As a business owner, you should care about tax compliance because it’s more than keeping track of accounts—it’s about your own and your business’s future. An important enforcement strategy that is less recognized by many is the Trust Fund Recovery Penalty (TFRP).

Thanks to this penalty, the IRS can find business owners, officers, and some employees individually liable for unpaid payroll taxes. However, with the help of the right sales tax lawyer, one can find the necessary means to escape that without worrying about a delayed process.

This lesson will explain the penalty, who might suffer from it, and what you can do to keep your business safe.

What is the Trust Recovery Penalty (TFRP)?

The IRS uses this penalty to guarantee that money taken from employees for income tax, Social Security, and Medicare is sent to the government. Trust fund taxes are so named because the employer must hold these contributions for the benefit of the employee.

If taxes are held back but never paid to the IRS, the agency views it as a very serious violation of duty. If required, the agency can make responsible people in the company pay a 100% fine equal to the trust fund taxes.

Who Becomes Liable For That?

Unfortunately, people often mistakenly think that liability belongs only to owners or executives. People in the company who possess both:

·         Who holds (controls) the right to decide how finances are managed;

·         The refusal to send in payroll taxes

The IRS can target taxpayers for this plan. CFOs, payroll managers, bookkeepers, and, in some situations, board members are covered.

·         There are two main points the IRS uses to make this distinction.

·         Was the individual responsible for collecting, accounting for, and paying employment taxes?

·         Did the individual knowingly break the law, or were they completely unwilling to act as required by paying the taxes?

Amid all of these issues, a payroll tax attorney can come to real help in an IRS payroll audit under TFRP.

Real-World Triggers: How TFRP Cases Usually Begin

 Most cases of TFRP are started because of:

·         A history of not making payroll tax payments by their deadline;

·         Ignoring notices sent by the IRS;

·         Besides audits, problems with payroll taxes can occur.

If the IRS uncovers trust fund non-compliance, a Revenue Officer will begin interviewing, assembling bank reports, and finding out who is to blame.

The Start of the Investigation Process: What to Expect

Form 4180 – Report of Interview with Individual Relative to Trust Fund Recovery Penalty – is used by the IRS to review a case. At this interview, the IRS asks questions about:

·         What the person does as part of their role;

·         Lending a signature to checks.

·         The ability to look at the company’s financial documents.

·         Regulations on who got their loans repaid (and whose money was not returned).

Using the evidence, the IRS may send a Letter 1153, suggesting to impose the penalty. If the individual ignores or fights the assessment and loses, the IRS makes it final and can go after their money with liens, use levies to seize their funds, or take their assets.

Focusing on rules, knowing your commitments, and using a lawyer right at the start helps you avoid the mistakes that have brought down successful people