There are many reasons businesses may fail to pay payroll taxes and end up facing the Trust Fund Recovery Penalty. For many businesses, when going through rough financial times, the IRS, Franchise Tax Board and Employment Development Department are the last people to get a call or get paid. Generally, most businesses will opt to pay other creditors first, such as their suppliers, lenders and overhead. So, the amount of money that was withheld from their employees paycheck for payroll taxes may have gone toward paying their general business expenses.

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Businesses that run into cashflow problems will generally pay it's employment taxes last, as the IRS is the last creditor knocking at the door. If a business fails to pay it's employment taxes to the IRS, the IRS will assess the trust fund recovery penalty, which imposes personal liability on owners, offices, directors, and employees. Any person who is a responsible party and who willfully failed to collect, account for, and pay over the employment taxes, may be personally liable for those taxes regardless of the corporate shell.

To determine whether an employee is a responsible person, is a matter of status, duty, and authority. This tax law firm will show that workers performing ministerial acts without exercising independent judgment, will not be deemed a responsible party. A corporate title without the authority to act does not make a person responsible. The IRS claims that shareholders, officers, directors, employees of a corporation, partners in a partnership, members of an LLC, and employees can be a responsible party. However, responsibility depends on the facts of circumstances.

We will investigate the duties set forth in your employment agreement in the bylaws, determine who has authority to sign checks, determine who is in control of the financial affairs, who has authority to determine which creditors will be paid, who controls the payroll disbursements, who had control of the voting stock, and who signs the employment tax returns to show you are not a responsible party and you did not willfully fail to pay the payroll taxes.

The critical test is whether the person has the affective power to pay the payroll taxes oath. Willfulness indicates intentional, voluntary, or knowing conduct that is not accidental. Even though no evil intent or bad motive is required, willfulness is the attitude of a responsible party not to pay the payroll taxes. Willfulness exists when the person was aware of the outstanding taxes, and either deliberately chose not to pay, or recklessly disregarded a risk that the taxes would not be paid. This tax law firm will martial all the facts and evidence to show a lack of willfulness, and avoid assessment of the trust fund recovery penalty.

The trust fund portion is the federal withholding in employees share of social security, medicare, and unemployment taxes. The trust fund portion does not include the employers matching portion, or the penalties or interest. The trust fund recovery program can only be collected once. However, the IRS will try to allocate all payments to the non trust fund portion. This tax law firm will show you how to designate any payments to the trust fund portion only.

Our defenses to the trust fund recovery penalty generally include showing that the person is not responsible, did not act willfully, acted with reasonable cause, the IRS misapplied the designated payments, or that the statute of limitations on either assessment or collection has expired. This tax law firm has been extremely successful in eliminating the trust fund recovery penalty in it's entirety, or reducing the trust fund recovery penalty based on the facts and circumstances. Please call me at 858-481-4844 for a confidential call that's protected by the Attorney Client Privilege.

Failure To Pay Payroll Taxes?

The problem with failing to pay payroll taxes is that some of the steepest penalties and interest in the internal revenue code come from failure to file or failure to pay payroll taxes. So, if you are not timely with filing and paying your payroll taxes the penalties are very steep. For instance, a business owner may feel that a $50,000 liability is something that they can handle in another 30 days, that is going to turn into $60,000-$70,000 in a matter of days. And, with that type of compounding from penalties and interest for failure to pay payroll taxes it can become insurmountable in no time.

So, where an employer may think that it will be OK if they just don't pay for a little while, but intend to make up for it as soon as they can, the penalties are severe. Payroll taxes carry some of the steepest penalties in the tax code. So if you have a business that is grossing $500,000 per year, they can quickly rack up penalties and interest of $200,000 and have absolutely no way to pay that off.

Fortunately, there are things that we can do to go in and take a look at the circumstances, build a case around lack of willful neglect and get some of the penalties and interest removed. There are things that can be done, however it is important to take action quickly.

Payroll Tax Attorney

The Trust Fund Recovery Penalty

In the event that a corporation fails to pay the IRS the money that was withheld from their employees paychecks, then the IRS can and will pursue a responsible person for that corporation for the "Trust Fund Recovery Penalty". A responsible person would be an officer, director or shareholder, someone that is a go-to person within the company. Each person within the company who qualifies as a responsible party, someone who had the ability to make a decision on making the payment for payroll taxes to the IRS, each responsible person can and will be held individually liable for the trust fund recovery penalty, regardless of the corporate shell.

What Is Trust Fund Recovery Penalty Abatement?

Trust fund recovery penalty abatement is showing either that the individual that is being assessed the trust fund recovery penalty is not a responsible party, or did not willfully fail to pay the payroll taxes. Then, they can get out of the trust fund recovery penalty and they won't be assessed that huge amount of money.

Penalties For Failure To Pay Federal Payroll Taxes

There are penalties for failure to pay, there are also penalties for failure to file your tax returns. Those are the two biggest ones and penalties apply at both the federal and state level. The equation for how the penalties and interest is very complex and applies on a case-by-case basis, however these can be incredibly huge sums.

Penalties For Failure To Pay California Payroll Taxes

The penalties and interest are virtually the same from the state employment development department and the IRS. The only difference is that the IRS bases the trust fund recovery penalty on the amount that was withheld from the employee, but the employment development department in California took that a step further and those penalties include not only the amounts that you withheld from your employees and didn't remit to the IRS, but also penalties and interest on top of that. So, it's virtually the entire amount. Therefore, it is worse at the EDD level than it is at the IRS.

How William D Hartsock May Save You From Payroll Tax Penalties

If you can show reasonable cause and lack of willful neglect, there are certain penalties that you can get out of. Typically you have to develop a tear jerking argument to show the reason that you didn't pay or didn't file on time had to do with reasons beyond your control. The reasons that tend to work best are those that are personal in nature, not business reasons. If you just chose to pay a different debt, that doesn't work. But, what does tend to work are things that are very personal in nature having to do with your family or your employees welfare, medical problems, that type of thing. However, with that said, this tax law firm has built many successful cases over the years to fight penalties and interest stemming from failure to pay payroll taxes and from the trust fund recovery penalty. The best place to start is with a free consultation with the full benefit of attorney-client privilege so that we can take a look at the facts of your case and weigh your options.