High Dollar Collections Resolution

Trust Fund Liability Defense

An Overview of the Trust Fund Recovery Penalty

One of the ways in which the IRS enforces compliance for unpaid payroll tax liabilities is through the Trust Fund Recovery Penalty. The Trust Fund Recovery Penalty is a means to assess civil liability on individuals who fail to make necessary payroll tax deposits to the IRS.

This means that if a corporation or other business entity fails to pay its payroll taxes, then the corporate officers and other responsible parties can be assessed the tax liability. This has broad reaching consequences, as personal assessments can mean adverse collection action against the individual that the Trust Fund Liability was assessed against.

In other words, if you are hit with a trust fund recovery penalty, it can mean that the IRS can seize your personal assets in order to satisfy the liability. In addition, unlike other types of taxes, the Trust Fund Recovery Penalty is not dischargeable in bankruptcy.

Once you are hit with one of these types of penalties, there are not many places that you can turn to.

Trust Fund Liability Protection

Trust Fund Liability Defense is imperative for a business facing collection attempts by the IRS. Those found responsible are held jointly and severally liable for the amount of the liability. Because of this, the IRS will generally cast a wide net and try to assess as many parties as possible (more sources to collect from).

Officers, directors, major and minor shareholders, board members, controllers, book keepers, and a variety of other individuals (including those outside of the corporation) may possibly subject themselves to trust fund liability.

In addition, recent case law on the subject has extended liability past corporate officers and directors to any party that meets the requirements of the trust fund statute.

Assessment Factors

According to IRC §6672, a party may be assessed where

  1. That party had a duty to account for, collect, and pay over the trust fund taxes, and
  2. Whether that party willfully failed to perform that duty.

As you can see, the assessment (and subsequent legal and factual arguments) is based on those two factors. Thus, it is imperative that parties under investigation begin their preparations for defending against a trust fund assessment by considering them.

In addition, it is important to note that there is never an instance where the IRS will seek assessment and not assess at least one responsible party. Someone within every organization will be found to be responsible for the accounting and payment of trust fund taxes.

Trust Fund Liability will be made through a formal interview conducted by a revenue officer with the suspected person. The IRS representative will utilize IRS Form 4180 to conduct the interview and will use the responses given to determine liability.

Ideally, it would be preferable to have your legal representative handle the trust fund interview for you, although some revenue officers will be insistent on having the actual party there to answer questions.

You Need a Strategy – Brotman Law Can Help

Strategy and the type of answers given are critical in a trust fund interview. Anything said that would establish duty or control could be used against the interviewee to determine liability.

The Trust Fund Recovery Penalty has broad reaching and rather severe consequences for a client business and its ownership/management. Many of these considerations are too lengthy to cover in a general overview.

I would strongly urge you to consider speaking to our firm or a qualified legal representative about how to appropriately deal with these types of cases.




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