Law Offices of Robert T. Leonard, APC Tax Attorney Serving Los Angeles & Westlake Village, CA 2026-07-09T18:17:46Z https://www.leonardtaxlaw.com/feed/atom/ WordPress /wp-content/uploads/sites/1605042/2022/03/cropped-RobertLeonard-site-icon-32x32.png On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[IRS 100% penalty tax penalties: Why business owners and officers face personal liability]]> https://www.leonardtaxlaw.com/?p=254973 2026-01-07T18:11:54Z 2025-11-17T07:08:31Z payroll taxes are not something the IRS allows any flexibility with. In fact, the IRS takes the nonpayment of employment taxes so seriously that it imposes one of the harshest penalties in the entire Internal Revenue Code: the Trust Fund Recovery Penalty, often referred to as the “100% penalty.” This penalty can create personal liability for owners, officers, managers, bookkeepers, and anyone else the IRS determines was responsible for collecting and paying over payroll taxes. As tax attorney Robert Wood recently noted in a Daily Journal article, the IRS aggressively pursues individuals—not just the business entity—because payroll taxes are considered a “trust fund”: money withheld from employees and held in trust for the federal government. When businesses do not pay these taxes, the IRS views it as the misuse or diversion of someone else’s money. Here’s what every business owner, CFO, controller, or decision-maker needs to know.

What Is the 100% Payroll Tax Penalty?

Payroll taxes include federal income tax withheld from employees’ paychecks, as well as the employee share of Social Security and Medicare. Employers must deposit these funds regularly. If the deposits are not made, the IRS can assess the Trust Fund Recovery Penalty (TFRP) under IRC §6672. The penalty equals 100% of the unpaid trust fund taxes—hence the name. If the business owes $200,000 in trust fund taxes, the IRS can assess a $200,000 penalty personally against each individual it considers “responsible.” This is not a corporate penalty. It attaches to personal assets: bank accounts, wages, real estate, vehicles, etc.

Who Can Be Held Personally Liable?

A common misconception is that only the business owner or president can be held liable. In reality, the IRS casts a wide net. The IRS looks at two key factors: 1. Responsibility A “responsible person” is anyone with authority over financial decisions, such as:
  • Business owners
  • Corporate officers
  • LLC managing members
  • Controllers and CFOs
  • Bookkeepers or accountants
  • Anyone with check-signing authority
  • Anyone who directs payroll or tax payments
You don’t need formal corporate title. What matters is control over the company’s finances. 2. Willfulness Willfulness does not require evil intent. The IRS only needs to prove that:
  • The person knew or should have known the payroll taxes were not being paid, and
  • The person paid other creditors instead (rent, vendors, loans, utilities, etc.) Once the IRS finds both responsibility and willfulness, personal liability attaches.

How the IRS Investigates: The Form 4180 Interview

The IRS conducts in-person interviews using Form 4180 to determine responsibility and willfulness. These interviews are often the deciding factor in whether the IRS assesses the penalty. Many individuals make damaging admissions during a 4180 interview by:
  • Minimizing involvement (which can backfire)
  • Admitting they knew taxes weren’t paid
  • Saying they approved paying other creditors
  • Saying they “trusted the bookkeeper”
Proper representation during these interviews is essential.

Why the IRS Is So Aggressive

Unpaid payroll taxes are a major revenue drain. The IRS views trust fund taxes as government funds that were already withheld from employees’ wages. When businesses fail to turn them over, the IRS sees it as a serious breach of duty. Additionally:
  • The liability does not go away in bankruptcy.
  • The IRS can levy wages and bank accounts.
  • The IRS can file tax liens against personal assets.
  • Multiple individuals can be assessed the full amount, and the IRS can collect from any of them.

How to Avoid or Mitigate Personal Liability

If your business is struggling, it is critical to seek guidance early. Potential strategies include:
  • Negotiating installment agreements
  • Submitting an offer in compromise
  • Defending against the TFRP assessment
  • Challenging responsibility or willfulness
  • Ensuring proper handling of future payroll deposits
Once the 100% penalty is assessed, options are limited and consequences are substantial.

Conclusion

The Trust Fund Recovery Penalty is one of the most powerful tools the IRS has, and the consequences are personal and severe. Anyone involved in payroll or financial decisions must understand that the IRS can—and does—pursue individuals for these taxes. Early intervention and experienced representation can make a tremendous difference in the outcome. If you or your business is facing payroll tax issues or a potential trust fund investigation, you should consult a qualified tax controversy attorney immediately.]]> On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[5 costly mistakes to avoid during a tax audit]]> https://www.leonardtaxlaw.com/?p=254965 2025-09-29T16:26:50Z 2025-09-29T16:26:50Z Failing to keep organized records The biggest mistake during a tax audit happens when you cannot present accurate, organized records to support your filings. If your receipts, invoices or bank statements are incomplete or scattered, you create suspicion and invite deeper questioning. You save yourself from this outcome by maintaining clear documentation year-round. That way, you have everything ready when the IRS asks for it, which shortens the process and limits the scope of the audit.

