As of Dec. 24, 2020, on their Trust Fund Taxes Page, the IRS states that “a trust fund tax is money withheld from an employee’s wages (income tax, Social Security, and Medicare taxes) by an employer and held in trust until paid to the Treasury.
“When you pay your employees, you do not pay them all the money they earned. As their employer, you have the added responsibility of withholding taxes from their paychecks. The income tax and employees’ share of FICA (Social Security and Medicare) that you withhold from your employees’ paychecks are part of their wages you pay to the Treasury instead of to your employees. Your employees trust that you pay the withholding to the Treasury by making Federal Tax Deposits (FTD) PDF. That is why they are called trust fund taxes.”
So while we usually tend to think of the terms ‘trust fund’ and ‘wealth management,’ in the same sphere, when it comes to the Trust Fund Penalty, also known as the Trust Fund Recovery Penalty or TFRP, it is much more related to the areas of employment tax and payroll tax.
In our previous blog post, Rush Tax Relief – Trust Fund Penalty, we talked about what the Trust Fund Recovery Penalty is and why it exists. We also discussed why the TFRP process is a situation that may warrant rush tax relief services. As we noted, a person has 60 days to act (from the date of letter) when they have received a letter from the IRS stating the IRS’s intent to assess the TFRP against them. Once the IRS assesses the TFRP penalty, they can begin to take seizure or collection action against a taxpayer’s personal assets!
What is the Trust Fund Recovery Penalty Assessment?
As of Dec. 24, 2020, according to the IRS page, Employment Taxes and the Trust Fund Recovery Penalty (TFRP), if you are having the TFRP assessed against you, “you may be asked to complete an interview in order 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.”
As you can see from the IRS quote, a fundamental factor in whether or not the IRS considers assessing the TFRP against a person – besides the required unpaid trust fund taxes – is based on determining if, or which, person was responsible for the unpaid trust fund taxes.
In our next blog post, Rush Tax Relief – Trust Fund Penalty Responsibility, we’ll discuss this aspect of responsibility in greater detail, along with the other major factor: willfulness. But in essence, the TFRP is intended to be assessed only against those that are financial decision-makers within a company that has failed to pay the proper trust fund taxes.
Check out our next blog post for more information!