A 941 tax debt (or employment tax debt) to the Internal Revenue Service is a very serious tax liability. Form 941 is the quarterly tax return whereby an employer will report wages paid, social security, Medicare and federal income tax withheld. Often when a business is in a cash crunch, the net payroll will be paid to employees, but the taxes are not paid over to the IRS. When this occurs, the business begins to accrue a 941 tax debt.
The reason a 941 tax liability is so serious is because individuals related to the business can be held personally liable for the trust fund portion of the tax debt. The trust fund is the amount of social security and Medicare tax and federal income tax withheld from employees. When not paid to the government, the IRS will determine who the willful and responsible parties are, and propose the personal assessment of the trust fund through the Trust Fund Recovery Penalty. Once assessed, the IRS will look to collect trust fund from the individuals as well as the business and thus the business and the assessed individual or individuals may be paying on the same tax at the same time. The Trust Fund Recovery Penalty is non dischargeable through bankruptcy and is considered joint and several liability and thus the IRS could collect the entire amount of the liability from one of the assessed individuals. For example, say John and Jeff own J Squared, Inc and there is a $100,000 trust fund liability of which both John and Jeff are personally assessed. John has $100,000 in a bank account and the IRS levies John’s bank account. The trust fund would be paid from such levy, and John would have paid all of the trust fund debt by himself. The IRS is not required to collect the trust fund in equal amounts or pro rata per an individual’s ownership in the business. It would be up to John to collect a portion from Jeff either voluntarily or through court action.
If your business owes 941 taxes, or you have been personally assessed the Trust Fund Recovery Penalty, speak with a Denver tax attorney at The McGuire Law Firm. As a tax attorney Mr. McGuire has represented many businesses that owed 941 taxes to the IRS and successfully resolved such debts. Further, Mr. McGuire has defended many individuals of whom the IRS was looking to personally assess the trust fund and has successfully resolved many individual trust fund debts if the trust fund was personally assessed. Schedule a free consultation with a tax attorney in Denver by contacting The McGuire Law Firm.