Ignoring deadlines and notices

You make things worse the moment you miss a deadline or fail to answer an audit notice on time. The IRS expects you to respond promptly. When you don’t, penalties and added scrutiny follow. By staying alert to dates and acting quickly whenever a letter arrives, you protect your credibility and reduce the risk of additional fines or extended reviews.

Giving too much or irrelevant information

Oversharing during an audit causes more harm than good. Offering documents or explanations that were never requested opens new lines of inquiry. Auditors may begin looking at issues beyond the original scope once you hand them unrelated material. You keep control of the process by responding precisely to what is asked for, no more and no less. This avoids expanding the audit unnecessarily.

Misrepresenting income or deductions

Errors in reported income or deductions, even small ones, can look intentional in the eyes of an auditor. When the numbers don’t line up, you risk penalties or worse if they believe you tried to hide income or exaggerate expenses. You protect yourself by making sure every figure you provide is accurate and supported by receipts or statements. Keep your numbers consistent across all documents so there are no gaps that raise suspicion.

Handling the audit without professional guidance

Going through a tax audit without professional support is one of the costliest mistakes you can make. A tax professional understands the process and knows how to respond to requests. They also make sure your rights stay protected while the audit unfolds. With that kind of guidance, you approach the audit with confidence instead of guesswork. You also reduce the chance of making avoidable missteps.

Taking the right approach from the start

An audit can feel like the end of the line, but in reality, it’s an opportunity to prove that your filings hold up and that you take compliance seriously. If you approach it with preparation and the right mindset, you not only reduce immediate risks but also set yourself up to handle future tax years with greater confidence and control.]]> On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[Should you file an offer in compromise or bankruptcy? A detailed comparison]]> https://www.leonardtaxlaw.com/?p=254956 2026-01-07T18:12:39Z 2025-09-24T11:31:00Z Dealing with overwhelming tax debt is stressful. Two potential solutions—Offer in Compromise (OIC) and bankruptcy—can provide meaningful relief, but they work in very different ways. Understanding the pros and cons of each option will help you make an informed decision.

What Is an Offer in Compromise?

An OIC is a settlement agreement with the IRS that allows you to pay less than the full amount of your tax debt if you can demonstrate that paying in full would create financial hardship. The IRS uses a strict formula based on your income, expenses, assets, and future earning potential to determine eligibility.

Advantages of an OIC:

  1. Targeted to taxes: Ideal if your only or main problem is IRS debt. For more details on how this process works, visit our page on settling tax debt with the IRS.
  2. Debt reduced: You may resolve significant liabilities for a fraction of the balance.
  3. No bankruptcy stigma: Unlike bankruptcy, there is no long-term credit impact or public filing.
  4. Flexible payment terms: Options include a lump sum settlement or periodic payments.

Disadvantages of an OIC:

  1. Hard to qualify: The IRS accepts only a portion of applications.
  2. Time-consuming: Reviews often take a year or longer, during which penalties and interest continue.
  3. Compliance required: You must stay current with all filings and payments for at least five years, or the IRS can reinstate your full debt.
  4. Tax-only solution: It won’t help with credit cards, medical bills, or other obligations.

What About Bankruptcy?

Bankruptcy is a broader legal process that can eliminate or restructure many kinds of debt. For individuals, Chapter 7 or Chapter 13 are the most common. Some tax debts—typically older income tax liabilities meeting specific conditions—can be discharged.

Advantages of Bankruptcy:

  1. Comprehensive relief: It addresses tax debt along with credit cards, medical bills, and more.
  2. Immediate protection: Filing triggers an automatic stay that halts IRS collection, lawsuits, and garnishments. Learn more about your options with a California tax controversy lawyer.
  3. Structured repayment (Chapter 13): Provides a manageable payment plan supervised by the court.
  4. Potential tax discharge: Older, properly filed income taxes may be eliminated.

Disadvantages of Bankruptcy:

  1. Credit impact: A bankruptcy can stay on your record for up to 10 years.
  2. Public disclosure: Bankruptcy filings are accessible to the public.
  3. Tax limits: Not all taxes can be discharged—recent liabilities, payroll taxes, and fraud-related debts typically survive. For alternatives, explore our guide to IRS tax relief strategies.
  4. Complex process: Requires court oversight, attorney involvement, and detailed financial disclosure.

