documentation, and appear on your behalf at all hearings concerning the matter.
And if you hold a position related to the pay over of employee taxes to Uncle Sam – if you are a bookkeeper or an accountant, an officer or director of a company – you should make sure that your employer is compliant with the Internal Revenue Code. Seek our legal assistance if you suspect that you may eventually be held accountable for TFRPs.
As a tax boutique, Law Offices of Christy Lee, P.C., will assist you with all tax issues relevant to TFRPs potentially assessed to you. Our staff, including former IRS employees, are knowledgeable about IRS procedures and the best methods for obtaining a fair and equitable resolution to your TFRP issues. We will determine your legal standing with regard to the payroll taxes, and we will advise you about the preferred methods to arrive at a satisfactory solution.
Don’t let payroll tax matters become so dated that there are few remaining options to deal with a complicated and extremely costly situation. Give Law Offices of Christy Lee, P.C., a call immediately if your business faces complicated issues involving payroll tax. Then you can focus on what matters – the efficient output of work product for your company.