Businesses with employees are required to withhold what is referred to as “trust fund” taxes (Social Security, Medicare, and income taxes), and remit them to the IRS on behalf of the employee. If the business fails to withhold and remit the taxes to the government, the IRS has the right, under IRC §6672, to assess a penalty against certain individuals, “responsible individuals,” equal to 100% of the taxes that were (or should have been) withheld from the paychecks of employees and paid over to the government.
This is referred to as the Trust Fund Recovery Penalty (TFRP). In other words, “responsible persons” at the business, along with the business, are jointly and severally liable for the entire amount, and the IRS will pursue collection against all of the parties may be personally responsible for the unpaid taxes.
The IRS must establish two criteria before a person or persons can be held liable for the TFRP:
- First, they must have been a “responsible person,” meaning they had the duty and authority to withhold the taxes and direct payment to the government.
- Second, they must have willfully failed to do so.
How we can help
With most taxes, you have the right to dispute the liability in Tax Court prior to paying the taxes. This is not the case with the TFRP. Once the IRS assesses the penalty, you must first pay a portion of the assessment and then sue the IRS in federal court for a refund.
This type of litigation can be very costly and time-consuming, which is why it’s crucial to have an experienced representative in your corner. If the IRS is proposing to assess the Trust Fund Recovery Penalty against you, contact Goldin Peiser & Peiser immediately to discuss your options. You may be eligible to settle the liability through an Offer in Compromise, depending on the facts and circumstances. Once the IRS proposes an assessment, you generally only have 60 days to appeal.
For more information about the Trust Fund Recovery Penalty or our IRS Services, please call 214-635-2498 or contact Sidney Goldin, CPA, Rick Lahr, CPA, or Naveid Jahansouz, Esq. by filling out the form below.
According to a 2017 report by the Treasury Inspector General for Tax Administration (TIGTA), 1.4 million employers owed approximately $45.6 billion in unpaid employment taxes. Until now, these cases have been handled almost exclusively on the civil side, but there has been a recent push by the IRS Criminal Investigation Division (CI) to prosecute responsible persons in egregious cases. Watch our video below to learn more.