Quite often a client will be in my office and they will state that their business has a 941 tax debt (employment tax debt). This generally occurs because the business is tight on cash flow and thus the employees will be paid their net checks, but the taxes withheld will not be paid to the IRS as they are supposed to be. When this occurs, a portion of the taxes known as the trust fund can be personally assessed to one or multiple individuals. That is right, individuals can be personally responsible for certain business taxes and often a business owner is shocked (and scared) to learn this fact.
The trust fund portion of the 941 tax debt is the employee’s portion of the social security and Medicare tax and the employee’s federal withholding tax. Thus, if you looked at a 941 tax return, and no tax payments had been made, you could multiply the social security and Medicare tax by 50% and add this amount to the total federal income tax withheld and this would be the trust fund amount for the applicable quarter. This is the amount that individuals can be held responsible for.
When a 941 tax debt is due, a revenue officer from the IRS will conduct an interview known as the 4180 Interview to determine the willful and responsible parties. The willful and responsible parties will receive a proposed assessment of the Trust Fund Recovery Penalty. You have 60 days from the date of the proposed assessment to protest the assessment, and if the assessment is not protested, the individual will then have a tax debt under their social security number. Thus, the IRS could file a tax lien that would attach to your personal assets, and can collect the trust fund from the individual even if the business is making payments towards the tax debt. Therefore, a 941 tax liability is a very serious matter, and I would recommend that any business with a 941 tax debt that cannot be immediately paid, speak with a tax attorney. You can speak with a Denver tax attorney at The McGuire Law Firm through a free consultation!
The video below has been prepared by a tax lawyer at The McGuire Law Firm to provide additional information regarding the IRS Trust Fund Recovery Penalty.