When a taxpayer fails to timely pay the owed tax, the Internal Revenue Service (IRS) may impose penalties. When the delinquent taxpayer is a business that does not pay its payroll taxes, in addition to pursuing the business entity to collect the unpaid taxes, the IRS could impose a specific penalty called the Trust Fund Recovery Penalty (TFRP) against the responsible individuals for 100% of the employment taxes.

If you own or manage a business that did not remit its payroll taxes when it was supposed to, you should discuss your situation with a seasoned tax attorney. If the taxes are not paid, the IRS could place a tax lien or a tax levy on the business.

A Bethesda trust fund recovery penalty lawyer could minimize your liability or assess your business to determine which IRS collection alternative will allow you to satisfy the tax debt.

Situations That Could Lead to Trust Fund Recovery Penalties

Businesses withhold money from their employees’ (and employers’) paychecks to pay Social Security, Medicare, unemployment, and income taxes. These are called “trust fund” taxes. The business holds the funds it withholds from employees in trust until it makes its payroll tax payments to the government, which include the trust fund taxes.

If, for whatever reason, a business does not remit these taxes at the time they are due, the IRS can impose a failure to deposit (FTD) penalty of 2% of the underlying tax as a penalty for each late day. After 15 days, the daily penalty rises to 10% of the underlying tax.

A business that cannot timely deposit its employees’ trust fund taxes should contact a Bethesda TFRP attorney. The IRS has the power to file a lien or a levy on the business’ assets. A tax lawyer may be able to contact the IRS to suggest alternatives before it gets to that point. In rare situations with egregious actions, the business might end up closing and having to liquidate its assets.

Trust Fund Recovery Penalty Explained

According to 26 United States Code § 6672, a person responsible for diverting employment taxes is liable for the total amount of the unpaid trust fund taxes. Certain people involved in financial decisions and payroll matters may have potential liability, such as:

  • Owners
  • CEOs or general managers
  • Comptrollers
  • Other corporate officers
  • Shareholders
  • Partners
  • Payroll managers
  • Bookkeepers

Anyone who willfully participated in the decision not to pay trust fund taxes on time, or to divert the funds to the business’ operating expenses or other creditors, could be liable for TFRP.

Contact from an IRS Revenue Officer typically means the IRS is considering applying TFRP. Anyone who receives a call or letter from an IRS Revenue Officer should retain a Bethesda trust fund recovery penalty attorney.

Preparing For a 4180 Interview

Through an information-gathering process called a 4180 interview, the Revenue Officer determines which people in a business have financial decision-making authority. Those individuals could face TFRP penalties and the IRS will pursue collection against them even if the business dissolves.

An attorney could help a company official prepare for the 4180 interview and go over the likely questions so they can accurately explain the situation as they understand it.

If the IRS finds the interviewee is a responsible party and is liable for TFRP, the individual has 60 days to protest the assessment. Grounds for protest include that the individual did not have the authority to divert tax payments, the non-payment was not willful, or the individual does not have enough money to pay the assessment, so it is uncollectable.

Seek Help From a Bethesda Trust Fund Recovery Penalty Attorney

By filing all your business’ employment and income tax returns, and making the proper payments for the quarter, you could secure an alternative collection method to the IRS. A Bethesda trust fund recovery penalty lawyer could help you avoid burdensome levies and liens. Do not risk TFRP liability – contact Pontius Tax Law to begin assessing your options.

Attorney John Pontius

Pontius Tax Law, PLLC is a tax law firm that strives to resolve sensitive tax problems through trust, dedication and value. The law firm was founded by John Pontius with offices in Washington, DC,  Rockville, MD, Bethesda, MD, Fairfax, VA, and Alexandria, VA. Mr. Pontius represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.

Over the course of his career, Mr. Pontius has represented businesses and individuals with complex tax issues in the following areas: FBAR examinations, offshore and domestic disclosures, FATCA, FIRPTA, tax planning, unfiled tax returns, release of tax liens and levies, trust fund recovery penalty, IRS and state audit examinations, as well as appeals, penalty abatement, U.S. Tax Court litigation, along with defense of tax fraud and evasion. If you require assistance from a tax lawyer, contact Mr. Pontius to discuss your situation.

Client Reviews
John helped us with a DC tax audit and succeeded in getting us a "no change" final decision. The issues were related to two flow-through entities and the use of carry-forward operating losses -- something that the DC auditors struggled to understand and with which they did not have any...
Paul A
Mr. Pontius is extremely professional and was able to take care of my tax returns which includes international bank accounts quickly and at a very reasonable price. Would definitely recommend.
I received a fee this past November from the IRS for over $800 because of an error I made on my 2016 taxes. I called my cousin, John Pontius, and he immediately knew what steps needed to be taken. Thanks to him, the fee was cleared. A 10 minute conversation...
As an American citizen living in the Middle East my local banker informed me that I needed to file FBARs and report my worldwide income to the IRS. Through the recommendation of another attorney at an international law firm, I was introduced to John Pontius. Mr. Pontius efficiently and effectively...
Kareem S
John handled a difficult IRS lien for my client. He was excellent in getting the lien released so we could close on the property. I would highly recommend John .
Bobbie M
We were seeking tax advice with managing two properties, LLC, as well as some future financial planning. John responded to my call in a timely manner and was happy to answer our questions while referring us to specialists who can manage our accounts on a more regular basis.
Janelle M
View All