This article discusses what you must know to best prepare your defense against an IRS TRUST FUND RECOVERY PENALTY.  It is best to be lawyer represented in payroll tax matters, so I encourage you to call me toll free at (877) 895-2950 for a free telephone consultation. Federal law (26 U.S.C. § 6672) allows IRS to assess individuals personally for business entity unpaid federal payroll trust fund taxes not paid to the United States Treasury.   Payroll trust fund taxes are income tax, social security, and medicare amounts withheld from employee wage checks but not paid to IRS.  Any individual whom was responsible to so pay IRS, but willfully failed to pay, is personally liable.   The willful element is satisfied if the business entity paid other creditors for quarters where payroll trust fund taxes are not paid.   Any individual whom was responsible and willful may be personally assessed a trust fund recovery penalty, but typical individuals include business owners, corporate officers, business bank account signers, partners, and limited liability company members.

TRUST FUND RECOVERY PENALTY PROCEDURE.  An IRS collector, called a revenue officer, typically begins trust fund recovery penalty investigation by serving the business entity banks with an administrative summons demanding bank account signature card copies, and a selection of canceled check copies to see who signed checks.   Revenue officers also search public records to find out who owns the business, and who the business entity owners, partners, members are.  Thereafter, most revenue officers make their determination of which individuals are trust fund recovery penalty liable, usually the business entity owners and bank account signers. From here the revenue officer continues to gather and add to IRS’ case file, additional evidence of trust fund recovery penalty liability, including a revenue officer demand to submit to an in-person interview to answer live questions, while the revenue officer fills out a trust fund recovery penalty liable biased interview document called an IRS form 4180, “Report of Interview with Individual Relative To Trust Fund Recovery Penalty”, followed by the revenue officer’s request/demand the interviewee sign the form 4180 as factually accurate.  My clients do not appear before any IRS employee to provide live answers to questions, period.  Rather, my clients wisely exercise their constitutional right to be lawyer represented, to never appear before any IRS employee, and to have their lawyer do all of their talking for them.   If you would like to see what an IRS form 4180 Report of Interview with Individual Relative To Trust Fund Recovery Penalty looks, like, click here (after viewing, click upper left arrow to return to this article):  IRS Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty.

Once the IRS revenue officer opines which individuals are personally liable for a trust fund recovery penalty, he/she will prepare internally used IRS form 4183, “Recommendation re:  Trust Fund Recovery Penalty Assessment”, followed by the revenue officer’s boss Group Manager’s rubber stamp approval.

After the IRS Collection Division group manager rubber stamp approves IRS form 4183, IRS’ revenue officer will certified mail {or serve in-person but rare} to each trust fund recovery penalty target, an IRS statutory notice of deficiency letter 1153, formally alleging personal trust fund recovery penalty liability, beginning the legal procedure to assess against individuals.    If you would like to see what an actual letter 1153 looks like, click here (after viewing, click upper left arrow to return to this article): Letter 1153 Trust Fund Recovery Penalty  ALWAYS accept or U.S. Post Office retrieve all IRS certified mail.   It doesn’t matter whether or not you accept or retrieve an IRS Letter 1153 alleging trust fund recovery penalty, rather, all IRS need do is to certified mail it to your last known to IRS address.

HOW TO STOP IRS FROM ASSESSING A TRUST FUND RECOVERY PENALTY.    In order to stop IRS from assessing, the IRS letter 1153 target must file a written appeal within 60 days from the letter 1153 date.  Always file by certified mail, return receipt requested, and retain all certified mail timely filing evidence.  Failure to certified mail file for an appeal within 60 days from the letter 1153 date results in IRS assessing against the individual personally, a trust fund recovery penalty liability, and removes the future opportunity to challenge trust fund recovery penalty liability administratively before IRS. Based on current trends, it usually takes IRS Appeals six to twelve months to schedule and conduct an appeal conference, followed quickly by an IRS Appeals’ Decision Letter determining the target to be liable or not, and for how much.   The hard reality is that IRS will assess a trust fund recovery penalty against one or more individuals, but often there is advantage in proceeding to an IRS administrative appeal.  If evidence exist that a letter 1153 target was not responsible to pay the business entity payroll trust fund taxes, or the target did not willfully fail to pay, trust fund recovery penalty liability should be challenged.  Sometimes a letter 1153 target is trust fund recovery penalty liable, but IRS incorrectly computed the liability amount, so the amount should be challenged.  Whatever the defense arguments, adequate evidence must be presented to IRS Appeals, and I advise conducting a trust fund recovery penalty appeal conference by audio recording it so there is a truthful administrative case record if later needed.

IRS HAS THREE YEARS TO LETTER 1153 ALLEGE TRUST FUND RECOVERY PENALTY LIABILITY.    Assuming all quarterly form 941 payroll tax returns were filed within one month from the quarter end, IRS has three years to certified mail or serve in-person a letter 1153 alleging trust fund recovery penalty liability.   For all four quarters, the three year “Assessment Statute Expiration Date” begins to count on Apr. 15 of the following year.  For example, if a business entity fails to pay payroll trust fund taxes for the 2014 1st quarter, IRS has until Apr. 15, 2018, to letter 1153 allege trust fund recovery penalty liability.