Entrepreneurs are an optimistic lot. Unfortunately, the present economic downturn has proven that such optimism is not always well-founded. Cash-strapped small businesses sometimes delay payment of their payroll taxes and instead use the funds collected from their employees for general business purposes. A typical owner of such a small business hopes that as soon as the business improves, he or she will remit the payroll taxes to the IRS. The obligation to timely pay the payroll taxes, however, does not depend on business conditions. A small business owner or even a low-level employee of the business may be found to be personally responsible for unpaid payroll taxes. This is called the Trust Fund Recovery Penalty. The amount of the penalty equals the amount of unpaid payroll taxes.
Additional tax penalties may be applied as well. Incorporation of the business or organizing the business as a limited liability company (LLC) would not prevent the IRS from targeting individuals within the business and holding them personally responsible for back taxes of the business. The assessment of the Trust Fund Recovery Penalty not only jeopardizes business prospects, but also threatens the financial survival of the individual who has been found by the IRS to be responsible for unpaid payroll taxes.
If you have been contacted by the IRS as part of their investigation to determine the identity of the individuals to be held personally responsible for the Trust Fund Recovery Penalty, contact our IRS tax lawyers promptly. Strict time limits apply and a delay may result in aggressive IRS collection activities such as imposing tax liens, tax levies or property seizures.