If a business has employees but has failed to pay payroll taxes or file payroll tax returns, the IRS may levy assets of the business, including income sources, accounts receivables, equipment, automobiles, and bank accounts, and may even shut down the business. Whether the business is closed, files for bankruptcy protection, or continues to operate, the IRS can and will hold the owners, officers, and even employees of the business personally liable for taxes owed because of the special nature of these taxes.
When an employer pays wages and salaries to employees, the law requires the employer to withhold FICA and income taxes but does not specifically require the employer to segregate the withheld amounts from other funds. The amounts designated as being withheld are simply deemed to be held in trust for the United States. These funds are commonly referred to as trust fund taxes. They belong to the United States and do not merely represent a debt of the employer.
If the taxes are not paid over to the IRS, personal liability will be imposed on those individuals who were responsible for, but willfully failed to collect, account for, and pay over the withholding taxes. The IRS determines this personal liability in part by interviewing shareholders, officers, directors and employees of the business. The “trust fund recovery penalty” will be assessed against the any and all individuals deemed responsible for an amount equal to the unpaid withholding taxes. While the liability may be imposed on more than one individual, the total amount of the penalty will be collected once. (The IRS will collect from the person who is the easiest target.)
If you are involved with a company that has outstanding payroll tax issues, you may be held personally responsible for the trust fund recovery penalty. If the trust fund recovery penalty has already been assessed against you, you may be able to seek various forms of tax relief, which include appeal, penalty abatement, and/or offer in compromise. If you are an in-business taxpayer that is not current with Federal Tax Deposits and have several payroll tax periods that remain unpaid, you may be subject to more severe enforcement action designed to immediately stop the accrual of additional liabilities and to collect on the delinquent taxes.
For more information on payroll tax issues, please call us. If you are searching for a highly qualified representative to negotiate on your behalf to minimize your exposure to personal liability and/or keep your business operating, please contact us. We can appeal the assessment of a trust fund recovery penalty, administratively contest the penalty, and/or negotiate an offer in compromise to settle the tax debt.
Whether you choose a face to face meeting at our office or a telephone consultation, you will speak directly with an experienced CPA who will provide you with a free, confidential consultation. While our office is located in the Dallas metro area we serve clients in almost all 50 states and have clients located in many areas around the world. All aspects of tax representation can be handled easily via phone, fax, mail and e-mail. There is never a charge for your initial consultation.
