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Trust Fund IRS Audits: A Boston Business Tax Attorney Explains the IRS Trust Fund Recovery Penalty

Asset Forfeitures / IRS Audits

Posted on July 23, 2019 |

One of the most serious penalties the IRS can assess is the trust fund recovery penalty. The penalty relates to payroll taxes that employers withhold from their employees’ paychecks but fail to forward to the IRS. Owners and executives can be subject to the penalty, as well as others at the company responsible for payment and collection of payroll taxes.

If you or anyone at your company is facing a potential IRS trust fund recovery penalty, you will need a skilled Boston business tax attorney on your side. The penalty can be very substantial, and the IRS takes the issue seriously. With the representation and advice of a well-established business tax lawyer, you can fight back against this tax penalty.

What is the IRS Trust Fund Recovery Penalty?

Under U.S. tax law, employers are responsible for withholding income tax, Social Security and Medicare contributions from their employees’ paychecks. These are known as trust fund taxes. The employer is then responsible for sending the trust fund taxes to the IRS.

If trust fund taxes are not sent to the IRS, it can assess a trust fund recovery penalty against any person at the company who willfully fails to collect or pay those taxes. The individual will be personally liable for the penalty. The typical individuals facing this penalty include owners, officers and partners.

The IRS must prove the person willfully ignored their legal obligation to pay trust fund taxes. This generally means that the person knew the trust fund taxes were due and they also knew they were not being paid. An example of proof of willfulness is when a person collects trust fund taxes but chooses to pay another creditor with the funds instead of the IRS.

Boston business tax attorney Kevin E. Thorn is well aware of the fact that the amount of the trust fund recovery penalty can be very large. More specifically, the amount owed will be the amount of unpaid taxes, plus that amount again as a tax penalty. Thus, the penalty is effectively double the unpaid amount. For multiple employees over an extended period of time, the penalty could be a crippling amount.

How to Fight the Assessment of a Trust Fund Recovery Penalty

Fortunately, there are ways to fight back against a potential trust fund recovery penalty with the help of a proven business tax lawyer.

The IRS typically begins the procedure for this penalty by initiating a trust fund recovery investigation. The investigation or “audit” generally begins when the IRS serves the company’s bank with an administrative summons demanding certain documentation. The minute this summons is received, the business should contact a Boston business tax attorney.

From there, the IRS will determine who may be personally liable for any violations and they will likely demand an in-person interview. The taxpayer would be extremely well-advised to have their attorney present for this interview to speak on their behalf. If the IRS ultimately assesses the penalty, the taxpayer’s attorney can file an appeal on their behalf.

Speak With a Boston Business Tax Attorney About Your IRS Trust Fund Recovery Penalty Matter

Consult a business tax attorney at Thorn Law Group’s Boston office today if you are facing a potential IRS trust fund recovery penalty for your business. To schedule a consultation, contact Kevin E. Thorn, Managing Partner, at (617) 692-2989.


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