What is Trust Fund Penalty?

A Trust Fund in terms of employment tax should not be mistaken with a trust fund in terms of wealth management. This is the payroll tax amount assessed to the officers of the business. Tax resolution can help reduce and or arrange the payment of these taxes.

What is a Trust Fund Recovery Penalty (TRFP)?

A Trust Fund Recovery Penalty can be assessed if the unpaid trust fund taxes cannot be immediately collected from the business. This often happens if the business falls on hard times and taps into that fund for any reason. According International Revenue Code 6672(a) an individual can be held liable for penalty for willful failure to collect, account for, or pay to the IRS the taxes for the business.

Who is Held Responsible for the TRFP?

According to the IRS, the TRFP can be assessed against any person who is: responsible for collecting or paying withheld employment taxes, willfully fails to collect or pay the taxes.

Trust Fund Penalty Assessment Interview

What Is A Trust Fund Recovery Penalty Interview?

A Trust Fund Recovery Penalty Interview and investigation permits the IRS (Internal Revenue Service) to collect unpaid taxes from businesses and assets of the individuals involved in the finances of the business. The IRS will request an interview with anyone they believe is responsible for the trust fund taxes. The trust fund penalty assessment interview is to determine who is responsible for the recorded unpaid taxes. The interview is called a 4180 interview because the IRS agent will ask questions from the Form 4180 (Report of Interview With Individual Relative to Trust Fund Recovery Penalty).

What Is The “Trust Fund” In Regards To Form 4180?

Payroll taxes are withheld by the employer on behalf of each of the employees in trust for the U.S. Treasury. This amount of money owed by the employee to the IRS is called “trust fund” taxes. This “trust fund tax” makes up the bulk of the payroll taxes due to the United States Treasury. Hence, employers are responsible for calculating the taxes due from their employees’ earnings. In addition, employers are responsible for sending these funds to the IRS on behalf of all employees.

The IRS will try to collect this trust fund tax by utilizing IRS Form 4180 if it does not receive any money on behalf of the employee from a business. Answers to the IRS agent’s questions will determine responsibility and accountability. The responsible person(s) will have to pay the unpaid tax with interest and penalties.

How to Avoid the 4180 (Trust Fund Penalty Assessment) Interview if Liable

The best way to avoid the interview is to pay the bill and cancel the interview. Besides, you could also admit being liable by signing the Form 2751 (Proposed Assessment of Trust Fund Recovery Penalty). Afterwards, you can try to set up a payment plan or apply for a settlement with the IRS.

A business should be able to pay a tax bill under $25,000 back over a 24-month period. Once a business sets up payments, personal assets are no longer at risk for seizure.

Examples of Personal Assets:

Automobiles

Jewelry

Furniture

Checking Account

Savings Account

How to Avoid the 4180 Interview if Not Liable

You can argue your lack of liability if you are not responsible for the payment of Trust Fund Taxes. However, this can be extremely difficult. Furthermore, it is highly recommended to get a tax professional to assist you. For instance, perhaps you accidentally signed off on a tax but you were not really responsible for the collection and payment of those taxes. The tax professional will have to prove that you are not responsible for the unpaid tax even if you were involved.

How Can One Survive A Trust Fund Interview For Back Payroll Taxes?

Accept accountability and responsibility if you are the person responsible for the collection and payment of the Trust Fund Taxes. Bring any documents that prove your innocence. Documenting your actions while on the job is useful and can help in this type of situation. For example, a ledger with someone else signing off on payroll or your vacation slip indicating you were away at the time of signing, would help your case. A tax professional can suggest other types of documents proving your innocence. Resolve any resulting debt owed due to your actions or lack thereof. However, fight for your innocence if you are not responsible. The amount owed can be staggering since the more employees involved, the larger the liabilities will be.

Some reasons why the trust fund penalty was assessed falsely:

Aggressive revenue officers who take shortcuts.
The taxpayer failed to properly document and build a case showing their lack of actual control over how payroll operated their deposits.
The taxpayer signed a document just to appease an aggressive Revenue Officer.
“Ganging up” against a non-responsible party who did not know how to properly defend himself/herself.
The taxpayer or representative failed to properly appeal.
Failure to understand the severity of a situation.

Next Steps:

In conclusion, the fastest way to get this matter resolved is by being honest and upfront. Furthermore, you should consult a tax professional to confirm liability or lack thereof. Finally, contact us to assist you if you believe yourself to be innocent and should not be held accountable. Check for more information on our tax problem resolution services page.