People assessed with trust fund recovery penalties may have valid reasons for not paying their business payroll taxes on time, including cash flow issues, cash shortages, or business slowdown. Select the Best crypto recovery with Broker Complaint Alert (BCA).
However, the IRS will only assess a Tax Filing Reconciliation Penalty against you if it can establish that you were negligent and failed to collect and pay withheld income and employment taxes on time. A tax attorney can assist in helping to settle this TFRP case.
Who is liable for a TFRP?
The Internal Revenue Service takes payroll tax violations very seriously and can impose the Trust Fund Recovery Penalty (TFRP) upon anyone responsible for failure to withhold and remit federal income taxes, Social Security payments, and Medicare taxes on time. The TFRP penalty can be one of the most significant charges against small business owners who fail to fulfill their employment tax obligations.
Typically, the IRS only seeks to collect Tax Withholding Refund Penalties from individuals it can prove responsible for failing to remit employees’ withholdings to a company as planned. This can include both owners of a company and people other than them, such as employees or contractors handling withholdings for them or having control of its financial records and bookkeeping functions.
Liability for Tax Withholding Refund Policies (TFRPs) rests with individuals who were “obligated to collect, account for and remit withholdings truthfully and on time” yet deliberately failed to do so. The IRS reviews all relevant facts and circumstances to ascertain who the responsible individual(s) were in each instance – should multiple responsible parties be assigned for one TFRP debt, they are jointly and severally liable.
When the IRS decides to assess an individual for TFRP, they will notify them by sending Letter 1153 along with Form 2751 Agreement to Assessment Agreement form. Once receiving their Notice, individuals have 60 days (75 in some countries) from receiving it to sign it or appeal and request an Appeals hearing date.
Suppose an individual is found responsible for a tax fraud recovery penalty (TFRP). In that case, they can request abatement that absolves them completely of liability or an installment agreement allowing them to pay it monthly until it clears. They could also ask the IRS to seek contributions from others responsible for settling their claim or applying for current not collectible (CNC) status if their financial resources do not permit payment of penalties.
What is the statute of limitations for a TFRP?
The IRS has three years from either April 15th of the following year or when their tax return was filed to assess individuals responsible for unpaid trust fund taxes. If an individual appeals or a corporation files for bankruptcy, its statute of limitations does not extend further; furthermore, it cannot delay assessing trust fund penalty assessments by considering whether an equitable penalty assessment exists.
An IRS Revenue Officer conducting a Tax Forfeiture Recovery Procedure investigation will look at several factors to identify who was “willfully responsible” for unpaid taxes, such as signing authority, position within a company, and percentage ownership.
If the IRS believes that an individual acted in good faith and genuinely believed their business was complying with federal laws and regulations, penalties can be reduced or waived altogether; however, to do so in court.
The IRS will send an IRS Letter 1153 outlining a proposed assessment along with Form 2751, Agreement to Assessment. A potentially responsible individual can object by requesting a Request for Collection Due Process (“CDP”) hearing with their protest. However, if they agree to and sign Form 2751 accepting liability, they admit liability and financial responsibility.
An individual can safeguard his finances by ensuring any voluntary payments are appropriately designated. Rev. Rul. 73-305 states that, unless specified otherwise, payments made without specific designation will be applied towards both trust fund and non-trust fund portions of withholding tax for the year of first inclusion.
A Trust Fund Recovery Penalty, or TFRP, can devastate an individual’s financial security. An experienced tax professional can assist in protecting an individual’s interests when facing such penalties by evaluating their case and finding an optimal resolution path – for instance, settling with the IRS through an offer in compromise or installment agreement may provide relief from such debt burden.
What are the penalties for a TFRP?
Penalties associated with TFRPs consist of unpaid taxes and 20 percent of due withholding taxes from employees but have yet to be submitted to the IRS, including income taxes and FICA/Medicare contributions collected by employers “in trust.” Note that this penalty does not cover employer FICA/Medicare payments nor any accrued interests or penalties that have arisen.
The IRS utilizes the Tax-Free Recovery Plan (TFRP) as an invaluable tool, as it enables them to collect employment taxes from parties who would otherwise remain obscured behind a corporate veil, such as officers, shareholders, partners, and employees. For TFRP to apply successfully, however, the IRS must show that an individual knew about a company failing to pay its payroll taxes but disregarded legal requirements deliberately or was indifferent about paying them on time.
Due to this reason, TFRP penalties can often be one of the harshest levied against individuals who handle corporate payments. Therefore, it is vitally important that individuals who take corporate payments know how to respond when receiving a Notice of this penalty from the IRS.
An IRS revenue officer typically initiates their assessment of TFRP by conducting an in-depth investigation and reviewing corporate records, bank statements, and any relevant documentation. They will also interview individuals who may be at fault or responsible, such as the corporate secretary/treasurer/CFO of the business and those with significant control of its finances.
After collecting enough evidence to determine that a Trust Fund Recovery Penalty should be assessed, investigators will complete Form 2751: Proposed Assessment of Trust Fund Recovery Penalty and send it directly to those charged with the penalty. This Notice includes their proposed penalty amount and an avenue through which they may challenge it with the IRS Appeals Office within 60 days.
As part of the appeals process, it is crucial to remember that the IRS will look not just at an individual’s actions but at the entire corporation. For example, if there was reasonable cause for not paying employment taxes (such as lack of resources), penalties may be reduced or waived altogether.
What are the options for paying a TFRP?
Many business owners assume their assets are protected from tax liabilities by the corporate veil, but this assumption may be mistaken as the IRS can pursue Tax Filer Recovery Penalty assessments against anyone responsible for collecting, truthfully accounting for, and paying over payroll taxes withheld from employee paychecks – such as officers, directors, stockholders or critical employees with substantial control over company payments – including them themselves if they did not withhold enough federal income tax withholdings from paychecks.
There are ways to avoid being assessed a TFRP penalty, however. One practical approach is ensuring that payroll taxes are deposited with the IRS instead of being distributed directly to individuals; one method for accomplishing this may be mandating that all payroll taxes be designated explicitly on each paycheck or opening a separate bank account for payment of employment taxes that keeps this money separate from general operating expenses thereby limiting personal liability and mitigating personal risk.
When the IRS determines that an individual owes tax fraud recovery penalties (TFRPs), they will issue them a notice of proposed assessment (IRS Letter 1153). They then have 60 days to protest their sentence by filing an appeal with them. They must protest such evaluations, as failure to do so can have serious repercussions, such as federal tax liens and asset seizures.
An experienced tax attorney can assist in identifying your best approach for dealing with tax refund penalties (TFRPs). This may involve filing a request for abatement – which may be granted when found to not owe or willfully neglect payment – or reaching an agreement with the IRS via installment plan or offer in compromise depending on individual financial situations.
If you have been assessed with an Income Tax Refund Program penalty, it is imperative that you immediately consult an attorney. At The W Tax Group, our team has extensive experience handling these types of cases, so let us put their knowledge and expertise to work for you – contact us now so that we can find an ideal solution!