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.

What is Currently Non-Collectable?

As stated in previous blogs, there are several tax resolutions options available to taxpayers that are unable to pay an outstanding tax debt. Besides an Offer in Compromise discussed earlier, there is another tool to help alleviate the stress in resolving a tax debt that is being pursued by the Internal Revenue Service (IRS). It is called “currently non-collectable” or CNC. Just what is a currently non-collectable and how does it help me?

Well, first of all, there are two requirements:

You agree that you owe the IRS money
Your financial situation makes it impossible to pay this money to the IRS without causing financial hardship or paying the tax debt results in your inability to pay for the basic living expenses

What are the benefits of having “currently non-collectable” status?

The IRS cannot collect on tax debts against you
The IRS cannot impose liens on your property to collect the tax monies owed
All communications from the IRS by phone or letter stop

This does NOT mean that the IRS will not assess the account with interest and penalties or withhold any refunds. Those actions continue. If the IRS determines that at any point from 10 years to the date that your account was assessed as Currently Non-Collectable and that your financial situation had improved, then the IRS can collect that tax debt. However, if your financial situation never improved within those 10 years, then the IRS will likely write off the tax debt, interest, and penalties.

So, who is eligible for Currently Non-Collectable status? Any taxpayer that can demonstrate that he or she is unable to pay off his/her tax debt without causing either financial hardship or resulting in the inability to cover basic living expenses will qualify for Currently Non-Collectable status. Proof must be given through bank statements or other documentation that wages and/or assets cannot be collected without triggering financial hardships. Basic living expenses include healthcare, housing, transportation, utilities, food and clothing.

Furthermore, the IRS must determine eligibility for CNC status using the following criteria:

All tax returns, including those for past years, must be filed, otherwise the IRS will require you to do so
Your wages cover no more than your basic living expenses
You have no assets worth levying
The IRS will calculate your basic living expenses and subtract them from your wages. If there is nothing left over or if the amount left over will not sustain you or will place you at a financial disadvantage so that you cannot cover basic living expense, then the IRS will consider your account as Currently Non-Collectable.

The Currently Non-Collectable status is one of the tools that the IRS uses to help those with tax problems for which no other option, such as an Installment Agreement, is available. Once on a Currently Non-Collectable status, taxpayers must continue being up-to-date with their tax filings, otherwise they will lose their CNC status. This will result in a bad situation becoming worse. Filing tax returns and paying any amounts owed on time is extremely important. Do not hesitate calling us for assistance with your tax resolution problems. We are happy to help!