Guide to the Form 4180 Interview

Employers review trust funds

What to Expect If the IRS Thinks You’re Liable for Unpaid Payroll Taxes

U.S. employers have specific responsibilities to withhold employment and income taxes from employees’ wages and regularly pay these taxes to the IRS. Failing to do this or missing the deadline for payment can lead to tax penalties. If the tax still isn’t paid, the IRS may take collections actions or even pursue legal action.

As an employer, it’s essential to understand the trust fund recovery penalty—the penalty imposed when you fail to remit employee tax withholdings to the IRS. This penalty follows the Form 4180 interview, which the IRS conducts to determine responsibility for the unpaid taxes.

Read on to learn more about the IRS Form 4180 interview and the trust fund recovery penalty so you can take steps to avoid both.

When You Might Get the Trust Fund Recovery Penalty

The IRS issues many types of penalties for tax issues, including fines for failing to pay or file taxes, for missing tax deadlines, or for underpaying what’s owed. For employers, a penalty you need to be aware of is the trust fund recovery penalty. This penalty applies if you collected tax payments from your employees—including Medicare, Social Security, and income tax—but never sent those holdings to the IRS to cover your tax obligations.

These taxes that employees must withhold from employee paychecks are called trust fund taxes. These payments sit in a trust until they’re paid to the Treasury through required Federal Tax Deposits (FTDs).

Because some employers fail to make the necessary tax payments from the taxes they withhold, the IRS charges a trust fund recovery penalty, also known as TFRP. You may be on the hook for this penalty if you don’t pay what you owe and if the IRS identifies you as the responsible party.

While it is referred to as a “penalty,” it actually is a portion of the unpaid payroll taxes that the IRS can attempt to collect against responsible parties, generally owners and officers with check-signing authority who knew about the unpaid taxes. To determine whether an individual is potentially liable for the TFRP, the IRS conducts an interview and completes Form 4180.

What are IRS Form 4180 Interviews?

The next step is understanding Form 4180 and its purpose. The full name of Form 4180 is Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. This form applies to cases when the IRS will implement the trust fund recovery penalty and outlines all necessary questions related to the Form 4180 interview.

With Form 4180 interviews, the IRS wants to uncover who was responsible for issues within a business that led to the unpaid taxes. The agency wants to know who completes paperwork, who is in charge, and who knows about any noncompliance issues.

The IRS states that this penalty could apply to anyone who:

  • Is responsible for collecting or paying employment taxes
  • Fails to collect or pay these taxes and does so willfully

“Responsible” parties are those who must perform these tax-related duties for the business, whether a company leader, employee, shareholder, or other person with the authority to control or disburse funds. The responsible party could also be a payroll service provider or a professional employer organization.

The IRS defines responsibility as “whether an individual exercised independent judgment with respect to the financial affairs of the business.” The purpose of the Form 4180 interview is to determine who has this responsibility and who should be held accountable by paying the trust fund recovery penalty.

The IRS defines “willfully” as someone who is aware of unpaid payroll taxes and chooses to disregard them intentionally or is plainly indifferent to them (e.g., paying other creditors ahead of the IRS).

Who Could Face the Trust Fund Recovery Penalty?

Many different people involved in a business may be hit with the penalty. The IRS attempts to find the responsible party with Form 4180 interviews, which could include these parties:

  • Business leaders and owners, such as CEOs or founders
  • Other business executives and directors
  • Bookkeepers and accountants for the business
  • Payroll companies
  • Employees of the business
  • Anyone else who knows taxes aren’t being paid and has check-signing authority

Unfortunately, any person who is found responsible for withholding and paying taxes could be hit with the penalty. If you have questions about Form 4180 interviews and employment taxes, reach out to a tax expert or attorney who can advise you on how to move forward. You never want to make your situation worse if you’re involved in or aware of unpaid employment taxes.

How to Calculate the Trust Fund Recovery Penalty

This penalty is pretty simple to calculate. It’s figured out by adding the unpaid federal income taxes and the employee’s share of unpaid FICA taxes.

So, you will essentially be responsible for paying the original Federal tax withheld plus the exact amount that’s owed as an additional penalty. Consider what this could mean for the business, especially if you have several employees. You want to do everything you can to avoid this penalty.

Preparing for the Form 4180 Interview

You may be worried you’ll be hit with a hefty penalty if you’re facing an interview related to the 4180 form. Being prepared is the best thing you can do at this stage, so here are a few strategies to equip yourself and the business:

Have the Right Personal Information Ready

During the interview, the IRS will ask for basic information, including your name, address, Social Security number, and other identifying details. Also, be prepared to answer questions about how you’re connected with the business and your professional title. The IRS is conducting the interview to determine who they can collect the TFRP from. It is in their best interest to pursue it against as many people as they can so the unpaid payroll taxes can be collected as quickly as possible. You should consult with a tax attorney before attending the 4180 interview.

