Tax Topic #4   Back to Misc. Tax Topics


THE IRS ASSESSED THE TRUST FUND RECOVERY PENALTY

CONSEQUENCE:

The employment tax debt of the business becomes collectible from your personal assets, including home, bank accounts, etc.

SOLUTION:

Appeal the penalty assessment. The Trust Fund Recovery Penalty is used to collect unpaid business employment taxes from the owners or managers of a failed corporation. The law allows the IRS to assess the penalty against the company's "responsible officers," those who should have paid the tax but did not. However, in many cases, the IRS uses the shotgun approach, assessing the penalty against any corporate employee who had a hand in the company's finances, whether or not they are legally considered "responsible officers."

A responsible officer is the person within the company with the ultimate authority to dispose of company assets. He is the person (or persons) making the decisions as to which creditors get paid and which do not. If you do not have such authority, you cannot be the responsible officer, whether or not you may have signed company checks.

To challenge a Trust Fund Recovery Penalty assessment, write a protest letter explaining that you wish to challenge the assessment. Ask for a hearing before the IRS's Appeals Office. This is the section of the IRS set up to hear appeals and which has the authority to overturn just about any IRS decision. Be prepared to submit details on what role you played in the company and who was in fact responsible for making the critical financial decisions that left the IRS unpaid.

 

 
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