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Trust Fund Recovery Issues
The Internal Revenue Service aggressively pursues businesses that have failed to pay over to the government the employment taxes withheld from its employees. While it is extremely difficult to predict how the IRS will deal with a particular taxpayer, as a general rule, businesses that have unpaid employment taxes will be subjected to far greater pressure than most individual taxpayers. With the appropriate counsel, it is still possible, however, to negotiate Offers in Compromise, installment agreements, and currently not collectible status for taxpayers still operating.
When trust fund taxes are involved, the negotiation process with the IRS is more complex. This especially true if the business has incurred tax liabilities over successive tax periods or through prior companies. It has been our experience that many businesses are unable to pay their employment taxes through no fault of their own. For example, a business might not have been paid by a major account receivable and was, therefore, barely able to meet net payroll and other necessary operating expenses. There are also a surprising number of cases where an employee, such as a controller, is responsible for ensuring that the taxes are paid and fails to do so without management's knowledge. The IRS is almost universally unsympathetic to the root cause of a tax liability. If, however, these facts are presented properly and in the appropriate forum, then they can have a major impact on how the case is resolved by the IRS.
A key consideration in corporate cases involving trust fund taxes is the Trust Fund Recovery Penalty ("TFRP"). Although it is called a penalty, a TFRP assessment is actually a transfer of a corporate tax liability to the persons that the IRS believes are "responsible" for not paying the employment taxes. As part of its investigation, the IRS will interview each potentially responsible person and examine banking and tax records from the relevant period. At the conclusion of the investigation, notices of proposed assessment will be mailed to each person that the IRS deems responsible for allowing the taxes to go unpaid. In most cases, all corporate officers are deemed responsible.
It is critical that the TFRP be carefully addressed by a taxpayer's counsel. There are legal and factual defenses that can greatly limit or eliminate culpability of a potentially responsible person. There are, moreover, tolerance levels for TFRP assessments. If the unpaid trust fund tax is below the tolerance level, then the TFRP is not assessed. Additionally, the assets and ability to pay the TFRP of a potentially responsible are a common stumbling block in the context of a corporate Offer in Compromise.
We have extensive experience in keeping corporate taxpayers in business and successfully dealing with potential TFRP assessments against its officers and directors.
Call us if. . . .
- Your business has unpaid employment taxes
- Your company has unfiled employment tax returns
- The IRS is holding you personally liable for unpaid trust fund taxes
- The IRS refuses to consider your company's Offer in Compromise
- The IRS is demanding an unreasonable installment payment.
- The IRS is threatening to shut your business down
- The IRS is attempting to collect taxes based on estimated tax assessments it made against your company
