What is a “trust fund recovery penalty?”
The trust fund recovery penalty is a civil penalty that may be imposed on any person who is responsible for collecting, accounting for, and paying over any tax required to be collected or paid by an employer, but who willfully fails to do so. The penalty is equal to the full amount of the tax that was not collected or paid over, plus interest. The trust fund recovery penalty is in addition to any other penalties that may be imposed by law.
Who is responsible for paying the tax?
Generally, the officers or owners of a corporation or partnership are responsible persons. Other examples of responsible persons include: payroll service providers, third-party sick pay providers, and certain independent contractors.
What does it mean to “willfully fail” to pay over the tax?
The term “willfully” has been interpreted to require a showing of voluntary, conscious, and intentional act, with the specific intent to do something that the law forbids (i.e., failing to pay over taxes), or with a bad purpose either to disobey or to disregard the law.
A responsible person may be considered to have willfully failed to collect or pay over tax if that person:
- Intentionally fails to withhold taxes from employees’ wages
- Intentionally fails to pay those withheld taxes over to the government
- Intentionally fails make estimated tax payments
- Disburses corporate funds for other purposes knowing that taxes are due and owing
- Fails to maintain adequate records
- Fails to respond to notices from the IRS
- Takes actions to evade or defeat the payment of tax.
What if I didn’t know that the tax wasn’t being paid over?
The responsible person must have willfully failed to pay over the tax. That is, the responsible person must have known that the tax wasn’t being paid over to the government, and he or she took no action to correct the problem.
It’s not enough that the responsible person should have known that the tax wasn’t being paid over. The responsible person must actually have known.
If you can show that you didn’t know that the tax wasn’t being paid over, you may not be held liable for the trust fund recovery penalty.
Can more than one person be held liable for the trust fund recovery penalty?
Yes. More than one person can be held jointly and severally liable for the trust fund recovery penalty. This means that each person is responsible for the entire amount of the penalty, and the IRS can collect the entire amount from any one of them, or from all of them.
How do I know if I’m going to be held liable for the trust fund recovery penalty?
The first step is to determine if you’re a responsible person. If you are, then you need to look at whether you willfully failed to pay over the tax.
If you’re not sure whether you’re a responsible person, or if you’re not sure whether you willfully failed to pay over the tax, you should consult with an experienced tax attorney.
How can I avoid being held liable for the trust fund recovery penalty?
The best way to avoid being held liable for the trust fund recovery penalty is to make sure that all taxes are collected and paid over to the government on a timely basis.
If you’re concerned that taxes may not have been paid over in the past, you should consult with an experienced tax attorney to discuss your options and determine the best course of action.
What if I’m already being held liable for the trust fund recovery penalty?
If you’re already being held liable for the trust fund recovery penalty, you should consult with an experienced tax attorney to discuss your options and determine the best course of action.
There are some tips that you can do to try to avoid being held liable for the trust fund recovery penalty, including:
- Show that you didn’t know that the tax wasn’t being paid over.
- Show that you took reasonable steps to ensure that the tax was paid over.
- Enter into an installment agreement with the IRS.
- Prove that you’re unable to pay the trust fund recovery penalty.
- Seek relief from liability under section 6672(b) of the Internal Revenue Code.
The trust fund recovery penalty can be a significant burden, both financially and emotionally. If you’re facing the trust fund recovery penalty, it’s important to take action to protect your rights and interests.
An experienced tax attorney can help you understand the law and your options, and can represent you in negotiations with the IRS. With the help of an attorney, you may be able to avoid or minimize the amount of the penalty.
Take action now to protect your rights and interests, and consult with an experienced tax attorney to discuss your options.