Trust Fund Recovery Penalty • Employment Taxes
Boston employment tax attorney Theodore L. Craft has more than 35 years of experience in tax law, which he uses to build strong defenses for all types of civil and criminal tax cases, including those involving trust fund taxes. In these cases, Theodore L. Craft represents mainly corporate officers of closely held entities with a view on limiting or eliminating personal liability.
If you or your business is under investigation for the failure to withhold government taxes, contact attorney Theodore L. Craft today online or call 888-TAX-RISK to schedule a consultation.
The Duty and Authority to Collect, Account for, and Pay Over Employment Taxes
The Internal Revenue Code ("IRC"), as more particularly defined in case law, gives the United States a most efficient collection device for unpaid employment taxes. Any entity, incorporated or otherwise, pays employees their wages net of income tax and FICA contributions due.
The employer is required to withhold the proper amount of these taxes and pay them over to the government with the appropriate form (Form 941) at the appropriate time (at least quarterly). The responsibility to collect, account for, and pay over these withholding taxes rests in someone that the Internal Revenue Code defines as a "responsible person." Responsibility is a matter of duty, and of authority.
"Responsible Person" Under the Internal Revenue Code
Whether a person had the power to control the decision-making process regarding the allocation of funds as between creditors and the United States (during the period of time in which employment taxes were not paid) is a question of fact. Likewise, whether a person controls an entity's financial decisions and/or has the power (or had the power) to compel or prohibit the allocation of an entity's funds, are questions of fact. Responsibility, in other words, encompasses all those persons connected closely enough with the business to prevent a tax default from occurring.
Generally, a responsible person case focuses upon the individual who exercises actual control over the financial affairs of a business. This person has usually disbursed funds to or created a priority of payments to creditors other than the United States. In this regard, an individual may be considered responsible even though he or she may not have the ultimate authority to control the entity's financial affairs. In some instances, for example, one may have been given the authority to pay employment taxes but paid creditors (or even net wages) instead of fully paying employment taxes when funds were available to do so.
Responsible Person Status and Liability Under IRC Section 6672 • Willfulness
Responsible person status is not alone determinative of liability under Code Section 6672 (the governing provision for responsibility). "Willfulness" in the act of favoring creditors must also exist. (Under state tax statutes, in many instances, the element of willfulness is not required.) Without both responsibility and willfulness, there can be no liability for the trust fund recovery penalty under federal tax law.
Liability for Willful Non-Payment of an Entity's Employment Taxes
The difficulty faced by a person responsible and willful for the non-payment of an entity's employment taxes is that his or her assets are subject to collection by the Internal Revenue Service to the full extent of trust fund not collected from corporate assets.
Where responsibility and willfulness continue to be relevant areas of inquiry in an IRS collection case, the study of evidence, burdens of proof, case law and the procedural authority of the IRS are critical to any undertaking to relieve a person from trust fund recovery penalty liability.
In some cases, it may not be possible to negotiate a payment agreement for the entity or an Offer in Compromise to relieve the responsible officer from enforced collection from personal assets unless serious measures, including extending the statute of limitations on collection beyond its normal life, are taken.
Contact an Experienced Massachusetts Tax Defense Attorney
Contact Boston trust fund tax lawyer Theodore L. Craft to discuss your particular tax law case.