Prepare Answers for Questions About Your Role

The IRS will want to know your role in the payroll and financial operations of the business. Be prepared to answer questions like whether you make decisions about finances for the company, if you’re the person who signs payroll returns, how bills are paid in general, how payroll payments are made, and your knowledge about the unpaid tax balance.

Provide Information about Billing

The IRS also asks questions about general billing information for the business. The agency’s goal is to determine if the company could have paid the required trust fund taxes but willfully did not. Questions surrounding billing may include whether you knew about other parties getting paid, such as vendors, utilities, or lenders. The IRS will also want to know which person at the company handles billing.

Be Honest

It’s crucial that you’re honest with the IRS about your role in billing and the organization’s finances. One of the agency’s goals with the interviews is to uncover who is responsible for the issue, and that means they could get information about you from other interviews. You never want to be in a situation where you withhold details or even lie to the IRS. Be open and transparent about your role and what you know about the company’s tax practices.

Consider Options to Pay Off the Debt

You can avoid Form 4180 interviews and trust fund recovery penalties by paying off the debt owed or finding another tax relief solution. You may want to try applying for an installment agreement, where you and the IRS agree on a monthly payment amount based on what you can afford, and you pay off the taxes over a set period.

What Happens if You Are the “Responsible Person”?

After the interview, the IRS may decide that you should be held responsible for the unpaid taxes. They will then send you Letter 1153 to indicate their intention to assess the trust fund recovery penalty against you.

The date of this letter is important—you have 60 days from the letter’s date to appeal this penalty. You may have 75 days if it’s sent to you outside the U.S.

If you want to appeal the penalty, follow all the instructions in the letter. The IRS should explain the exact steps to take for appeals on each notice you receive.

Don’t just ignore this letter. Failing to respond means the IRS will assess the stated penalty against you, and you’ll then receive another document: the Notice and Demand for Payment. Once the penalty is assessed, the IRS can then move forward with any necessary collection actions.

This is a big deal for you and your business because that could mean going after your personal assets and property. You want to avoid the IRS filing a federal tax lien or levy to seize your property. Responding to the initial letter can help you avoid further action and get the matter resolved faster. A tax attorney can help you break down the next appropriate steps and outline your responsibility.

Avoid the Trust Fund Recovery Penalty

The best way to avoid the trust fund recovery penalty is to prevent an issue from the start. You can do this by ensuring all employment taxes are collected and paid and that all deadlines for these payments are met.

When you’re having an issue paying employment taxes or facing a Form 4180 interview, talk to the experts at Wiggam Law. Our team of expert tax attorneys understands the tax laws, how they can affect your business, and how to best resolve business tax issues.

Contact the attorneys at Wiggam Law today to learn more about how we can help with employment tax issues.

FAQs about Form 4180

What is IRS Form 4180?

The IRS uses the 4180 form to conduct interviews with business leaders or employees involved in payroll and billing. These interviews help the agency determine who to issue the trust fund recovery penalty to because of delinquent employment tax payments.

Who has to do the Form 4180 interview?

If the IRS suspects responsibility for unpaid employment taxes, they may require that you be interviewed under Form 4180. This interview is meant to uncover who should be held accountable for unpaid taxes before they issue a penalty.

What are trust fund taxes?

Trust fund taxes refer to the employment and income taxes employers withhold from employees’ paychecks, which include Medicare, Social Security, and some income taxes. They’re called trust fund taxes because they’re kept in a trust until they’re paid to the government. These taxes don’t include the employer match portion of payroll taxes.

Will the IRS seize my property after a Form 4180 interview?

If the tax balance remains unpaid after the trust fund recovery penalty is issued and other actions are taken, the IRS could file a lien against your property to seize personal assets. Either pay the debt in full or negotiate a plan with the IRS to avoid this from happening.

What questions will the IRS ask me in a Form 4180 interview?

The IRS will ask questions about the billing practices of the business, who is in charge of payroll and billing, who is aware of the unpaid tax balance, and other inquiries to determine responsibility, willfulness, and awareness.

How much is the trust fund recovery penalty for businesses?

If the IRS determines responsibility for unpaid trust fund taxes and issues this penalty, it will be equal to the business’s unpaid tax balance. So, the business will then have to pay this penalty on top of the original unpaid taxes. These amounts can add up quickly.

Get Employment Tax Help Today

Do you still have questions regarding trust fund recovery penalties and other business tax issues? Call us today at (404) 233-9800 or fill out our online consultation form to schedule a meeting with one of our tax attorneys today.