If the IRS finds out that, for any reason, your business, or the business you work for, has not been making proper, timely payments in the correct amount of its trust fund taxes, you, or someone else at your business, may have the Trust Fund Recovery Penalty assessed against them. As we discussed in our previous blog post, this usually involves an interview, known as the 4180 Interview, where the IRS attempts to determine if a person was responsible for the financial decision-making of the business, and if so, if that person willfully neglected to pay these trust fund taxes.
If the IRS determines that a person was responsible for the financial matters of a company and willfully neglected to make these payments, the IRS can begin to take seizure or collection action against a person’s personal assets. This can happen in the form of a federal tax lien, a bank levy or other “seizure action.” To learn more about Federal Tax Liens, see our previous blog post series, starting here: Rush Tax Relief – Federal Tax Lien.
In this blog post, we’ll discuss the parameters the IRS uses to determine responsibility and willfulness, in the context of the Trust Fund Recovery Penalty.
TFRP: Determining Responsibility and Willfulness
As of Dec. 24, 2020, according to the IRS page, Employment Taxes and the Trust Fund Recovery Penalty (TFRP), “The TFRP may be assessed against any person who:
- Is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and
- Willfully fails to collect or pay them.
“A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be:
- An officer or an employee of a corporation,
- A member or employee of a partnership,
- A corporate director or shareholder,
- A member of a board of trustees of a nonprofit organization,
- Another person with authority and control over funds to direct their disbursement,
- Another corporation or third party payer,
- Payroll Service Providers (PSP) or responsible parties within a PSP
- Professional Employer Organizations (PEO) or responsible parties within a PEO, or
- Responsible parties within the common law employer (client of PSP/PEO).
“For willfulness to exist, the responsible person:
- Must have been, or should have been, aware of the outstanding taxes and
- Either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).
“Using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness.”
As you can see, those who can be held responsible for the financial matters of a business in the eyes of the IRS make up quite a long list. However, as the page goes on to say, the IRS must also prove willfulness, which includes that a person must also have been, or should have been, aware of the outstanding trust fund taxes. So, depending on a person’s role within a business, it should now be a bit clearer as to whether or not they are a person that the IRS would consider responsible and willful.
In our next blog post, Rush Tax Relief – Trust Fund Penalty Assessment Interview, we’ll discuss one of the last steps of the TFRP, the Trust Fund Penalty Assessment Interview, also known as the 4180 Interview.