Trust Fund Recovery Penalty Solutions
Will the IRS Let My Business Pay Back the Trust Fund and Leave Me Alone?In some cases, yes. In some cases, no. And there are other cases caught in the middle ground.
If the Trust Fund Recovery Penalty (TFRP) is below the IRS Policy Threshold for assertion, the Revenue Officer may determine that non-assertion is appropriate. Although the threshold is unavailable to the public and changes when the IRS sees fit, it is likely around the $10,000 mark. There are several factors that go into making a determination of non-assertion, such as:
- Potential of business to accrue additional employment tax
- Business's history of non-compliance
- Responsible person's history of employment tax non-compliance
- Unfiled 941 employment tax returns
A Business Installment Agreement can be a great defense for Responsible Individuals facing a potential Trust Fund assessment. The IRS may consider non-assertion of the Trust Fund if a business secures an Installment Agreement that will satisfy the total tax debt at least one year before the Assessment Statute Expiration Date (ASED). The IRS is allowed to assess the TFRP to a Responsible Individual for up to three years after the employment tax returns are deemed to be filed. The date at the end of the three year period is the ASED.
The In-Business Trust Fund Express Installment Agreement is commonly associated with the non-assertion of the TFRP.
If your business gets into a standard Installment Agreement with the IRS, the Trust Fund will be assessed to the Responsible Individual(s). However, the Revenue Officer may cross reference the individuals Trust Fund liability with the business Agreement and suspend collection from the individual(s). Although this approach will not stop the personal assessment of the TFRP, it will suspend personal collection. The IRS will not expect a payment from the individual(s) allowing the business to pay back its own debt.
The individual, however, may still be subject to a tax lien and yearly income tax refunds will be taken and applied toward the Trust Fund. And, this cross-reference situation may be limited by compliance history, the individual's financial situation, 1040 income tax liabilities and other factors.
If the business has defaulted an Installment Agreement in the past, the Trust Fund will likely move forward for assessment to the individual(s). Personal assessment is also likely if the business secures a Partial Payment Installment Agreement or Currently Not Collectible (CNC) status. It all depends on the business and individual's current financial state and past compliance.
Just wanted to say if you are having trouble with the IRS or state please give the wonderful people at M&M a chance to work for you. Mason and his staff worked tirelessly to negotiate an affordable Installment Agreement when the IRS did not want to negotiate with me personally at all. A tremendous weight has been lifted off me and my company and I would not hesitate one second recommending M&M to anyone who is having trouble. You won't be sorry.
What Can I Do to Minimize the Affect of My Business Payroll Tax Debt on Me Personally?A great way to minimize your personal exposure to the employment tax is to make Voluntary Payments toward the Trust Fund. You must designate the payment specifically to the Trust Fund portion of the employment tax in order for it to be applied correctly. If the IRS receives a Voluntary Payment that is not designated, it will apply the payment in the best interest of the government.
Voluntary Trust Fund Payments should be sent directly to the Revenue Officer assigned to your case.
I've Already Been Assessed the Trust Fund Personally. How Can I Resolve It?If you've already been assessed the Trust Fund Recovery Penalty, you have several options available to resolve it with the IRS. You will begin to receive notices from the Service referring to a Civil Penalty tax liability. The Civil Penalty is what the Trust Fund is called after is has been assessed to the individual.
Installment AgreementsThe IRS offers a wide array of Installment Agreements (IAs) to resolve back tax liabilities.
- Streamlined IA,
- Fresh Start Streamlined IA,
- Standard IA,
- Partial Payment IA (PPIA),
- Direct Debit IA,
- Payroll Deduction IA
Currently Not Collectible (CNC) statusCNC status allows the IRS to suspend collection of the tax for a period of time as long as the taxpayer maintains current tax compliance. The IRS will periodically review your CNC case to determine if your financial situation has changed. The Service does not expect payment toward the back tax while CNC status is in effect.
Offer in Compromise (OIC)The OIC is a very popular but misunderstood IRS resolution. Although the OIC is easier than ever to achieve, many people don't qualify for it. It allows the IRS to settle a tax debt for less than the amount owed. While many television and radio advertisements promote the OIC as a handshake solution for every delinquent taxpayer, it requires a lot of paperwork, time, know-how and a pretty dire financial situation to get approved. It's great for those that qualify, but not everyone does.
I Have a Business Partner. Will the IRS Collect 50% of the Trust Fund from Each of Us?No. It doesn't matter to the IRS who pays the tax, just that it gets paid. The IRS is going to collect the full amount of the Trust Fund from wherever it can. It wants to be paid fast. If that means that you end up paying 75% and your business partner pays 25%, the IRS doesn't care, as long as it is paid. The Service will look to collect the Trust Fund as quickly as possible from as many sources as possible - your business, you and your business partner(s).
If you personally pay 100% of the Trust Fund, your business partner(s) will be off the hook and your total business tax liability will be reduced by the same amount. It is up to you and your business partner(s) to figure it out from there.
What Happened to My Income Tax Refund?If you've been assessed the TFRP, the IRS will take your income tax refund until the Trust Fund has been satisfied. Even if your Trust Fund Assessment is placed into CNC status and cross-referenced with the Business Installment Agreement, your income tax refund will be taken. You can take steps to minimize your income tax refund by submitting a new W-4 to your employer or adjusting your 1040-ES payments. But don't reduce your tax payments too much. The last thing you want to do is create another tax liability.
If you have a specific question about the Trust Fund and Possible Solutions, contact us. We'll give you straight answers to your questions.