Our tax attorneys have the experience and knowledge to help you when you have been charged with a Trust Fund Recovery Penalty.
Settling the IRS Trust Fund Recovery Penalty
If you own or manage a business with employees and have been charged with an IRS trust fund recovery penalty, you must act quickly before the IRS decides to garnish your wages or seize your assets.
What is the Trust Fund Recovery Penalty (TFRP)?
The Trust Fund Recovery Penalty (TFRP) is a fine charged for unpaid trust fund taxes and is equal to a portion of the business’ unpaid payroll taxes. It can be a hefty fine that the IRS aggressively attempts to collect and they have three years to do so.
Trust fund taxes include Federal income taxes and the employee portion of FICA taxes (Social Security and Medicare). An employer is responsible for monthly payment to the IRS, as well as quarterly reports.
Who is Responsible for the TFRP?
The IRS states, “the TFRP is a penalty against any responsible person required to collect, account for, and pay over taxes held in trust who willfully fails to perform any of these activities.”
The IRS identifies one or more individuals who are responsible for collecting and/or paying withheld income and employment taxes, and willfully does not collect or pay. A responsible person may be:
- An officer or an employee
- A board member
- Another person with authority and control over funds
- A payroll service
- A third party payer
The responsible person must also “willfully fail” to collect or pay. This means the responsible person should have been aware of the unpaid employment taxes, and either purposefully chose to ignore the law or did not care to adhere to the requirements.
How to Avoid the TFRP?
In order to avoid the Trust Fund Recovery Penalty, you need to make sure that the funds you subtract from employee payment go directly into a separate, trust fund account and remain there until you pay them over to the government on time. It is not worth the risk to “borrow” from the trust fund account. If you are unable to pay the full amount of payroll taxes due, you must specifically designate your partial payment from the trust fund account to be applied toward the trust fund liability.
What are Non-Trust Fund Taxes?
Non-trust fund taxes are the taxes that are not required to be put into a trust fund by the employer. They include:
- The employer’s portion of Medicare
- Employer’s portion of Social Security taxes
- Unemployment taxes
On the other hand, trust fund taxes include:
- The employee’s portion of FICA taxes
- Withheld income taxes
What Happens if the IRS Assesses a Trust Fund Recovery Penalty?
Failing to pay employment taxes to the U.S. Treasury is a major offense and can result in large penalties. The longer the taxes go unpaid, the larger the penalty. The IRS will also attempt to collect unpaid employment taxes using tax liens and levies against bank accounts, investments and property.
How Much is the TFRP?
The amount of the penalty is 100% of the unpaid taxes plus interest. The amount of the penalty is based on the total unpaid income taxes withheld, plus the employee’s portion of withheld FICA taxes.
IRS Trust Fund Recovery Interview
When a TFRP is set in motion by the IRS, they will schedule a Trust Fund Recovery Interview to determine who is responsible. Not only are they trying to determine if you are responsible, but also others in the organization who might be responsible.
The Revenue officer will ask you questions like:
- When did you become aware of the unpaid taxes?
- Who handles the IRS paperwork?
- What did you do when you discovered there were unpaid taxes?
Ultimately, the office is looking for the answer to the question, “Who had the signature authority on the relevant bank account?” Once the officer understands who might be responsible, he or she will interview those individuals.
Trust Fund Recovery Penalty Defense
The Wiggam Law defense for a potential Trust Fund Recovery Penalty involves collecting information about your role within the organization, as well as the roles of others to prove that someone else is responsible and willful. Even if you are a responsible party who willfully did not pay the payroll taxes, it can sometimes be argued that you should not be charged the penalty if you are uncollectible.
When an IRS revenue officer decides to assess the penalty against an individual, you have sixty days to file a protest to dispute the officer’s determination. You are then entitled to a hearing with the IRS appeals office where an independent IRS employee will review your case.
If you cannot dispute the TFRP or pay the amount in full, other options include:
Our tax attorneys have the professional knowledge and skill to represent you during your Trust Fund Recovery Investigation, and negotiate for your unique situation.
IRS Trust Fund Recovery Defense Success Stories
Our clients, a mother and daughter, were both being assessed a Trust Fund Recovery Penalty of $505,634 as the IRS claimed they were a responsible party for unpaid payroll taxes for a hospital that previously employed them as CEO and CFO, respectively. We successfully argued that the clients should not be personally liable for the non-payment of trust fund liabilities for the hospital. The IRS agreed with our position and determined that our clients should not be held personally liable, saving them both the full amount of $505,634.
Contact Our Tax Attorneys in Atlanta, GA
Don’t risk the penalty. Take immediate action against your Trust Fund Recovery Penalty with help from the Wiggam Law tax attorneys.