Business Trust Fund Tax

How Does a Business Accrue a Trust Fund Tax Debt?

Typically, the Trust Fund Recovery Penalty (TFRP or Trust Fund) originates from unpaid payroll tax, most often form 941. A TFRP may also originate from an Excise Tax. It is not derived from form 940 Unemployment tax or form 1120 Income tax.

The Trust Fund portion of a payroll tax debt is often described as the "Principal" tax. But that's not really accurate. The Trust Fund is the tax that was supposed to be withheld from the employee's paychecks and paid over to the IRS. It's the employee's withholding and their half of the Social Security and Medicare tax.

The TFRP does not include the employer's matching portion of the Social Security and Medicare tax, nor does it include the penalties and interest that have been assessed to the business as part of the total employment tax liability.

I was in a panicked situation when I found out how far behind I was with my payroll taxes. After working with M&M Financial I've had the best experience. My mind has been at ease since I've been able to work out agreements with the IRS with M&M being the middleman between myself and the IRS. The representative has been easy to reach and answers any questions I may have. He has also been studious with contacting me after speaking with the IRS so that I stay abreast of what they are requesting. I would recommend this company to everyone in this same situation.
LaShawn J.
Small Business Owner
Snellville, GA

How Can My Company Resolve the Payroll Taxes?

Most businesses operating with a 941 payroll tax debt do not qualify for the IRS Offer in Compromise. It is the IRS general view that an operating business can pay its taxes. As a result, the IRS puts all In-Business Offers in Compromise through immense scrutiny.

Many businesses secure a monthly Installment Agreement to resolve a large employment tax liability, which can also be a difficult process. If your business owes employment tax of less than $25,000 and can pay it back in equal monthly installments over 24 months, the IRS may grant a Streamlined Installment Agreement without requiring any financial documentation and it may forego assessment of the Trust Fund.

If your business doesn't meet the streamlined installment agreement criteria above, you will have a local Revenue Officer assigned to your case for collection. Financial information will be required and the Trust Fund Investigation will take place.

What Kind of Installment Agreements Are Available for Business Trust Fund Liabilities?

The IRS has several Installment Agreement (IA) options available, depending on your business's current financial situation.
  • In-Business Trust Fund Express IA
  • Standard IA, also called a Non-Streamlined IA
  • Partial Payment IA
  • Direct Debit IA

What If My Business Can't Make a Monthly Payment to Pay Back the Payroll Tax?

If your business cannot make a monthly payment toward its back tax debt, Currently Not Collectible status may be an option. However, the business must not have any usable equity in assets and must prove that it cannot make a monthly payment of at least $25. This can be tricky because you must also prove that your business can make current Federal tax deposits on time every time. It's a fine line to balance on.

If you have a specific question about a Business Trust Fund tax or Employment tax, contact us. We'll give you straight answers to your questions.