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The
100% Trust Fund Recovery Penalty (TFRP)
To
encourage prompt payment of back payroll taxes, withheld
income and employment taxes, Congress passed a law that
provides for the TFRP. The
portion of payroll tax liability that is withheld from an
employee’s paycheck is called the “trust fund”
portion because you actually hold the employee's money in
trust until you make a federal tax deposit in that amount.
The TFRP may apply to you if trust fund taxes cannot be
immediately collected from the business. The business does
not have to have stopped operating in order for the TFRP
to be assessed.
Can You Be Held Responsible for the 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, or
·
another corporation.
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.
You may be asked to complete an interview in
order to determine the full scope of your duties and
responsibilities. Responsibility is based on whether an
individual exercised independent judgment with respect to
the financial affairs of the business. An employee is not
a responsible person if the employee's function was solely
to pay the bills as directed by a superior, rather than to
determine which creditors would or would not be paid.
Figuring the TFRP Amount
The amount of the penalty is equal to the unpaid
balance of the trust fund tax. The penalty is computed
based on:
·
The unpaid income taxes withheld, plus
·
The employee's portion of the withheld FICA
taxes.
For collected taxes, the penalty is based on the
unpaid amount of collected excise taxes.
Assessing the TFRP
If the IRS determines that you are a responsible
person, the IRS will provide you a letter stating that the
IRS plans to assess the TFRP against you. You have 60 days
after the IRS delivers the letter to appeal their
proposal.
Caution:
Once the IRS asserts the penalty, the IRS can take
collection action against your personal assets. For
instance, the IRS can file a federal tax lien or take levy
or seizure action.
I
know how to protect you and your business from aggressive
IRS collection activity.
I
help business owners every day, with great success. I can
design a plan for repayment of taxes and negotiate with
the IRS to avoid bank levies and asset seizure.
If you need help with unpaid taxes don’t delay.
Delay only makes the problem worse.
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