The Trust Fund Recovery Penalty

In order to ensure collection of taxes, including withheld income and payroll taxes, the IRS can assess a trust fund recovery penalty. A trust fund recovery penalty gets its name from the account or trust where you hold your withheld taxes until you can make your required tax deposits. The IRS often conducts investigations to determine the full scope of duties and responsibility for each employee.

By law, the IRS can assess liability against 1) responsible parties 2) who willfully fail to collect or pay taxes owed.

A responsible party is defined as someone who directs the collecting, recordkeeping, or payment of those due taxes and may be any of the following:

Officers and directors
Employees
A partner of a partnership
A shareholder, even if that shareholder is a corporation
A member of a non-profit company’s board of trustees

In order for the IRS to establish the required showing of willfulness, they must prove that the responsible party must have been, or should have been, aware that the corporation owed outstanding taxes and either used the funds to pay other creditors or employees, or intentionally disregarded the requirement to pay taxes. If the IRS determines you meet the requirements of assessment, the IRS can begin taking adverse collection action against your assets and personal property. Often the Revenue Officer who conducted the trust fund investigation will file a tax lien and will begin levying your assets as soon as your appeals rights have been extinguished.

The amounts associated with a trust fund recovery case are often substantial and it is important to hire an experienced tax attorney as soon as you have been contacted about the possibility of assessment. RJS Law can help you during all phases of the trust fund investigation and assessment. We frequently counsel taxpayers on how the trust fund interview process works, represent clients during their interview, appeal/contest trust fund penalty assessments, and work with Revenue Officers to avoid adverse collection actions.

Please call our office today to schedule an appointment or to learn more about the trust fund recovery penalty process.

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