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Trust Fund Recovery Penalty


Trust fund tax is money withheld from an employee's wages (income tax, social security, and Medicare taxes) by an employer and held in trust until paid to the Treasury.  As an employer, you have the added responsibility of withholding taxes from your employees' paychecks. The income tax and employees' share of FICA (social security and Medicare) that you withhold from your employees' paychecks are part of their wages you pay to the Treasury instead of to your employees. Your employees trust that you pay the withholding to the Treasury by making Federal Tax Deposits.

Internal Revenue Code Section 6672 (a).  To encourage prompt payment of the trust fund taxes Congress passed a law that provides for the Trust Fund Recovery Penalty. This is used as a tool for collection of unpaid employment taxes.

If you are a "responsible person" the IRS can apply this penalty against you immediately after you do not pay trust fund taxes in response to a notice and demand for payment. Also, the IRS can apply this penalty regardless of whether you are out of business or without assets.

    • Who Is Subject to the Penalty: The IRS may impose against any person who is responsible for collecting or paying withheld income and employment taxes or for paying collected excise taxes AND who willfully fails to collect or pay them.

    • Who is a responsible person for trust fund tax: A responsible person is one who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.  Therefore, responsibility involves status, duty, and authority

This person may be:

  1. An officer or an employee of a corporation.

  2. A member or employee of a partnership.

  3. A corporate director or shareholder.

  4. A member of a board of trustees of a nonprofit organization.

  5. Another person with sufficient authority and control over funds to direct their disbursement.

The Trust Fund Recovery Penalty may be assessed against an official or employee of a bank or other financial institution who has the authority to direct the financial affairs of the business and

  1. Furnishes funds to a business and directs how the funds are to be distributed.

  2. Directs the business not to pay the taxes.

    • Proof of Willfulness: You are considered to have a willful attitude if you have free will or choice and yet either intentionally disregarded the law or are plainly indifferent to legal requirements.

For willfulness to exist, the responsible person must:

  1. Have known about the unpaid taxes.

  2. Have used the funds to keep the business going or allowed available funds to be paid to other creditors.

Get immediate help with Trust Fund Recovery Penalty defense by contacting us toll free at 877-426-3121 for a Consultation. Or fill in the following form to request a confidential tax analysis. Online Form >>








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