The Trust Fund Repayment Penalty is a penalty that makes an individual personally responsible for the tax debt of a business. Maybe a Revenue Officer has interviewed you or asked you to fill out a form. But, shortly afterwards you receive IRS Letter 1153. This is notice that the IRS considers you responsible for making sure that the business pays the tax. Since the business didn't, you are on the hook for the whole balance. But is the IRS wrong? Are you responsible?
I am a tax attorney in Minneapolis, Minnesota. I represent taxpayers before the IRS and state tax authorities. I handle issues with tax debts, audit defense, payroll tax issues, and criminal tax matters. The IRS is authorized to assess the Trust Fund Repayment Penalty against an individual due to Internal Revenue Code § 6672 (IRC § 6672). This part of the code allows the IRS to assess any responsible person who willfully causes the payroll tax deposit to not be paid.
Certainly an owner could be responsible, but plenty of employees and even tax professionals can be held responsible. Responsible is a broad term in the law. It is fairly fact sensitive. Responsible is a reflection of duty, status and authority. Here are a few of the factors that might point to you being responsible:
Holding Corporate Office
Authority in Bylaws
Hiring And Firing Authority
Check Signing Authority
Authority To Sign And File Payroll Returns
Looking at these factors, you can see where a lot of people might be targetted by the IRS for this penalty. Do you have hiring and firing authority as a manager? Can you sign checks? Especially payroll checks? Are you the CEO or CFO? Did Corporate bylaws give you budgeting or tax authority?
Answering yes or even maybe to any of these questions could mean that you are responsible. But, answering yes to anyone of them alone won't be enough. The IRS often will just assess anyone who had the ability to write checks. But how often did you write checks? What if you are the secretary and you only wrote checks when the Owner was out of town? It isn't a simple thing.
Plus, even if you are responsible then you still had to willfully cause the business not to pay. That's got its own legal analysis. Just because the IRS assesses you with this penalty does not mean that the IRS is correct. If you feel that you aren't correct, it is important to file a protest with the IRS, use your appeals, and possibly even go to the United States Tax Court.
Anyone who has received IRS Letter 1153 could likely benefit from talking to a tax attorney.
Attorney at Law
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Minnetonka, MN 55343