As a former IRS Revenue Officer, I came across a large number of Trust Fund Recovery Penalties cases. The Trust Fund Penalty can and will have a damaging effect on taxpayers who were found to be responsible to pay these taxes. This article deals with that issue and why?
It was part of my job was to train IRS Agents on determinations for the Trust Fund Recovery Penalty. The general rule is, " hold everyone and anyone responsible" by applying this method, the tax will eventually get paid in full. Though IRS will never admit to this method, the Agent will do just that, they will go after everyone they can for the Trust Fund Recovery Penalty.
When an IRS Agent gets a 941 Payroll or Trust Fund case on their schedule, the very first thing the Agent does, is to make an on-site visit to the corporation, to ask the corporation for full payment. Many times the corporation is out of business, and the Revenue Officer must track down responsible officers or those who were expected to pay the payroll taxes to the IRS. Once the IRS has made contact with at least one person who was involved with the company, they will interview the person by taking a detailed and lengthy interview with Form 4180 (Report of Interview with Individual Relative to Trust Fund Penalty)
Some of the determining factors used to find individuals liable for this penalty are as follows:
1. Which individuals determine financial policy?
2. Which individuals authorize payment of bills?
3. Which individuals opens or closes bank accounts?
4. Which individuals signs checks?
5. Which individuals authorizes payroll?
6. Which individuals makes tax deposits?
7. Which individuals sign tax returns?
8. Which individuals oversee the hiring & termination of employees?
9. Which individuals run business on a day-to-day basis?
The IRS will review these answers based on sufficient documentation. IRS will then contact banks for information such as bank signature cards, corporate resolutions, copies of checks.
One more acid test used by the IRS Revenue Officer, would be to look to see who signed checks and took distributions from the company- the bottom line is, follow the money trail.
When dealing with the Trust Fund Penalty, one should be represented by a professional tax firm or representative.
Michael D. Sullivan is a seasoned IRS tax expert. Learn more about Michael and the services he provides at http://www.freshstarttax.com/.
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