Payroll Tax

Compiled from the cases worked, here are the most common Payroll Tax Penalty Questions and Answers. TFRP – also known as the Trust Fund Recovery Payroll Tax Penalty – is a tax against those who were meant to pay money to the IRS but never did. As with any tax or penalty, the TFRP raises many questions with regards to what you have to do, the rules you have to follow, and so on. Therefore, we have compiled some of the most frequently asked questions on the Trust Fund Recovery Penalty and our experts answer…


Payroll Tax Penalty Questions and Answers


What exactly is the Trust Fund Recovery Penalty  TFRP?

If someone collects taxes for the IRS but never sends them on, they will be assessed and taxed by revenue officers sent by Congress. These unpaid taxes held in trust are equal to the TFRP, although it is also often referred to as the Civil Penalty as it is not a criminal fine. CIV-PEN and the 6672 Penalty are also well-used alternative names. 

Who usually gets assessed with regards to the  Trust Fund Recovery Penalty  ? 

The people most often assessed with regards to the TFRP are the company employers who fail to forward the taxes withheld on behalf of their employees. Let’s take a look at an example. Let’s say a boss owes an employee $1000 in gross pay for the week but only has enough to pay the net value of $800. The employee cashes this net check, but the employer fails to send the remaining $200 to the IRS on behalf of his employee. The IRS would then assess the penalty against the employer rather than the employee (for the amount of $200).

Does a failure to pay employment taxes could as embezzlement? 

While on paper this could be the case, the vast majority of cases revolving around the TFRP involve no possession of the unpaid tax money. Having said this, if it were the case, then the IRS would be able to press charges. 

Can the  Trust Fund Recovery Penalty  only be assessed against owners?

This is a common misconception. Assessment is not limited to owners only, the TFRP can be used against anyone who plays a part in failing to pay taxes to the IRS. If anyone has control in the process of tax-paying, but fails to exert that control, they can be assessed. The IRS has even tried to assess people who had knowledge but no control in the past. However, for the TFRP to apply, the person in question must have had some kind of responsibility to collect/pay the taxes in question. Not only this, but they must have also refused to do so.

What if they simply do not have the money to pay the IRS?

The IRS is meant to look into your finances before assessment to gauge whether you had the ability to pay the taxes. However, this is sometimes overlooked and people are assessed regardless. This is why you should always be familiar or employee someone who is familiar with Form 433-A.

Can the  Trust Fund Recovery Penalty  be used against multiple people in one case?

Yes, it can. The TFRP can be used against as many people as is necessary to the case and the subsequent debt will remain against all of these people until it is paid off.  Payroll Tax Penalty Questions and Answers

If the IRS goes after multiple people, can they collect more than what is owed?

No, the IRS can only collect the total amount, no matter how many people are deemed to be involved.

Can the  Trust Fund Recovery Penalty  be appealed against?

You will always be given the chance to appeal against a TFRP decision. Even if you lose this appeal, you will still have the opportunity to take it to tax court. 

Can you undo an  Trust Fund Recovery Penalty  decision without appealing?

While the short answer is yes, this is a far more difficult route. You can choose to claim for a refund, but it is far more difficult to undo an IRS decision than to stop them from doing it, if that makes sense. Some cases in which this works is when a taxpayer has a conflict of interest with someone in the case, whether it be a CPA, attorney, or someone else. Other examples include when one party had knowledge but could do nothing to stop it, or if one party has been stuck with the blame by form of collusion.  

Can an Offer in Compromise be filed in order to settle an  Trust Fund Recovery Penalty  ?

Yes, an Offer in Compromise can be used. The  Trust Fund Recovery Penalty  can be negotiated like any other form of tax debt. Therefore, you may be able to use things such as an Offer in Compromise, instalment agreement, currency non-collectable status, or partial payment instalment agreement. However, Chapter Seven Bankruptcy cannot be used to discharge the  Trust Fund Recovery Penalty  .  A common request in our Payroll Tax Penalty Questions and Answers.

Is there a time limit for the IRS to collect  Trust Fund Recovery Penalty  ? 

One of the most common Trust Fund Recovery Penalty Questions. The Collection Statute Expiration Date is the date by which the IRS must collect.  10 years from the date of the assessment, assessment being the key word.

If a business is already paying back any unpaid payroll taxes, why is the  Trust Fund Recovery Penalty  necessary? 

This is something that is seen a lot. Even when a repayment plan has been set, the IRS will usually still assess individuals with regards to the Trust Fund Recovery Penalty  . This is because the IRS is limited on time and they also have no guarantee that the business is going to meet tax repayments. Therefore, the revenue officer is often made to use to Trust Fund Recovery Penalty  , even where there may be no need for it. 

If you are a restaurant owner you will also want to read our post on Restaurant Payroll Tax Problems.

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