Federal employment taxes amount to over one-third of all revenue collected by the Internal Revenue Service (IRS). Therefore, it is no surprise that the IRS has recently increased enforcement actions against employers that fail to withhold employment taxes from its employees and remit those taxes to the federal government.
Employers with outstanding employment taxes are being targeted for new aggressive enforcement action by IRS Revenue Officers. In addition to filing federal tax liens and attempting to levy business bank accounts, the Revenue Officers have been paying particular attention to assessing the Trust Fund Recovery Penalty or “TFRP”.
The TFRP is a penalty equal to 100 percent of the taxes withheld by an employer but not paid over to the federal government. Generally, each employer must withhold income and employment taxes from its employees’ wages and hold the funds in “trust” before paying them over to the government. When an employer withholds the taxes on behalf of its employees but fails to pay them over to the federal government, the IRS may propose the assessment of a TFRP against any responsible person associated with the business who willfully fails to collect the taxes, or truthfully account for and pay over the taxes to the federal government. This means that the individual becomes personally liable for 100 percent of the employer’s trust fund taxes.
The TFRP can be assessed against multiple individuals associated with the business and, once assessed, all individuals become jointly and severally liable for the penalty. In other words, the IRS does not divide the liability between responsible individuals, instead, the full amount may be collected from any individual found liable. Individuals commonly assessed include officers of the business and even administrative staff involved with the employer’s payroll. In fact, administrative staff are generally surprised to discover that the IRS has assessed the TFRP against them as a responsible person associated with the business.
Employers that are contacted by the IRS regarding employment taxes should immediately consult with a tax professional regarding their matter, particularly in light of increased enforcement efforts being implemented by the federal government.
Giovanni V. Alberotanza is a partner with Rosenberg Martin Greenberg’s nationally recognized tax controversy practice group and represents clients with respect to tax audits, appeals, and litigation. He can be reached for a consultation at firstname.lastname@example.org or 410-649-4990.