Trust Fund Recovery Penalty
The Trust Fund Recovery Penalty is commonly known as the 100% penalty. The penalty is assessed for the Trust Funds not paid. Trust Funds are the money you withhold from your employee’s paycheck, which includes federal income tax and the employee’s share of FICA and Medicare. This money is held in trust until you pay it to the Internal Revenue Service.
Who is a responsible person?
The IRS will look to the person responsible for paying the payroll taxes to collect the trust funds that should have been remitted to the IRS. The IRS may assess a penalty against anyone who is responsible for the collecting or paying withheld income and employment taxes, and who willfully fails to collect or pay them?
It may be the person who has the power to direct the collection of trust funds, the power and authority to pay trust funds and other creditors, or power and authority to determine who gets paid first or last.
According to the IRS, the responsible person must have known about the unpaid taxes, and have used the funds to keep the business going or allowed available funds to be paid to other creditors. Other standards regarding willfulness include intentional, deliberate, voluntary, reckless disregard, knowing or accidental, free will or choice.
The issues presented in determining who the responsible person is, and whether or not willfulness exists, depends upon the facts and circumstances in each case. If the taxes are not paid, the IRS will be looking for someone to penalize, and it may be you.
IRC Section 6672(a): Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such a tax, or truthfully account for or pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
If the IRS is planning to assess the Trust Fund Recovery Penalty against you, or if they have already assessed the penalty against you, seek professional representation immediately. The Trust Fund Recovery Penalty is a huge penalty at 100%, and is not dischargable in bankruptcy.
Do you know what your rights are?
Are you the person who should be assessed, or is it someone else?