The Dreaded Trust Fund Penalty Assessment Interview

asseessment interview

As stated in previous blogs, the Trust Fund Penalty Assessment Interview is a tool that the Internal Revenue Service (IRS) uses to determine who is the person(s) responsible for not collecting and/or depositing the Trust Fund Taxes (also known as payroll taxes or employment tax) with the IRS in a timely manner. As a reminder, Payroll taxes include the monies withheld by the employer from its employees’ paychecks, which include Federal Income Tax, Social Security and Medicare Tax, Additional Medicare Tax, Federal Unemployment Tax (FUTA) and Self-employment Tax (if applicable). These monies are also referred to as Trust Fund Taxes because the employer holds them in trust before depositing them with the IRS.

Whenever the IRS fails to receive these Trust Fund Taxes from a business, it will contact the owner by letter indicating that the IRS may assess a Trust Fund Penalty or TFRP Penalty against the person(s) responsible for this failure. This can not only include the owner of the business, but other responsible persons as well. If a board member, director, manager, employee tasked with the responsibility or even a third-party provider of that service neglects to collect and pay the monies, the IRS will investigate. It is best to pay the amount due immediately so that no interview is necessary. Using the Trust Fund Tax monies for purposes other than depositing it with the IRS is illegal and will trigger an E4180 interview. This may result in a Trust Fund Recovery Penalty (TFRP) against the responsible person(s).

What is an E4180 interview? An IRS agent will conduct an interview in person or via phone with the person(s) the agent believes is responsible for the failure of receiving the Trust Fund Tax monies from the business. It can be quite nerve-racking. Perhaps understanding the nature of the questions may help. First, the questions come from IRS Form 4180, hence the name of the interview. The IRS will not give you this form before interviewing you. However, you will receive a completed copy after the interview.

By visiting the IRS website, you can see the form itself. Let’s review the form section by section in this blog.The first section identifies the person interviewed by name, social security number, address, phone number and job title. If the business uses a third-party provider for payroll services, another section is completed. The second section involves your responsibilities as they pertain to payroll, taxes and deposits, including the dates that you were responsible for those duties. Some of the questions are:

  • Did you determine the financial policy for the business?
  • Did you direct or authorize payments of bills/creditors?
  • Did you prepare, review, sign, or authorize transmit payroll tax returns?
  • Did you have knowledge withheld taxes were not paid?

You are also asked to identify any other individuals with those responsibilities, including their name, address, position and dates during which time they had these responsibilities.

The next sections include questions as to whether other financial obligations were paid instead of the payroll taxes and who paid them. Paying other bills first is illegal. The next set of questions ask when you first were aware of the unpaid taxes, what actions did you perform to ensure that the taxes were paid, were there any discussions regarding the nonpayment of taxes and with whom, and who handled IRS contacts during this time. Other questions regarding your actions with third-party providers for payroll taxes are also asked. The last section involves the required excise tax returns.

By collecting and paying the business’ payroll taxes on time with the IRS, you can avoid any Trust Fund Recovery Penalty. If you do receive a letter from the IRS regarding a TFRP Penalty, call us immediately for assistance since providing the proper information to the IRS timely is very important and can save you money and time. Our next blogs will explain the process further.

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