Jan 2, 2008

Your Tax Debt- Items on the Trust Fund Recovery Penalty

For anyone who is responsible for the unpaid employment taxes of a company, the "trust fund recovery penalty" or "civil trust fund penalty" or "100% penalty" is looming nightmare. The IRS can collect trust fund taxes on employment taxes (i.e. the federal income tax and FICA tax withheld from the employee and not remitted to the US Treasury) from two sources: the company and the person(s) who are responsible for the taxes and willfully fails to pay these taxes to the US Treasury.

However, most do not know that, if the company or the individual makes payments on employment tax liablity, the payment can be designated to the trust fund liability that can be jointly assessed. This limits the responsible parties' personal liability. However, if the IRS enforces the liability (i.e. lien, levy, seizure), then they designate the payments accordingly to the non-trust fund tax liability- increasing the collection sources and potential for the IRS.

This policy is expounded in IRS Policy Statement 5-14. This is a very detailed, complicated process in which the IRS makes mistakes- and they are not in your favor. You will a professional who is knowledgeable in IRS procedure and rights to represent you in an civil penalty assessment and collection.

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