In previous articles our a tax attorney at The McGuire Law Firm has explained what the trust fund recovery penalty is. Because many clients and taxpayers inquire as to the process surrounding the personal assessment of the trust fund recovery penalty the article below has been drafted by tax attorney at The McGuire Law Firm.
The trust fund recovery penalty is the personal assessment of the trust fund portion of unpaid 941 taxes to the willful and responsible parties. As you may recall, the trust fund portion is the employee social security and Medicare portion and employee’s federal withholding tax. When this amount is not paid over to the US Department of Treasury, it can be personally assessed to individuals. Thus, the procedure begins when a business owes 941 taxes. When a revenue officer is assigned to resolve a business tax debt that has 941 liabilities, the revenue officer will begin investigating who could be potentially responsible for the trust fund taxes whether you know it or not. The revenue officer will gather information from the business that they will later use in their investigation, and compile a list of individuals to conduct the 4180 Interview with.
The 4180 Interview is an interview conducted by the revenue officer with different individuals that the revenue officer feels could be responsible for the trust fund tax, or who could shed light on individuals that may be responsible. The interview asks questions regarding who is in charge of paying bills and operating the business and who had knowledge that the 941 taxes of the business were not being paid. Thus, the revenue officer is looking at who the willful and responsible parties are. After the revenue officer has complete the interviews they will either issue a proposed personal assessment of the trust fund recovery penalty to an individual or they will not. The revenue officer can propose assessment of the trust fund to one or multiple persons, and the trust fund liability is considered a joint and several liability meaning that the IRS can actively collect the entire amount of the trust fund from one individual. Moreover, the trust fund liability is a non-dischargeable debt even in bankruptcy.
Once the revenue officer makes the proposed assessment of the trust fund each individual has 60 days from the date of the proposed assessment to protest the assessment. When an individual proposes assessment of the trust fund recovery penalty, they will eventually have a hearing with an IRS appeals officer and have the ability to show why they are not a willful and responsible party and therefore should not be assessed the debt.
If the individual does not protest the assessment within the 60 day time period, the debt will be assessed and the individual will begin receiving IRS collection notices regarding the debt. If the individual does not formalize an agreement to resolve the trust fund liability, the IRS can levy bank accounts, garnish wages and potentially seize assets to collect on the trust fund liability.
As a Denver tax attorney, John McGuire has represented many businesses that owe the IRS 941 taxes in addition to their owners who are personally liable for the trust fund portion. If your business has a 941 tax debt or you have been personally assessed the trust fund recovery penalty, we highly recommend you consult a tax attorney if you have not resolved the issue.
You can speak with a Denver tax attorney by calling 720-833-7705 and schedule a free consultation to discuss your tax issues.