Which Option Is Right for You?

  • Choose an Offer in Compromise if your financial hardship is primarily IRS-related, you meet eligibility criteria, and you want to avoid bankruptcy’s long-term effects.
  • Consider bankruptcy if you face broader debt problems beyond taxes, need immediate relief from creditors, or have tax debts that qualify for discharge.
Keep in mind that tax problems often overlap with other financial issues, such as payroll tax liability or EDD audits. If you’re facing both IRS and state issues, see how we handle EDD audits and payroll tax liability.

Final Thoughts

There’s no one-size-fits-all answer. An OIC can provide a clean break with the IRS, while bankruptcy may deliver a more comprehensive financial reset. Because both options have lasting consequences, seeking advice from a seasoned professional is essential. For trusted guidance, contact Robert Leonard for a consultation.]]> On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[Facing your ex’s IRS debt? Innocent spouse relief may protect you]]> https://www.leonardtaxlaw.com/?p=254953 2025-09-17T11:35:21Z 2025-09-17T11:35:21Z What is innocent spouse relief? Innocent spouse relief protects you from responsibility for your ex’s tax debt. You apply by showing that you did not know, and had no reason to know, about the problem when you signed the joint return. This rule exists because the IRS recognizes that one spouse should not always suffer the consequences of another’s financial misconduct. It applies when you signed the return in good faith and believed the information was accurate.

Who qualifies for innocent spouse relief?

You qualify for innocent spouse relief when the IRS determines that it would be unfair to hold you accountable for the debt. The decision hinges on what you knew or reasonably should have known at the time. If your ex concealed income, misreported deductions or otherwise manipulated the return without your knowledge, the IRS may grant relief. It also weighs your current financial situation and whether forcing you to pay would create undue hardship.

How do you request innocent spouse relief?

You request innocent spouse relief by filing IRS Form 8857. It will ask you to provide detailed information about your taxes, your relationship history and the circumstances that led to the debt. Timing is critical because the IRS generally requires that you file within two years of its first attempt to collect from you. Waiting too long could close the door on an opportunity to free yourself from responsibility for a debt that never should have been yours in the first place.

Taking steps to protect yourself now

You cannot undo the mistakes your ex made on a joint tax return. However, you can take deliberate steps to avoid being trapped by them today. By learning how innocent spouse relief works and moving forward with a request if you qualify, you create a way to regain control of your finances, reduce stress about unexpected IRS letters and protect yourself from carrying the weight of someone else’s tax errors into your future.]]> On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[Anatomy of a successful offer in compromise]]> https://www.leonardtaxlaw.com/?p=254178 2023-03-13T17:00:32Z 2023-03-13T13:15:22Z Who can use an OIC? Taxpayers who are not going through bankruptcy, have filed all returns, and made previous estimated payments are generally eligible for an OIC.

Does this really work?

Sometimes. It is important to note that the IRS is very particular when it reviews an OIC application. The agency will review all eligibility requirements. A failure to meet these requirements will mean you are not eligible to move forward with an OIC. Tips that can help to better ensure approval include:
  • Check eligibility requirements. As noted above it is important to review the IRS’ requirements for this option before moving forward. If, for example, you have not filed returns for previous tax years, you are not likely eligible for this option.
  • Review asset information. One of the key reasons the IRS will accept less than owed is if there is doubt they could collect any more than offered. Providing clear information that supports the proposed offer is all that you can afford can help the IRS to agree with your proposal. The IRS will check the information you provide, so make sure it is accurate.
  • Fill out the forms. It is important work with an experienced attorney to ensure the forms are filled out properly. Errors can result in delays or a denial.
Another tip that can increase the likelihood of success is the use of legal counsel. An attorney experienced in this niche area of tax law can review your situation and provide guidance on how to calculate a reasonable offer and discuss this, as well as other, options for tax relief.]]> On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[What is the difference between a tax attorney and a CPA (inactive)?]]> https://www.leonardtaxlaw.com/?p=254177 2023-03-02T18:04:36Z 2023-03-10T14:04:13Z Whether you have multiple business interests, pieces of property, trusts, or other complicated financial questions, there are situations when dealing with finances requires a team of professionals. Those who find themselves looking for professional help have a number of questions. One of the first is what type of professional will meet their needs. Whenever looking to put together a team, it is best to get the right individuals for the job. Knowing the benefits of each profession can help you to determine which is best suited to handle your financial issues. For complicated financial affairs, two of the most common options are CPAs (inactive) and tax attorneys.

