Employment & Payroll Tax Liability and the Trust Fund Recovery Penalty – not an easy workout!

Sometimes small-business owners face a difficult choice: pay employment taxes or use the money to keep the doors open. Unfortunately, despite your best intentions to get caught up on payroll taxes, a difficult economy may make that impossible. This can lead to significant tax debt that threatens your business and can even turn into a personal liability against you and your spouse.

As a business owner with W-2 employees, you are required to withhold employment taxes from your employees’ wages. S whether you use a payroll processing company or do payroll reporting yourself, if you fail to pay the employment taxes you have withheld from your employees’ wages to the government, and the taxes are left unpaid after notice and demand, the IRS can assess you personally for the taxes due from the business. This is called the Trust Fund Recovery Penalty (TFRP), or the “100 Percent Penalty.” It effectively allows the IRS to take tax collection action against your personal assets (including liens, levies, garnishment of spouse’s wages, seizure of assets, etc. from you personally, even though the business owes the debt and it is a separate entity). The ADOR can also assert personal liability for a business payroll tax liability, but they need to institute a court proceeding and obtain a judgment prior to collecting against the owners, officers, or other such “responsible persons.”

Comfort Level Tip: If you receive a notice or letter or business card on your door, DO NOT IGNORE the communication! Contact Stephen McFarlane for a free consultation and analysis of that communication as there are time limits and procedures to meet or you lose objectio9n or appeal rights. See our blog, “I received a Notice from the IRS!! What do I do now?!?” [LINK] And remember, once your business tax issues are hung as laundry on the neighborhood line, you will receive phone calls from the unscrupulous marketing outfits claiming to “resolve your tax issues.” Often they pretend to be the IRS! The IRS does not contact you by phone or email. If you receive harassing calls or emails, hand up and call McFarlane at 480.991.0032 or toll free @ 800.836.4134.

More … Any owner, officer, or anyone with signature authority on checks will become personally liable as a “responsible person.” I have had to defend office managers who might have signed a payroll check in the owner’s absence; or a quiet investor/owner who has had no interaction with the business at all. If a “responsible person” is found to have “willfully failed to turn over the taxes,” (and these are all legal terms with their own strange definitions and interpretations), that person will be assessed the TFRP. If assessed the TFRP, the taxpayer will be held “jointly and severally” liable for the total amount of taxes due — meaning that the IRS can collect 100 percent of the tax liability from any responsible person who has been assessed the TFRP. The IRS will collect their taxes and let the parties fight out whom will be liable to whom.

If a Revenue Officer is proposing to assess the TFRP against you, it is important to immediately contact our employment tax lawyers to assess your case as time is of the essence. If you miss your appeal deadline, you forego your ability to argue your case administratively with the Office of Appeals.

At McFarlane Law, PLC, in Scottsdale, Arizona, our employment and payroll tax attorneys have extensive experience analyzing your facts to provide a clear level of liability, and then provide options to resolve the matter once and for-all time. For over 25 years, Stephen McFarlane has helped owners and officers of small and medium-sized businesses deal with employment & payroll tax issues, and has successfully

obtained relief for business owners, officers, and other “responsible persons” who have potential trust fund recovery penalty problems. If tax authorities have begun collection actions against your business (or you personally), our employment and payroll tax attorneys can help you seek relief while negotiating a payment plan with the tax authorities.

We offer a free initial consultation to discuss your case and map out a strategic workout for your case.

Please call Arizona and Washington Licensed Attorney, Stephen McFarlane, MBA, JD, LLM (Tax) at 480.991.0032. He knows tax law!