Employers and IRC 6672, the Trust Fund Recovery Penalty, a Civil Penalty
M&M Financial can help you resolve your Trust Fund assessment. This is one of our specialties. Here’s some information on the Trust Fund and how M&M can benefit you.
The Trust Fund Recovery Penalty (TFRP) a portion of an employment tax liability that can be assessed to the Responsible Individuals of a business. The IRS uses the TFRP to enhance voluntary compliance and facilitate the collection of back payroll tax. The IRS is able to collect the same tax from the business and the individual at the same time.
How Does the IRS Determine Who Is Responsible?
The IRS uses an investigative process to determine which individuals to target. At M&M we know the questions that the IRS will ask and the documents they require to conduct the investigation. Our client’s are well prepared for it.
The TFRP may be asserted against any Responsible Individual(s) of the company/employer that has the duty to perform or the power to direct another person to collect, account for and pay the Trust Fund tax to the IRS. According to the Internal Revenue Manual, the following questions are considered when determining the Responsible Individual(s).
Did the individual:
- Willfully fail to collect and pay over such tax? or
- Fail to truthfully account for such tax? or
- Willfully attempt in any manner to evade or defeat any such tax or the payment thereof?
Although most TFRPs are assessed to officers of corporations, other persons may be held responsible, including:
- An employee of a corporation or partnership
- A director or shareholder of a corporation
- A related controlling corporation
- A Payroll Service Provider
The IRS is very strict about assessing those individuals that are willful and responsible. In my opinion, the IRS interpretation of the words willful and responsible in Trust Fund cases is very broad. Most protests submitted by Officers with bank signature authority are denied.
Is the TFRP an Additional Tax? Is It an Additional Penalty?
Once assessed to the Responsible Individual(s), the TFRP is called a Civil Penalty. Many incorrectly assume the Civil Penalty is a penalty assessment in addition to the business employment tax. It is not. They are the same debt. The Civil Penalty is simply a portion of the business tax debt assessed to an individual.
Example: My business owes $25,000 in employment tax. I am assessed $10,000 in Trust Fund tax as a Civil Penalty. I pay the $10,000 with personal funds. My business’s $25,000 employment tax debt is reduced to $15,000 as a result of my $10,000 payment. In this example the opposite would also be true. If my business pays the total $10,000 Trust Fund portion of the employment tax debt, my personal Civil Penalty would be reduced from $10,000 to zero.
Can I Avoid the Trust Fund Civil Penalty Assessment?
- You pay Trust Fund portion with personal funds before it is assessed. If you choose to pay the TFRP this way, you may want to do it as a formal loan to your business, have the business pay it and then pay you back. It would be best to go over this strategy with your CPA/accountant before implementing it.
- Your business pays Trust Fund portion with a Voluntary Payment before it is assessed to you personally.
- The TFRP is below the IRS threshold for assessment usually between $5,000 and $8,000.
- You are not responsible for withholding the tax and paying it to the IRS, and you successfully Protest the proposed assessment.
Can I Avoid Paying the Trust Fund Personally? Even If I Am Assessed the Civil Penalty?
In some cases, yes. M&M attempts to place the personal Civil Penalty assessment (resulting from the Trust Fund assessment) into CNC status while the business makes payments toward a formal Installment Agreement to satisfy its own tax debt. This strategy will not avoid the Civil Penalty assessment to the individual, but it does provide protection from personal levies and seizures resulting from the Trust Fund and avoids a personal payment as long as the business resolution is maintained.
A key to linking the TFRP to the business Installment Agreement is a proactive plan to resolve the business debt before the IRS begins collection from the Responsible Individuals of the business.
Can I Protest IRS Letter 1153?
If the IRS has proposed assessing the Trust Fund to an individual associated with your company that is not a Responsible Individual, M&M can prepare and submit a protest on for you. But, act fast! Your appeal rights don’t last forever. The Protest must be submitted within 60 days of the date on IRS Letter 1153.
Can I Appeal a Trust Fund Civil Penalty After It’s Been Assessed?
In very rare cases, yes. If you are the Responsible Individual, a protest would be a waste of your time and money. M&M will not submit a TFRP Protest for a client that is clearly a Responsible Individual. If you weren’t responsible for withholding and paying over the taxes on behalf of the business and you never took part in the 4180 Trust Fund interview, you may have a chance.
- Submit a post assessment Abatement request, which does not involve payment per IRM 220.127.116.11.4.1
- Submit a post assessment Refund Claim, which requires payment of a portion of the tax (tax attributable to one individual for each period of liability per IRM 18.104.22.168.4.2)
- Submit an Offer in Compromise, due to Doubt as to Liability
Remember, if you have been assessed the TFRP personally, the IRS will take any income tax refund you may have and apply it the Civil Penalty. Contact us today for help with your business payroll tax liability and Trust Fund tax. We know what we’re doing. Give us the chance to prove it at no risk to you. If you’re not satisfied within 15 days of hiring M&M, we’ll give you a full refund. We put it in writing!