Trust Fund Penalty Assessment

Posted byDiscover How To Comprehend An Offer In CompromisePosted inUncategorized

As we discussed in the previous blog post in the series, Employment Tax: Trust Fund Penalty, a Trust Fund Penalty is associated with ‘Trust Fund Taxes,’ sometimes known as employment taxes or payroll taxes. These ‘Trust Fund Taxes’ specifically refer to the taxes a business is required to withhold and match on behalf of their employees. These withheld taxes are the contributions to Social Security taxes and Medicare taxes that a business also matches for its employees and then pays to the IRS in the form of a federal tax deposit. A business will be assessed a Trust Fund Penalty if it does not pay these taxes to the IRS by the correct time or in the correct amount.

If this is a bit confusing so far, check out the previous post on Trust Fund Penalties to get caught up!

In this post, we’ll discuss the terms under which the IRS will assess this Trust Fund Penalty, also known as the Trust Fund Recovery Penalty (TFRP), and who the IRS will hold responsible.

Criteria for a Trust Fund Penalty Assessment

There are two major factors when it comes to Trust Fund Penalty Assessment: responsibility and willfulness. According to the IRS, as of October 21, 2020, the Trust Fund Penalty can be assessed against anyone 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.”

What this means is that the Trust Fund Penalty can be assessed against the people in the business who were responsible for handling the Trust Fund Taxes. But it also requires that the person willfully failed to pay these taxes. We’ll cover what the IRS defines as ‘willful’ and who it defines as ‘responsible’ next.

Trust Fund Penalty Assessment: Responsibility and Willfulness

As of October 21, 2020, the IRS defines a ‘responsible’ person as “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.” In general, this means that if a person is, in some way, involved in or in charge of the finances, accounting, collection or payroll, the IRS could view them as someone eligible for a Trust Fund Penalty. But, as we mentioned above, willfulness to not pay these Trust Fund Taxes must also be determined.

According to the same IRS page about Employment Taxes and the Trust Fund Recovery Penalty (TFRP), for the IRS to determine willfulness, a 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).”

While willfulness may seem harder to prove than responsibility, the next step in the Trust Fund Penalty Assessment is the Trust Fund Penalty Assessment Interview, during which the IRS will attempt to determine whether a person is responsible and acted willfully or not.

If you, your business or your colleagues are in any of the stages of a Trust Fund Penalty Assessment, give us a call today! For a full list of who can be held responsible for Trust Fund Penalties, visit our Trust Fund Penalty Assessment page to learn more.

In our next blog post, Employment Tax: Trust Fund Penalty Assessment Interview, we’ll discuss the Trust Fund Penalty Assessment Interview and the next steps the IRS taxes during a Trust Fund Penalty Assessment.

Sources

IRS – Employment Taxes and the Trust Fund Recovery Penalty (TFRP): https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes-and-the-trust-fund-recovery-penalty-tfrp

Published by Discover How To Comprehend An Offer In Compromise

Do you need to obtain an IRS Offer in Compromise? This is an automatic activity that the IRS does every year, and also if you have an outstanding equilibrium, or unpaid tax obligations, you might be qualified for this as well. However initially, you must comprehend what this is, exactly how it works, and the IRS requires to have your complete consent prior to they can process an Offer In Compromise. So now it's the top of the day. So now formally prepare yourself to hear everyone at the webinar, "comprehending an Offer in Concessions." You are mosting likely to need to take a seat with an IRS agent. And at the exact same time, you will certainly require to give them your full income tax return information, consisting of not just all of your earnings and costs, however additionally every single credit card, financing, and also other account you have. When you do this, the agent at the IRS will certainly review your whole economic scenario to see whether there is a genuine IRS Offer In Compromise with you. This is their task, as well as they need to figure out if you have a legit factor to resolve your tax debt for much less than what it really is. Now, if the Offer In Compromise you have been supplied is in fact worth much less than what you owe, you will be required to pay the IRS the distinction. If it's too expensive, you will certainly owe much more. And also at that point, you have to determine if you are going to accept this Offer In Compromise or not. The important point to keep in mind is that you can not pay less than the Offer In Compromise. That would be fraudulence. Rather, you can just clear up the debt for a smaller amount than what you in fact owe, but this must still remain in the series of what the IRS offers. In this manner, you do not risk of owing much more taxes than the IRS originally owed to you. Remember, when it involves your taxes, always take care. The IRS will certainly inform you to take the Offer In Compromise from the webinar as well as file it electronically. You don't even have to leave your house! All you have to do is print out the Offer In Compromise and send it through the mail. That's it. However, you are still going to be required to pay the IRS on a timely basis. This implies that you need to follow up with them to make sure that every little thing is still being done as set up. If you have any kind of questions, just contact your tax professional. Hopefully, now you have actually discovered a bit more regarding how the IRS jobs. If you need even more details, see the IRS website.

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