IRC Section 6672(a): Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for or pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
This is commonly known as the 100% penalty. The penalty is assessed for the Trust Funds not paid. Trust funds are the money you withhold from an employee’s paycheck, which includes federal income tax and the employees’ share of FICA and Medicare. This money is held in trust until you pay it to the Internal Revenue Service.
- Are you the “responsible” person?
- Did you “willfully” fail to collect or pay over such tax?
- Did you have knowledge that the payroll taxes were unpaid?
- Did you have the power to control payments to creditors or the IRS?
- Did you prepare or sign the 941 returns?
Who is a responsible person?
It may be the person who has the power to direct the collection of trust funds, the power and authority to pay trust funds and other creditors, or power and authority to determine who gets paid first or last.
According to the IRS, a responsible person is a person or group of people who have the duty to perform and the power to direct the collecting, accounting and paying of trust funds. This person may be:
- an officer or an employee of a corporation
- a member or employee of a partnership
- a corporate director or shareholder
- a member of a board of trustees of a nonprofit organization, or
- another person with the authority and control to direct the disbursement of funds.
The IRS may assess the penalty against anyone:
- who is responsible for collecting or paying withheld income and employment taxes, and
- who willfully fails to collect or pay them.
According to the IRS, for willfulness to exist, the responsible person must:
- Have known about the unpaid taxes; and
- Have used the funds to keep the business going or allowed available funds to be paid to other creditors.
- Other standards regarding willfulness include intentional, deliberate, voluntary, reckless disregard, knowing or accidental, free will or choice.
The issues presented in determining who the responsible person is and whether or not willfulness exists depends upon the facts and circumstances in each case. If the taxes are not paid, the IRS will be looking for someone to penalize. It may be you.
If the IRS is planning to assess the Trust Fund Recovery Penalty against you, or if they have already assessed the penalty against you:
- Do you know what are your rights are?
- Are you the person who should be assessed, or is it someone else?
- Do you know if you have been assessed the proper amount of “Trust Funds”?
- Will you qualify for an “Offer in Compromise”?
- Can you qualify to make installment payments?
- Will you lose your home, your bank account, your car or your life savings?
If you have any questions or if we can further assist you, please contact our San Diego office.
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