What is the difference? A look at the definitions.

Certified Public Accountants (CPAs (inactive)) are highly trained licensed accounting professionals. They specialize in accounting needs like bookkeeping, auditing, and tax issues. They are professionals who are good with the numbers. A tax attorney focuses on legal matters. Tax attorneys can also aid in tax preparation, tax planning strategies, and the tax impact of various business structures. Their main benefit is expertise in complex tax laws.

What about the details? Differentiating the particulars.

Those with complex financial questions may be concerned about involvement of the Internal Revenue Service (IRS). Although both professionals could provide representation during a tax dispute with the IRS, only one is an expert in legal proceedings and can offer the benefit of attorney/client privilege. Although there are some situations when information shared between an accountant and client are privileged, this privilege does not share the same level of confidence as that between a lawyer and client. When attorney-client privilege is present the information remains private and confidential. A tax lawyer can also provide further representation if the matter escalates and needs to move forward in court. A CPA (inactive) cannot.

Is there a way to get the best of both worlds? Some professionals do both.

In some cases, it is possible to find a professional who is trained as both a tax attorney and CPA (inactive). This is not common, so it is important to look carefully at a professional’s qualifications. Just because someone says they are experienced in both; does not mean they are licensed to practice in both vocations.]]> On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[What do I need to know about an audit by the EDD?]]> https://www.leonardtaxlaw.com/?p=254176 2023-03-02T18:03:48Z 2023-03-08T14:03:18Z
  • Compliance with the CUIC. The auditor will review the business to see if its operations are in line with the California Unemployment Insurance Code (CUIC).
  • Worker classification. The auditor will check to see that the business does not wrongly classifying employees as independent contractors.
  • Proper reporting of payment to employees. The CUIC requires employers keep payroll records. Manual or computerized systems are allowed, depending on the needs of the business. The audit will dig into reporting to make sure it meets the state’s requirements.
    • The auditor will also likely look into whether the business provides workers with benefits as required by law.

    What is the process?

    The process generally begins with an entrance interview. During this time, an auditor will explain the purpose of the audit and gather some basic information about the business. The auditor should also provide an opportunity to ask questions. The auditor will then begin an audit, generally examining a test year. The test year is often the most recent calendar year. Depending on the results, the auditor may expand or conclude the audit. Upon conclusion of the audit, the EDD auditor will discuss their findings. This can happen in person or over the phone. You do not have to accept the findings of the auditor. You can push back. The first option is generally to request a pre-assessment conference with a supervisor. The second is to request a formal appeal. You do not need to go through this process on your own. You have the right to legal representation during the audit and, if needed, during an appeal.

    Is there anything else I should know?

    An audit by the EDD is often just the beginning. This state organization has an agreement to share findings with the Internal Revenue Service (IRS). As such, this state audit could also trigger a federal tax audit.]]>         On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[4 red flags that increase the risk of a tax audit]]> https://www.leonardtaxlaw.com/?p=254169 2023-01-13T17:02:20Z 2023-01-13T17:02:20Z analysts and tax groups state the funds will likely focus, at least initially, on hiring staff to help address the millions of backlogged tax returns, skeptics continue to voice concern that the IRS will use the funds to come after taxpayers with an increase in tax audits. Statistically, the risk of an audit remains low. A recent analysis by Kiplinger points out that the IRS audits less than 1% of individual tax returns every year. But how do the feds choose their targets? Although we do not know exactly how the feds choose who to and who not to audit, we know that there are some red flags that can increase your risk. These triggers break down into four main categories.

    #1: High earnings

    The more you make, the more likely you are a target of an audit. The treasure department supported this when they announced those who earn less than $400,000 will not experience an increase in audit rates. The IRS is clear in its focus on high earners and even has a dedicated group, the high-wealth exam squad, that specializes in the tactics high earners commonly use to reduce their tax obligations. That does not mean these tax saving actions are illegal, just that they may come under increased scrutiny. It is a good idea for those who use these practices to review their strategy and make sure the tactics in use comply with applicable tax law.

    #2: Unreported income

    It may be tempting to avoid falling into the category of a high earner by not reporting income, but it is important to know that if you make money, the IRS likely knows about it. Lottery winnings, side-gigs, and other ways we may experience an increase in funds do not go unnoticed. These earnings are often reported by the source directly to the IRS. If you get a 1099 or a W-2, so does Uncle Sam. As a result, any discrepancies in what you report as income and what the IRS has on file is likely to increase the risk of an audit. As a related sidenote, the IRS will also notice if you choose not to file tax returns. A failure to file will trigger scrutiny.

