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Business ownership and a potential trust fund recovery penalty

On Behalf of | Apr 6, 2020 | Corporate Taxes |

The responsibilities associated with owning and operating a business are exponential. Whether you disagree with your partner, face an employee dispute or experienced a profit decrease since this quarter last year, every decision you make in your position can relate to financial management. As a result, you must always consider taxes.

In addition to other tax liabilities, the IRS holds businesses accountable for employment taxes. Your responsibilities include Medicare, Social Security, federal and unemployment taxes. If you do not pay taxes accordingly, you could be responsible for a trust find recovery penalty (TFRP).

Who could be accountable for unpaid employment taxes?

Since you hold an employee’s money in a trust until you pay federal taxes, your funds must be immediately available. If the IRS determines you willfully failed to either collect or pay your required taxes, they may assess a TFRP.

Anyone responsible for handing tax accounting, collecting and payment could receive a letter about a pending TFRP. This could include a:

  • Payroll Service Provider (PSP)
  • Third party payer
  • Board member
  • Shareholder
  • Officer

Depending on their role and assigned duties, an employee may also be assessed a TFRP. For example, a willful decision to pay creditors with available tax funds may hold you liable. However, paying a creditor under your supervisor’s direction absolves you of your responsibility.

The best way to avoid a TFRP assessment is to pay your taxes on time. However, if you receive a notice about a potential assessment, you would be wise to explore your options before the government takes action against your personal assets.

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