Potentially the most important legal aspect of operating a business involves payroll reporting and regulations governing the funds transfer process to the Internal Revenue Service. The IRS does offer a certain amount of business management latitude to business owners who must collect payroll and social security taxes. However, sometimes business operators make the serious mistake of not transferring the deducted funds when the operation faces financial difficulties, including failure to meet the legal requirement of matching the FICA deductions for Social Security. This is a very slippery slope when managing a business, and solid attention should always be given to details concerning legal fiduciary responsibilities. The IRS is very serious about recovering these funds, and many times fines and even incarceration can be part of the final decision. That is why it is imperative to have an experienced and aggressive IRS tax relief attorney representing your case.

Management Authority

Many businesses operate by allowing specific employees to sign financial instruments and and have access to bank deposit information. In most instances, these documents will also be included in the Internal Revenue Service investigators report. In addition, these particular employees will more than likely be a potential target of the investigation. The question for the IRS is always centered around the level of authority and input regarding operational procedures and operating decisions. Sometimes general authority that does not distinctly address certain operational authority and can be a problem for employees who will also be investigated. An experienced IRS tax relief attorney will understand how to craft a defense that eliminates lower level employees. In general, the lower the level of authority the more likely the employee will be eliminated from the investigation. However, when certain material case factors can reveal other legal problems for the employee, then it is more likely they will still be included. The assumption of the IRS is that signatory power is also a general management authorization. The employee and the attorney must present case facts that prove the employee is not culpable.

Form 4180

The IRS investigator will do a considerable amount of case preparation before the actual formal hearing begins. Prior to a hearing the IRS will send a Form 4180 containing a list of “yes or no” questions that can directly implicate business owners, management officials, and authorized signatory employees. It is not uncommon for companies to assign responsibility for records and subsequent deposits and payroll tax transfers to human resource departments. Questions on the list are primarily directed at establishing exactly who is ultimately responsible for failure to report and transfer. When multiple employees are authorized to make payroll and tax fund reporting, confusion can occur when one employee is attempting to deflect attention away to others. Even though the form is essentially a list of definitive answer questions, written statements can also be entered into the record that prove where the true responsibility rests. Your IRS tax relief attorney will usually conduct a prior test that addresses the proper responses to Form 4180questions.


There are a few methods of handling an IRS tax debt investigation. The most preferable would completing the Form 4180 and delivering it to the IRS agent. The investigation component of the issue is really just a fact-finding practice before a final decision on culpability, potential fines, and a reimbursement schedule. The IRS rarely hands out incarceration penalties unless the failure to report was a premeditated decision. In addition, written statements and explanations can also be included with the form filing. A physical inspection of the documents the IRS is using as a case basis, such as bank drafts and cancelled checks, is also a good method of arriving at what actually happened. There is also an appeals process that allows 60 days to respond to an unfavorable IRS decision regarding the tax penalty. In addition, there is also a three year statute of limitations for completing the trust fund assessment and many times this time period can elapse in cases prosecuted on weak evidence.

It is important to remember that the IRS is usually just interested in the transfer of the funds in a timely and reasonable manner, even though they do have the authority to apply a significant penalty. Problems usually happen when there is little method of collecting funds when a business has failed to transfer funds while going out of business, and having a solid IRS tax relief attorney is vital.