    #3: Business ownership

    Entrepreneurship comes with many benefits, including tax savings. The rules are complex, and it is easy to make a mistake. As such, the IRS is more likely to closely review those who own their own businesses to make sure they do not run afoul of tax laws.

    #4: Tax deductions and credits

    The IRS will notice if your tax deductions and credits are not in line with your income. Credits and deductions that will often warrant a closer look include losses due to rental and hobbies. The IRS may also review filings more closely if you claim the American Opportunity Tax Credit, health premium tax credit, or research and development credit.

    Important takeaway: Keep records

    These red flags do not mean that you should avoid making use of these credits, deductions, and tax planning strategies. They just serve as a warning to do so wisely. Have paperwork to back up your actions and be prepared to fight back in the event of a tax audit.]]>         On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[Watch out for these warning signs when using a tax payroll service provider]]> https://www.leonardtaxlaw.com/?p=254148 2022-12-28T18:28:18Z 2022-12-28T14:53:10Z What services does a third-party payroll tax service provide? Business owners may use a third party payroll services provider (PSP) to help administer payroll services and pay employment tax obligations. This can include the preparation of paychecks, tax forms, and payment of federal and state tax deposits.

    What are warning signs that a PSP is not acting in my business’ interests?

    It is generally best to avoid a PSP with a bad reputation. Ideally, check with references provided by the PSP before moving forward with their services but also take note if you hear complaints from fellow owners about a PSP that your business is currently using. It is also important to carefully review the PSP’s contract. Check to see if it allows you to hold the provider responsible for any error or misconduct. It is a red flag if the contract absolves the provider from all liability.

    How can I protect my business?

    The Internal Revenue Service (IRS) explains that although these services are beneficial and widely used by business owners throughout the country, the agency will hold the business owner responsible for meeting their tax obligations. In addition to watching out for the warning signs noted above, business owners can take steps to better ensure their business interests are protected including:
    • Check that the PSP has an official address. Business owners can verify this information with the IRS.
    • Enroll in the Electronic Federal Tax Payment System (EFTPS). This system allows the employer to verify the PSP made deposits and payments on behalf of the business.
    Those who are concerned that a PSP is not acting in their best interests have options. An attorney experienced with these matters can review the situation and provide guidance on how to move forward while also protecting your business’ interests. ]]>         On Behalf of Law Offices of Robert T. Leonard, APC <![CDATA[Can I challenge the results of a California FTB audit?]]> https://www.leonardtaxlaw.com/?p=254147 2022-12-27T15:46:20Z 2022-12-20T18:40:56Z hurdles put up by the FTB that are particularly difficult for taxpayers to navigate include:
    • Statute of limitations. California officials generally have four years to conduct an audit after the taxpayer files their returns. This is a full year longer than the IRS’ three-year limitation.
    • Extension to the statute. There are various events that can trigger an extension to the four year deadline noted above. Two examples that lead to an unlimited extension include allegations the taxpayer filed false or fraudulent returns or a failure to notify the FTB if there is a change to in a tax bill with the IRS.
    • Notification after a change to federal taxes. California law also requires the taxpayer provide the state with notification within six months of a change to federal tax filings that results in an increase in the taxpayer’s bill. Without this notice, the state’s statute of limitation does not expire.
    These rules can allow the FTB to extend its ability to conduct an audit indefinitely.

    What happens after the FTB conducts an audit?

    If the FTB determines there is an issue, they will send the taxpayer a notice upon completion of the audit. This notice will include information about any additional tax owed as well as added on penalties and interest. The notice will include a protest date. Taxpayers who wish to dispute the FTB’s findings must act by that date. Without action, the FTB will expect payment by the listed date. A failure to do so can mean the taxpayer looses possible legal recourse and also faces even more penalties and fees. The FTB generally sets the protest date at 60 days.

    What if I disagree with the FTB’s findings?

    The process depends on whether the protest involves an individual’s tax filings or a the filings for a business. An individual can move forward with an in-person, online, or written protest. The in-person protest involves a hearing held at the Town Center in Valley Quail or Desert Tortoise. A taxpayer completes an online protest through the FTB’s website. The taxpayer must mail a written protest by the protest date and include their contact information, amount and tax years in question, statement of facts and arguments. The taxpayer can also provide additional documentation to support their claims. The FTB requires a representative of the business provide an email address. At that time, they will send the forms to guide a protest attempt. It is important to note that interest accrues during the protest period.

    Is there anything else I should know before protesting the results of an FTB audit?

    The FTB allows for those going through this process to bring in legal counsel to help advocate for their interests. You do not have to go through this process alone.]]>