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One might assume the term \u201ctrust fund recovery penalty\u201d has something to do with estate planning. It\u2019s important for business owners and executives to know\u00a0better.<\/p>\n
In point of fact, the trust fund recovery penalty relates to payroll taxes. The IRS uses it to hold accountable \u201cresponsible persons\u201d who willfully withhold income and payroll taxes from employees\u2019 wages and fail to remit those taxes to the federal government.<\/p>\n
A matter of trust<\/strong><\/p>\n The trust fund recovery penalty applies to employees\u2019 share of payroll taxes, including withheld federal income taxes and the employee share of Social Security and Medicare\u00a0taxes.<\/p>\n These monies are considered trust funds because they\u2019re the property of the federal government, held in trust by the employer. The penalty amount is 100% of the unpaid taxes plus interest \u2014 it essentially serves as an alternative tax-collection method.<\/p>\n A responsible person<\/strong><\/p>\n The trust fund recovery penalty is particularly dangerous because it can ensnare persons who ordinarily are protected against personal liability for business debts. As stated in the tax code, the penalty provides\u00a0that:<\/p>\n Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid\u00a0over.<\/p>\n The IRS and courts take a broad view of who may be a responsible person under this provision. It has been interpreted to include a range of individuals, within or outside the business, who possess significant control or influence over the company\u2019s finances.<\/p>\n Whether someone is a responsible person depends on the facts and circumstances of the case, but factors that may support that conclusion include ownership interest, title, check-signing authority, control over bank accounts or payment of debts, hiring and firing authority, control over payroll, and power to make federal tax deposits.<\/p>\n Thus, responsible persons may include shareholders, partners and members of a limited liability company; officers; other employees; and directors. Responsible \u201cpersons\u201d can also be payroll service providers and professional employer organizations, including individuals employed by those entities. Outside advisors may be deemed responsible persons as\u00a0well.<\/p>\n Important note: If several responsible persons are identified, each may be held liable for the full amount of the penalty assessed.<\/p>\n Willful failure<\/strong><\/p>\n As noted in the quote above, failure to pay trust fund taxes must be willful to trigger the trust fund recovery penalty. The IRS interprets this term broadly to include not only intentional acts, but also reckless disregard of obvious or known risks that taxes won\u2019t be paid. The courts have described various scenarios that reflect a reckless disregard, including:<\/p>\n Simply put, delegating the handling of payroll taxes to a certain individual or outside provider may not be enough to avoid liability.<\/p>\n Risky circumstances<\/strong><\/p>\n Few business owners or executives wake up one morning and decide to disregard payroll taxes. However, circumstances can develop that put you at risk. We\u2019d be happy to explain the rules further and help you stay in compliance.<\/p>\n \u00a9 2023<\/em><\/p>\n <\/body> One might assume the term \u201ctrust fund recovery penalty\u201d has something to do with estate planning. It\u2019s important for business owners and executives to know\u00a0better. In point of fact, the trust fund recovery penalty relates to payroll taxes. The IRS uses it to hold accountable \u201cresponsible persons\u201d who willfully withhold income and payroll taxes from […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,14,10],"tags":[8,11,12],"class_list":["post-16744","post","type-post","status-publish","format-standard","hentry","category-articles","category-business","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16744","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16744"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16744\/revisions"}],"predecessor-version":[{"id":16745,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16744\/revisions\/16745"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16744"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16744"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16744"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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