Most business owners know that they are responsible for ensuring that the payroll taxes for themselves and their employees get paid to the Internal Revenue Service (IRS). Something many people don't realize is that, unlike other corporate taxes, owners can be held personally liable if those taxes go unpaid. Furthermore, employees, officers and even shareholders of companies can be penalized for unpaid payroll taxes under certain circumstances.
Pensive businessman calculates taxes at desk in office
It is important to understand that payroll tax debt is very different than other types of corporate debt. In most cases, individuals are protected from personal liability for business debts, even those for a business they own. However, federal law places a personal responsibility for ensuring that payroll taxes are paid on any individual who they can reasonably assume has the authority and ability to make sure the taxes are paid on a timely basis. This could mean officers and employees of the company, as well as possibly shareholders and even third parties, such as an outside accountant.
Unlike other types of taxes, payroll taxes - including FICA. Medicare and withheld income taxes - are considered to be the property of the U.S. government at the time employees are paid. The employer simply holds these funds in trust on behalf of its employees until such time as the payment to the IRS is due. The IRS considers it a very serious breach of trust when an employer fails to live up to that responsibility. Therefore, IRS code requires that anyone who could take action and ensure that the taxes are paid do so. Failure to act could result in the imposition of a Trust Fund Recovery Penalty.
Under Internal Revenue Code Section 6672, the IRS can assess a trust fund penalty against any employee or other entity that they determine willfully withheld payroll tax payments. In order to determine who that might be, the IRS will look at such things as each employee's position in the company, check and tax filing signature authority and responsibility for hiring and firing employees. A person must meet some, but not necessarily all, of these criteria in order to be found to have willfully failed to properly pay employees' taxes.
Not only will the IRS pursue payment from the company, it will also pursue these responsible individuals through a Trust Fund Recovery Penalty. The penalty is equal to the total amount of unpaid tax and becomes a personal liability of the person against whom it is assessed. Due to the nature of the unpaid taxes, the IRS is very aggressive in attempting to collect this penalty. They will place liens against your home and personal property, levy your bank accounts and seize any and all personal assets needed to satisfy the debt.
If you have found yourself in this situation, you may still have options for dealing with the IRS. If you have evidence to prove that you actually did not act willfully to withhold the required payments, or that you were not in a position to ensure proper payments, you can file an appeal of the trust fund penalty. You can also work with the IRS to create a payment plan to satisfy the debt. It may be possible to settle the debt for less than what you actually owe. Known as an offer-in-consideration (OIC), this option is a last-ditch effort and will only be considered when all other collection efforts have failed.
No matter what the reason, anyone who finds themselves dealing with a trust fund penalty needs the help of one of our skilled tax attorneys. We will review your situation to determine if you can actually be held accountable for the unpaid payroll tax. Even if we cannot remove the penalty, we can intervene on your behalf with the IRS to stop wage garnishments and asset seizures. We will negotiate a settlement you can afford, protecting your personal assets and income and allowing you to continue to operate your business.
Failure to pay employee payroll taxes is a very serious infraction, and the IRS will act quickly and aggressively to collect these taxes. If you are being held personally responsible for unpaid employee taxes, don't ignore the situation. Contact us today so we can work out a solution to prevents disruption of your life and livelihood and allows you to put your tax situation behind you for good.