Trust Fund Recovery Defense

Fight Back Against Penalties Related to Employment or Payroll Taxes

When employment or payroll taxes are not paid, the Internal Revenue Service (IRS) can assess and collect a penalty against you. The sanction is called a Trust Fund Recovery Penalty. Under Internal Revenue Code section 6672, anybody who is involved in a business and who is found responsible for deciding not to pay the IRS unpaid payroll taxes can be assessed the Trust Fund Recovery Penalty. If you are facing this type of trouble, it is serious. You should retain the Los Angeles payroll tax lawyers at Enterprise Consultants Group to help you build a trust fund recovery defense. We assist clients throughout all of California and elsewhere in the U.S. who are facing these sanctions.

The Trust Fund Recovery Penalty

This penalty is calculated based on the unpaid income tax that was withheld as well as the employee’s segment of withheld FICA taxes.

Internal Revenue Code section 6672 has two elements that both need to be satisfied for you to be held liable for paying a Trust Fund Recovery Penalty. If these elements are not satisfied, that failure can be a basis for challenging an assessed Trust Fund Recovery Penalty. First, you must be a responsible person for withholding and paying employment taxes for the penalty to be assessed against you individually. Responsible persons include a corporate employee, corporate officer, partnership employee, or partnership member who is obligated to collect or pay the business’ payroll taxes.

Simply holding a corporate title is insufficient for the purpose of determining liability. Instead, as our Los Angeles tax professionals can explain, you need to have the authority, duty, and status to control the finances of the company, including which company creditors will be paid. Additionally, the penalty should only be assessed if you, as a responsible person under the Internal Revenue Code, acted willfully in failing to collect or pay the payroll taxes. Willfulness is a high standard. It involves a conscious, intentional, and voluntary decision to pay other creditors instead of remitting trust fund taxes to the government.

The Importance of Filing an Appeal

Once the IRS sends you an assessment letter indicating that it is planning to assess a Trust Fund Recovery Penalty against you, you have only 60 days from the date of the letter to appeal. (You have 75 days if the letter is directed to you outside the country.) The letter will outline what your appeal rights are, but it is wise to consult a tax professional about your appeal rights and to retain an attorney to represent you throughout the process, including preparing a response. If no response is provided, the IRS will assess the penalty against you and mail a Notice and payment demand.

The penalty can be collected by the IRS against your will. The IRS has the power to start a collection action to collect what is owed from your personal assets. If you do not provide taxes that were withheld from your employees, the IRS views this as stealing. Thus, you can face serious trouble if you do not consult a knowledgeable attorney.

Choosing Your Trust Fund Recovery Defense

The appropriate defense depends on the situation. One potential defense that an attorney may be able to raise, depending on the circumstances, is that an individual had no control over the company’s finances. Alternatively, an attorney may be able to argue that an individual is financially not able to pay at all; if the debt is uncollectable, the IRS will not be able to collect it. Sometimes an attorney can attack the assessment of the penalty. It may be possible to challenge or defend on the basis that you are not a responsible person under the Internal Revenue Code, or your attorney may be able to show that you were merely negligent and did not know that the taxes were unpaid or did not act willfully.

Discuss Your Concerns with a Tax Professional in Los Angeles

If you need a tax lawyer to mount a trust fund recovery defense on your behalf, you should contact Enterprise Consultants Group. From our Los Angeles headquarters, we represent clients throughout California and nationwide. Call us at (800) 575-9284 or complete our online form.