Willfulness Under Truest Fund Recovery Penalty

 Have you ever neglected a financial obligation? I know how burdensome it is to owe money, especially to the Internal Revenue Service. Company use of available funds to pay other creditors but default on employment taxes indicates willfulness and can lead to the Trust Fund Recovery Penalty.

Willfulness Defined By The Law

Willfulness in the context of the TFRP is defined as intentional, deliberate, voluntary, and knowing, as distinguished from accidental. "Willfulness" is the attitude of a responsible person with free will or choice who either intentionally disregards the law or is indifferent to its requirements. 

Factors To Consider When Determining Willfulness

If a responsible person had knowledge of noncompliance and did not act against it, then he is willfully violating the TFRP.  More than several noncompliance instances means habitually disobeying the law and constitutes a reason to declare that a person has willfully escaped tax payment. 

Another factor that indicates willfulness is using fraud or deception to conceal the nonpayment of tax from detection. One good example is by classifying employees as contractors who occasionally work outside of the business at their convenience. 

Absence Of Intention to Defraud & Willfulness

If you do not intentionally avoid paying taxes but rather made an honest mistake, it does not relieve you from the trust fund recovery penalty. Unintentional errors cannot erase the fact that you owe taxes to the government.

Starting Points For Common Willfulness Issues

Common willfulness issues start once the government has shown that responsible parties were aware of the outstanding taxes and either intentionally neglected to pay the taxes or disregarded an obvious risk that the taxes would not be paid. Ideally, the taxes could be paid if given immediate action, but when paying responsibilities are set aside, it is evident how willful such parties are.

There are cases when the business is mismanaged, and there are unintentional or obvious errors in preparing and managing the payroll. If this happens, the right thing to do as an employer is to check and rectify payroll trust deposit errors. The employer must find out why the taxes have not been paid. A responsible person's failure to investigate or correct mismanagement after being notified that withholding taxes have not been paid satisfies the IRC 6672 willfulness requirement. 

The payment of net wages to employees when funds are not available to pay withholding taxes is a willful failure to collect and pay under IRC 6672. If funds are not available to cover both wages and withholding taxes, a responsible person has a duty to prorate the available funds between the United States and the employees so that the taxes are fully paid on the number of wages paid. For purposes of determining willfulness, an employee owed wages is merely another creditor of the business, and preferences to employees over the government constitute willfulness.