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Rogue Valley Tax Tips and Insights: The Trust Fund Recovery Penalty.

Education & Training with First Response Resolution, LLC

Welcome to the Tax Tips and Insights series of First Response Resolution, LLC’s official blog! We are a specialty tax firm practicing right here near Medford in Southern Oregon and the focus of my practice is solving tax problems for individuals and businesses and representing taxpayers before the IRS and State Departments of Revenue. We offer our services online nationwide from the comfort of our client’s homes and will provide services on-site to businesses in our area upon request. Think of our firm as your Financial First Responders who specialize in saving troubled taxpayers. We help people who are struggling with tax problems get their lives back on track so they can focus on what matters most to them.

In our last post on Payroll Tax Problems, we left off on the topic of the Trust Fund Recovery Penalty that is assessed against the responsible individual(s) who fail to remit the taxes withheld from employee paychecks. Often when businesses fall behind on paying the Payroll Taxes, they also don’t file their Payroll Tax Returns each quarter, resulting in many penalties. There is the Failure to File Penalty of up to 25%, the Failure to Pay Penalty of another 25%, and the Failure to Deposit Penalty which starts at 2% for the first 5 days but jumps to 10% for deposits made more than 15 days late! Once you receive your first CP220 Notice, the amount of the Failure to Deposit Penalty goes up to 15% if you go more than 10 days after the date of your first notice. These penalties, and don’t forget interest, add up very fast and can make it seem impossible to ever catch up on the liability.

As it pertains to the assessment of the Trust Fund Recovery Penalty for funds held in trust that are not remitted to the United States Government, the IRS will determine who in the business is responsible. In determining the Responsible Person(s), the IRS will consider many factors and the individuals assessed may not always be the owners of the business. Letter 1153 is the proposed assessment of the Trust Fund Recovery Penalty on the Responsible Person(s) which gives the individuals 60 days to protest before the assessment becomes final. This 60-day window should be utilized to come up with a wise strategy to address the liability, consulting with a competent tax professional on these matters is well advised to avoid further complications. There are many issues to contemplate which can include: Is the business viable? Can we save the business or should be it shut down? Are there financial moves the business needs to make? Is an employee being assessed the Trust Fund Recovery Penalty who really shouldn’t be held responsible?

There are many people within a business entity that can be determined to be a Responsible Person as it pertains to the assessment of the Trust Fund Recovery Penalty, but they must be both Willful and Responsible for the payment as determined on a quarterly basis. There are instances in which the assessment can be against a person who doesn’t own the business, such as a bookkeeper. If the person is an officer of the corporation, has ownership or specific authority granted in the company bylaws, has hiring and firing authority, has signature authority or check signing authority, or has the authority to sign and file payroll returns, these are indicators that the person can be deemed responsible and assessed the penalty. It may be convenient for the company to have staff members with signature authority; however, this is a responsibility that many people should think twice about before they accept.

If you or someone you know is in the midst of an IRS issue, contact me at either 541-293-8449, by email at zach@firstresponseirs.com, or through our website. We specialize in solving tax problems! We will thoroughly investigate and evaluate your specific situation and consider ALL OPTIONS available to you. All discussions are kept strictly confidential, and we offer no obligation initial consultations of up to one hour.

Is your agency interested in having me speak to your team of realtors in person or over Zoom at one of your weekly sales meetings free of charge? I have a presentation developed to address the following:

  1. Taxation and your clients,
  2. Tax tips for saving on your own tax returns, and
  3. Tax Problem Solutions.


Contact us today!