Trust Fund Recovery Penalties and Personal Liability

IRS Increases its Number of Payroll Tax

Recently, the IRS has increased the number of its payroll tax audits. The purpose of these audits is to ensure that the company's independent contractors should not be reclassified as employees. This is a very sensitive area with both the IRS and the EDD as it is subject to much abuse and a significant amount of taxes not being paid to the government.

Who Is a Responsible Person?

The IRS can assess a Trust Fund Recovery Assessment, also known as a 100-percent penalty, against every "responsible person." A "responsible person" is one who has the duty to perform or the power to direct the act of collecting, accounting for, or paying over trust fund taxes. These responsible persons will be held personally liable for the trust fund recovery penalty (TFRP) of the unpaid payroll tax.

The personal liability will be assessed even if the business closes or files bankruptcy. There are a number of tests to determine if a person will be considered a responsible person, including having an ownership interest or an officer in the business, knowledge of the unpaid tax, or having bank signatory authorization are just a few of the tests to determine responsible person status.

Will I Be Considered a Responsible Person?

Perhaps the best course of action is to have an experienced tax attorney review the situation. Will the company prevail in a payroll tax audit? If not, what are the likely liabilities resulting from the audit? Will there be payroll tax liabilities from both the IRS and the EDD? Is the company profitable enough to pay off these potential liabilities? Am I a responsible person?

These questions and more should be addressed by an experienced tax attorney.

Call for a Free Consultation with a Tax Lawyer

Do not hesitate to call 818-224-7935 or 888-408-9486 (toll free) to arrange a consultation with Mr. Leonard. We are based in Woodland Hills and proudly serve clients in Los Angeles, the San Fernando Valley and other communities across the country.