Payroll Taxes

Delinquent payroll taxes are one of the most serious financial hurdles facing a business. Congress enacted the Trust Fund Recovery Penalty Statute to encourage prompt payment of withheld and other collected payroll taxes by allowing the IRS to assert a liability against responsible third parties. The amount of the penalty imposed is measured by the payroll taxes required to be collected or collected and not paid over. That is why the liability is referred to as a 100% Penalty. The penalty only applies to collected or withheld payroll taxes that are imposed on persons other than the party who collects payroll taxes, accounts for payroll taxes, and pays over such payroll taxes. 

There are two major questions to determine if someone is subject to the Penalty:

1. Whether the party against whom the penalty is proposed had the duty to account for payroll taxes, collect payroll taxes, and turn over trust fund payroll taxes; and
2. Whether he or she willfully failed to perform this duty relating to the trust fund payroll taxes.

The IRS has the right to pursue any person meeting the criteria, even if he was not an officer or employee of the corporation which initially collected the payroll taxes. The IRS may also assess the penalty for payroll taxes against several responsible persons. Provided that the IRS assesses several persons for trust fund payroll taxes, it may collect the entire amount of penalty from any of those persons. 

In case a corporation fails to pay payroll taxes, the IRS may proceed against the persons responsible for the nonpayment of such payroll taxes and is authorized to impose a Trust Fund Recovery Penalty on any person required to collect, truthfully account for, and pay over collected payroll taxes who willfully fails to collect such payroll taxes or willfully evades such payroll taxes payments. Two conditions must be met in order to assess and collect the Trust Fund Recovery Penalty tax:

1. The taxpayer must be a responsible person for such payroll taxes, and
2. The taxpayer's conduct must be willful in relation to the mishandling of such payroll taxes

Liability attaches to those within the corporate structure who are in charge of supervising the taxes withheld from various sources are forwarded to the Government. Generally, this duty is fulfilled by high corporate officials charged with general control over corporate business affairs who participate in decisions concerning payment of creditors and disbursal of funds. 

Besides, the IRS must prove and establish “willfulness” for liability under the Trust Fund Recover Penalty for payroll taxes. A responsible person need not have failed to pay the payroll taxes with a fraudulent or evil purpose. That person must merely be shown to have voluntary, consciously and intentionally disregarded the duty to pay trust fund payroll taxes to the IRS.

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Payroll Tax related links
Payroll taxes at TaxHelpers.com
Trust fund taxes at MyTaxProblem.com