“My tax problem is…
The IRS is trying to impose the Trust Fund Recovery Penalty on me!”
“The 2 Biggest Mistakes Some Taxpayers Always Make when Fighting the Trust Fund Recovery Penalty…and what to do instead!”
You remember what they told you when you set up your business entity, right?
“You have the corporate veil! Creditors aren’t going to be able to get to your house or your bank account. So if your company gets sued or hits financial problems, then no problem! (At least, no problem for you).”
Well, sorry to say it, but “they” forgot about the biggest creditor of them all…
The IRS knows that it would be far too easy to let people rack up massive payroll tax debt in their company, only to let them turn around and bankrupt their company (and to walk off scott free!).
Hence the trust fund recovery penalty.
The trust fund recovery penalty is a 100% penalty of all the amount of trust fund taxes your company owes. This penalty is charged to all responsible parties who willfully failed to remit employment taxes. And if there are multiple responsible, willful parties, the IRS can go after as many of them as it wants, until it collects the whole amount!
The IRS is very ancy about employment taxes for a simple reason: if you don’t withhold and remit them, the IRS still has to give your employees credit for them!
Hands-down, the trust fund recovery penalty is one of the most complex, most hard to defend against, and ultimately, most expensive penalties that the IRS can impose!
If you’re facing a trust fund recovery penalty investigation–or, if you know you’re behind on your payroll taxes and you don’t have a plan in place RIGHT NOW to pay them off–you need to act NOW to retain professional help to nip the rose in the bud.
How would you like to suddenly be liable for hundreds of thousands of dollars in additional tax? If you are assessed the trust fund recovery penalty, this will become your reality.
What are the top 3 mistakes people make when they are facing a trust fund recovery penalty investigation?
Mistake #1: Underestimating what it takes to be considered a “responsible” person for the TFRP.
Requirement #1 for the IRS to assess the trust fund recovery penalty: you have to be a “responsible” person. Now, where a lot of people goof this up is that they believe a “responsible” person is literally the guy who did payroll. Or, your VP of Finance. Or, your business partner who is in charge of the finances.
In fact, the law casts a net so wide it would make deep sea fishers the world over proud:
Anyone who was in charge of developing financial policy for the company is a responsible person!
Was it your business partner who was “in charge” of the finances? Doesn’t matter! As an active company owner, you were in charge of your company’s financial policy.
Were you just a Comptroller who did what your employer told you to? Too bad! As a high-ranking employee, you were undoubtedly in charge–in one way or another–of the financial policy of your company.
And even if you were a lower-level employee who just signed checks? You could be help responsible! After all, the first part of a trust fund investigation? The IRS looks to see who signed checks!
People in positions of financial authority in a business will be held responsible. It doesn’t matter if dealing with payroll is your daily task, or some peripheral job that you’ve nominally left to your VP Finance or your business partner.
If you’re facing a trust fund case, working with someone who can make the savvy argument that you were not a responsible party will derail the investigation (in your favor!) right on the spot.
Mistake #2: Underestimating just how easy it is to be considered to have “willfully” not paid over trust fund taxes.
If you thought it was easy to be considered a responsible party for the trust fund recovery penalty, wait until you see what it takes to be considered to have “willfully” not paid them over:
See, most people think of “willfully” like they might in a criminal case. With crimes, “willfully” tends to mean that you intentionally, and with bad intent, did something. E.g. mistakes and ambiguous situations would not be grounds for conviction.
However, the standards for the trust fund recovery penalty are much, much lower.
With the trust fund recovery penalty, there is essentially only one test that needs to be met: did, at any point, your company pay some other creditor while it failed to pay trust fund taxes?
Did you pay your water bill? Did you pay your employees? Did you pay yourself? All of those things almost instantly mean that the conduct was willful!
And what about “not knowing”? The courts have made it clear: simply “not knowing” is no excuse! Why? Because the law places a high duty on business owners to go out of their way to ensure that payroll taxes are submitted: simply going “hear no evil, see no evil” does not work!
The odds are stacked high. Here’s what you should do.
The odds in a trust fund case are stacked extremely high against you, as you can tell. If you are facing even the faintest sniff of a trust fund investigation–or you know one will be around the corner–you need to act now! Download our special report on Defeating the Trust Fund Recovery Penalty. Start looking for a professional to represent you. Start thinking about ways to argue that you’re not a responsible party, or if you were, that you did not willfully fail to remit employment taxes.
I’m honest in telling you that you should be very comfortable undertaking some tax issues on your own: the trust fund recovery penalty is NOT one of them!
Because once the IRS assesses against YOU, they will start levying from YOUR bank account, from YOUR wages, from YOUR retirement accounts, and maybe even seize your property!
Don’t count on the corporate veil to save your personal assets. Get prepared and take action to defend yourself TODAY!