Previous blogs regarding employment tax resolution have covered the payroll taxes, Trust Fund Recovery Penalty (TFRP), Trust Fund Penalty Assessment and an introduction (Part 1) to the Trust Fund Penalty Assessment Interview. We will now continue discussing the interview. As I stated earlier, the Trust Fund Penalty Assessment Interview is a tool that the Internal Revenue Service (IRS) uses to track down the person responsible for collecting and depositing with the IRS all payroll taxes. There are several possible candidates: board members, owners, directors, an employee tasked with that responsibility, and even third-party payroll tax providers. This is just the first part of the process, i.e., determining the person responsible for failing to collect and/or deposit the payroll taxes with the IRS in a timely manner. The second part of the TFRP Penalty involves the willfulness of this failure in collecting and paying these taxes.
Determining the willfulness of the failure to collect and/or deposit these taxes is indicated by the act(s) itself/themselves. Willfulness is determined as the person responsible: 1) must have been, or should have been, aware of the outstanding taxes and 2) either intentionally disregarded the law or was plainly indifferent to its requirement (no evil intent or bad motive is required). In essence, anyone responsible for collecting these funds can be held responsible. So, if you know these funds are not being collected and/or paid, you can be held accountable. If the failure to collect and/or pay the taxes was an honest mistake, then immediate payment of the full amount of the tax owed or the implementation of an installment agreement can help with the employment tax resolution.
The Trust Fund Recovery Penalty assessment is 100% of all employment taxes owed (Federal income tax, Social Security, Medicare, and self-employment tax, if applicable), plus penalties and interest. So, for example, if the employment tax for one employee is $1,000 and the tax was not paid for an entire year, then the tax due would be $12,000, just for the taxes. Multiply the amount for each employee that the tax was not paid. This amount can be staggering and detrimental to any business or person. Personal assets can be seized to pay the debt. That is the reason why collecting and/or paying the tax is so important.
What if you are not responsible for the failure to collect and/or pay employment taxes? If you are not responsible for the failure, then you will need help with payroll tax from a tax professional. Dealing with the IRS by yourself can be frustrating, time-consuming, expensive and non-productive. You have 60 days to respond to the letter from the IRS stating that they are planning to assess the Trust Fund Recovery Penalty against you.
Being honest and upfront is the fastest way to get this matter resolved. Although you may be liable, it is best to contact a tax professional to confirm liability and assist you with moving forward. If you believe yourself to be innocent and should not be held accountable, then contact us immediately to assist you. We can help with payroll tax so please contact us for any questions or assistance with your current situation. Check for more information on our tax problem resolution services page. Upcoming blogs will further discuss tax resolutions.