Trust Fund Recovery Penalty Defense
When a company withholds payroll taxes and FICA taxes from its employees, it is obligated to then pay the tax money it has withheld to the IRS. If it does not, the Government must cover the missing money for the employee who had his or her wages withheld.
Because the United States guarantor for an employee’s withheld wages, the IRS is highly motivated to collect the taxes which have been withheld, or should have been withheld, but have not been paid to the Government. In short, the Government does not want to get stuck with the bill.
To avoid getting stuck with the bill that should is properly the employer’s responsibility, the IRS’s ordinarily broad power to collect tax debts are especially broad here.
The IRS can levy against individuals in a company to collect on for the company’s “trust fund” tax debt.
Not only can the IRS use its levy power against the employer company, it can also seek payment from individuals involved in running the company.
The IRS can seek payment from individuals personally, even if the company is a corporation. The IRS does not have to go to court to persuade a judge to “pierce the corporate veil” the way an ordinary creditor would to collect a company debt from an individual.
Ordinarily, it is very difficult for a creditor to hold an individual at a corporation responsible for the company’s debts. But, for the IRS it’s easy.
The IRS can hold officers and directors personally responsible for the Trust Fund Recovery Penalty. It can hold shareholders personally responsible.
It can even hold employees responsible, even if they do not own a single share of stock in the company!
If the employee has decision making power over which creditors get paid and which do not, or which get paid first, and which are delayed, the IRS can consider holding the employee personally responsible for the company’s failure to pay withheld trust fund money to the IRS.
If the employee was involved in deciding to pay some creditor other than the IRS before paying the IRS, the employee might be held liable.
Because the IRS is especially motivated to collect on the Trust Fund Penalty Recovery, it is especially important to have representation to protect you if the IRS claims that the Trust Fund money is due.