If you are working with Internal Revenue Service (IRS) on a payroll tax dispute, it is important to understand the Trust Fund Recovery Penalty (TRFP).
After an IRS audit or review of your company tax return, the IRS may follow up with you about perceived arrears in employment tax payments made on behalf of your workforce. If the IRS notices discrepancies between data provided by workers and their withholding, the IRS may review company records for tax fraud if it appears withholding was not paid for Social Security, Medicare, and federal income taxes.
Tax crime involving failure to pay over withholding taxes is common. Business owners may borrow from withholding to keep a struggling business afloat—or they may use withholding accounts to pay their personal bills. This type of tax fraud is frequently prosecuted by the IRS. Too often, individuals involved in this type of scheme believe the worst that can happen is some kind of business fine from the IRS and possible bankruptcy to discharge debt. Given that, it is important to keep these basic facts in mind about the TFRP:
- A TFRP can be assessed against an individual who is responsible for paying the taxes—this includes a business owner as well as an employee, a corporate director, or a payroll service provider.
- The IRS can also assess the penalty against an individual who willfully used the funds for other purposes other than to pay over to the IRS.
- The amount of the TFRP includes the total amount of unpaid taxes for the company, along with the employee’s share of FICA taxes that went unpaid.
- The responsible party, such as an employer who used withheld funds to pay bills or fund their lifestyle can face an IRS criminal investigation and prosecution for tax fraud.
- A TFRP cannot be discharged in bankruptcy. Once assessed, the IRS can pursue a responsible party personally, making their finances and personal assets liable to seizure by the agency.
If the IRS assesses a TFRP, you will receive a letter from the agency giving you 60 days to appeal the decision. Failure to respond to the letter means the payment will be assessed and you will receive a demand for payment from the IRS for the sum owed.
If you know you are in arrears on payroll taxes, do not wait to hear about it from the IRS. Speak with an experienced criminal tax attorney to learn about your options.
Dedicated tax lawyers help you with tax controversy and allegations of criminal tax charges
The legal team at Robert J. Fedor, Esq., LLC delivers experienced legal representation to clients throughout the U.S. and abroad on matters of tax crime, compliance, or IRS criminal or civil audits. When you have tax questions, call us at 800-579-0997 or contact us. We have offices in Cleveland and Chicago.