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Trust Fund Recovery Assessments

Trust Fund Recovery Assessment Attorneys

Filing taxes can be difficult. This is true even if you are filing for yourself and no one else, but is especially true when you are responsible keeping track of taxes for a variety of different people. This is the situation that many business owners, for example, find themselves in every year. As an employer, you are responsible for withholding money from your employee’s wages. This includes income tax, Medicare taxes, and social security. That means that you do not actually pay your employees all of the money they have earned – you pay them what they have earned after taxes have been withheld.

Employees should be able to trust that their employers are withholding the correct amount of taxes from their wages. This is why the tax in question is referred to as a “trust fund” tax. Withholding these wages not only ensures that both you and your employees remain in compliance with tax law, but also serves to ensure that the employees in question are making contributions towards their retirement benefits as well as to the income taxes that they file on their yearly tax returns. Failing to accurately withhold trust fund taxes can lead to significant penalties.

Trust Fund Recovery

If the trust fund taxes described are not collected, are not truthfully paid and accounted for, or are defeated or evaded in any way, then the IRS might see fit to charge you a penalty for trust fund recovery. And if the IRS is unable to collect those taxes from the employer in question, then they will often take a step back, determine who is responsible for them, and then decide whether or not that person acted willfully when withholding taxes. Willfully means that the person acted consciously, intentionally, and voluntarily – that they knowingly attempted to conceal taxes from the IRS.

As far as the IRS is concerned, a responsible person has acted willfully if that person is aware that the required tax actions have not been taking place. Paying other business expenses, for example, while also failing to pay payroll taxes will make that failure seem willful to the IRS because it is clear that the individual in question understands that there are business taxes that must be paid. A trust fund recovery assessment, then, is designed to allow the IRS to collect the withholding taxes that were unpaid from the assets and income of the owners of the business and/or the responsible persons who are connected to the business.

Note that the IRS is not limited as to who they hold accountable. They can hold any person with responsibility for certain areas of the financial affairs of the business responsible.

Who can be held responsible for a trust fund recovery assessment?

A trust fund recovery assessment can be placed against any individual who:

  • Fails to pay or collect withheld taxes willfully
  • Is responsible for paying or collecting withheld employment and income taxes, or who is responsible for paying excise taxes

Additionally, a responsible person can be an individual or even a group of individuals who had the duty to withhold taxes as well as the power to direct accounting, collecting, and paying the trust fund taxes.

Such a person might be:

  • An employee or member of a partnership
  • An employee or officer of a corporation
  • The member of a board of trustees on a nonprofit organization
  • Payroll Service Providers
  • Another third-party payer or corporation
  • Another individual granted control and authority over funds in order to direct the disbursement of them
  • Various other parties

In order to determine whether or not the person in question was acting willfully, they must meet the following:

  • The individual must have, or should have, been aware of outstanding taxes
  • The individual must have been indifferent to the requirements of the law or intentionally disregarded it

Keep in mind that, according to the above, there is no “evil motive” necessary to determine an individual to be responsible. Simply being indifferent to whether or not the taxes were being paid is enough.

If you are experiencing a trust fund recovery assessment, you should reach out to attorneys who can help ensure that your rights are upheld. Lloyd & Hogan, Attorneys at Law, can help. We offer free consultations and are ready and willing to hear about your case. Contact us today for more information.