Trust Fund Recovery Penalty

 Although court cases filed against a company affect all the people working within, not all of them can be held liable. There are only a few people in related positions who can be charge as they are merely liable according to the law.

TFRP Assessed To Determine Responsible  Person

The TFRP may be assessed against any person who: Is responsible for collecting or paying withheld income and employment taxes or for paying collected excise taxes and willfully fails to collect or pay them.

Basically, the Internal Revenue Service finds 1.6 responsible persons for every non-operational business owing to payroll taxes. Commonly six or more people are declared equally responsible. And all are mutually and severally liable for the entire amount; the penalty is not divided among the group—each person owes all of it to the State. 

The TFRP is one of the most alarming parts of the tax code; it gives too much burden to someone who’s being charged. On the other hand, it can also be assessed against low-level employees with no financial stake in the business has knowledge has a position that is aware of the companies taxes payment. 

Revenue officers from IRS conduct investigations of business who fails to pay payroll taxes. They initiate by coming up with a list of people with authority over the business. They determine the said authority by asking these questions:

Who made the financial decisions in the business?

 Who signed or had the authorization to sign on the checking account?

 Who had the power to pay or direct payment of bills?

   Who had the duty of tax reporting?

Willfully Preventing The IRS From Receiving The Payroll Taxes Is A Liability

If the revenue officer believes that a person acted willfully to prevent the IRS from receiving the payroll taxes, is he liable under the law? Let’s take “willful” in a clearer context, “Yes, you did not intentionally cheat the government out of payroll taxes, but you knew about the payroll taxes and knew they weren’t being paid. The fact that you knew about the unpaid taxes is considered willfully preventing the government from receiving payroll taxes.

This test is a big challenge to the honesty of most business owners. The IRS has discovered $100 every week that bookkeepers do not declare, and they are found to be liable for huge sums of money. Many businesses neglect to pay taxes as they will have to spend a large amount of money, but in so doing, they are risking greater financial loss if they are assessed the TFRP.

 

IRS Rule on Check-Signing Powers and Responsible Person

It may be tempting to view someone who signs the company’s checks as being a responsible person for purposes of the TFRP.  However, the Internal Revenue Manual understands that signing checks does not in-and-of-itself identify someone as having significant control over the company’s finances.  After all, a bookkeeper who signs checks may just be following orders from their immediate bosses or have that power as a matter of administrative convenience. Accordingly, an employee with no financial interest in a business that signs checks under the explicit directions of a boss is not responsible under the TFRP.

The same is true for the duration of an employee’s tenure. You aren’t liable for the TFRP for payroll taxes owed before you were hired or after you leave the company. A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.