Payroll Tax Problems: 100% Penalty / Trust Fund Recovery Penalty

If you are involved in a business (as an owner or as a “responsible party”) and have one or more workers, payroll tax obligations could expose you to personal liability for unpaid trust fund payroll taxes. The business (i.e., that usually means you) must withhold an appropriate amount of payroll taxes from each employee’s paycheck, send the employer share of the payroll taxes to the government, and remit the withheld employee “matching” tax amount, to the government, and file a Form 941 and the applicable state forms.

Example: X Corporation’s business grew exponentially. X’s employees could not handle the rapidly expanded business. To keep up with X’s customer orders, X contracted with third parties to meet the customer demands. The IRS audited X, and claimed X owed $100,000 of payroll taxes, arguing, the contracted-third-parties were X’s employees and not independent third party workers. The IRS independent contractor vs. employee disputes are legion. Facts-and-circumstances determine whether the third parties are “employees”, that trigger payroll taxes. With experienced tax counsel, like Palm Desert trust fund and payroll tax lawyers Sanger & Molever, good planning ---“planning mode” — possibly could have avoided the IRS’s asserted $100,000 payroll tax deficiency.

Example: Y Corporation failed to pay payroll taxes. Of the unpaid payroll taxes, the “trust fund” portion totaled $80,000. The IRS imposed the Trust Fund Recovery/100% Penalty against several Y Corporation staff, one of which (“Z”) hired the experienced tax lawyers at Sanger & Molever.

The Sanger & Molever tax lawyers successfully convinced the IRS to drop its $80,000 claim against Z. The IRS dropped its $80,000 claim against Z, after Sanger & Molever reviewed the minutes of Y Corporation, and all the signature cards for Y Corporation bank accounts, and factually established Z was not a “responsible person”.

Should the IRS seek to assess the Trust Fund Recovery Penalty (i.e. the “100% Penalty”) against you personally, the Palm Desert trust fund and payroll tax lawyers at the Sanger & Molever law firm can help you analyze whether the government’s assessment of the Trust Fund Recovery Penalty (i.e. the “100% Penalty”) is appropriate, and even if appropriate, whether the assessed amount is correct.

Often the government will treat payroll tax issues, especially cases that involve trust fund amounts, even more stringently than income tax issues. The government’s aggressive actions to collect trust funds not remitted to the IRS, make sense, since the trust funds never really belonged to the business owner; those trust funds belonged to the employees. As tax attorneys and as business owners themselves, Howard Sanger and Jeff Molever can assist you with payroll tax and trust fund collection issues. If you’re faced with payroll tax problems, call the Sanger & Molever tax law firm.