Payroll Taxes and the Trust Fund Recovery Penalty (TFRP)

To encourage prompt payment of payroll employment taxes, Congress passed a law that provides for the TFRP. These taxes are called trust fund taxes because you actually hold the employee's money in trust until you make a federal tax deposit payment in that amount. The TFRP may apply to you if these unpaid trust fund taxes cannot be immediately collected from the business. And, the business does not have to have stopped operating in order for the TFRP to be assessed.

Who Can Be Responsible for the TFRP?

The TFRP can be assessed against any person who:

1-Is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and

2-Willfully fails to collect or pay them.

A responsible person may be:

·An officer or employee of  a corporation

·A member or employee of a partnership

·A corporate director or shareholder

·A member of a board of trustees for a nonprofit organization

·Another person with authority and control over funds to direct their disbursement

·Another corporation or third party

·Payroll service providers or responsible parties within these organizations

 

For willfulness to exist, the responsible person:

·Must have been, or should have been, aware of the outstanding taxes and

·Either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required)

The Penalty and Enforcement

The amount of the penalty is equal to the unpaid balance of the trust fund tax.

Once the IRS asserts the penalty, they can take collection action your personal assets by fiing a federal tax lien or take levy or seizure action.

Avoiding the TFRP

You can avoid the TFRP by making sure that all employment taxes are collected, accounted for, and paid to the IRS when required. Make your tax deposits and payments in full and on time.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net