IRS Trust Fund Tax Basics
How Currently Not Collectible Status Works
The Trust Fund Recovery Penalty (TFRP), often shortened to just Trust Fund, originates from a business employment tax liability. It is the portion of the back-payroll tax that can be assessed to and collected from the individual owners, officers, etc. of the business. It pierces the so called "corporate veil" to reach the individual owners and sometimes nonowner employees of the delinquent business.
​
A business's 941 employment tax liability consists of tax, penalties, and interest. The Trust Fund a portion of the total tax component. It includes the taxes that were to be taken out of employee's paychecks - the employee's income tax withholding, and Social Security and Medicare contribution.
How Does the IRS Collect the TFRP?
The delinquent business is the first collection source considered for the Trust Fund tax. Since the business is the taxpayer that accrued the employment tax, which includes the Trust Fund, the Service will look to collect the total tax liability from the business as quickly as possible. If it is unable to collect from the business relatively quickly, the Service will look to collect the TFRP from the Responsible Individuals of the business.
​
The IRS has the power to collect the Trust Fund tax from several sources simultaneously, including the business and any individuals found to be Responsible and Willful for collecting the Trust tax and handing it over to the IRS.
Who Can Be Held Personally Responsible for the Business Trust Fund Tax?
The IRS will look at owners, officers, shareholders, members, managers, bookkeepers, accountants, employees and other individuals or entities that may be connected to the business's financial decisions.
2 criteria must be met for assessment of the Trust Fund Recovery Penalty to an individual:
Responsible - must be responsible for collecting, accounting for and transferring the Trust Fund taxes to the IRS.
Willful - "intentional", "deliberate" and "voluntary" are all words used by the IRS to describe Willfulness. Compared to Responsibility, lack of Willfulness is much more difficult to prove. This is especially true if you've already been proven to be Responsible. For the purpose of the IRS Trust Fund tax, Willfulness means that you should have been aware and may mean that the person was simply indifferent regarding collection and payment of the tax.
If you have a specific question about the Trust Fund and Possible Solutions, contact us. We will give you straight answers to your questions.
Most businesses operating with a 941 payroll tax debt do not qualify for the IRS Offer in Compromise. It is the IRS general view that an operating business can pay its taxes. As a result, the IRS puts all In-Business Offers in Compromise through immense scrutiny.
​
Many businesses secure a monthly Installment Agreement to resolve a large employment tax liability, which can also be a difficult process. If your business owes employment tax of less than $25,000 and can pay it back in equal monthly installments over 24 months, the IRS may grant a Streamlined Installment Agreement without requiring any financial documentation and it may forego assessment of the Trust Fund.
​
If your business doesn't meet the streamlined installment agreement criteria above, you will have a local Revenue Officer assigned to your case for collection. Financial information will be required and the Trust Fund Investigation will take place.
What Kind of Installment Agreements Are Available for Business Trust Fund Liabilities?
The IRS has several Installment Agreement (IA) options available, depending on your business's current financial situation.
-
In-Business Trust Fund Express IA
-
Standard IA, also called a Non-Streamlined IA
-
Partial Payment IA
-
Direct Debit IA
What If My Business Can't Make a Monthly Payment to Pay Back the Payroll Tax?
If your business cannot make a monthly payment toward its back tax debt, Currently Not Collectible status may be an option. However, the business must not have any usable equity in assets and must prove that it cannot make a monthly payment of at least $25. This can be tricky because you must also prove that your business can make current Federal tax deposits on time every time. It's a fine line to balance on.
If you have a specific question about a Business Trust Fund tax or Employment tax, contact us. We'll give you straight answers to your questions.
