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Penalties for Not Turning Trust Fund Taxes Over to the IRS

trust fund tax penalties

When you pay your employees, you are not paying them all of the money they earned.  Instead, you are responsible for withholding part of their income for taxes.  These can include income taxes and FICA (Social Security and Medicare).

Your employees trust that this money – referred to as trust fund taxes – goes to the treasury to pay their portion of taxes, and not to the company’s accounts.

But what happens if your business doesn’t submit this money to the treasury?  Keeping this money can result in penalties from the IRS.

Learn what these penalties are and how you and your attorney can work the federal agency’s Special Agents to try to get the assessments reduced.

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Key Insights We Will Discuss:

  1.  Possible penalties for not turning trust fund taxes over to the IRS.
  2. Who are IRS Special Agents?
  3. How a tax attorney can help you negotiate with Special Agents.

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Possible Penalties You Can Face for Not Submitting Trust Fund Taxes

Failing to turn trust fund taxes over to the Treasury can result in serious penalties from the IRS.  The federal agency can assess penalties 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, the amount of the penalty assessed to the responsible person is equal to the unpaid balance of the trust fund tax.  This is determined by calculating the unpaid income taxes withheld plus the employee’s portion of the withheld FICA taxes.  For collected taxes, the penalty is based on the unpaid amount of collected excise taxes.

If you’re facing penalties from the IRS, the federal agency will notify you via a written letter to alert you that the IRS is assessing a penalty against you.  You will have 60 days from the date on the letter to appeal the assessment.  However, be aware that once the IRS assesses the penalty it can take collection against your personal assets through a federal tax lien or levy.

If you do not agree with the penalty, you can hire a tax attorney and file an appeal.

Who are Special Agents?

If the IRS suspects that you failed to pay trust fund taxes and is trying to determine if criminal charges need to be assessed, it may assign an IRS Special Agent to investigate.

These individuals will look into your taxes and your missed trust fund tax payments and determine the cause.  If he or she suspects criminal activity took place, the agent may recommend criminal prosecution.

How a Tax Attorney Can Help You Deal with Special Agents

If you owe trust fund taxes, you should immediately seek the help of a tax attorney.  He or she can help if you are contacted by an IRS Special Agent and can also help you determine if you should file an appeal against the penalties the IRS is assessing against you.

You should never participate in an interview with an IRS Special Agent without first contacting your attorney.  He or she can help advise you on what questions to answer and which information to make available.  Not getting advice from a tax attorney can result in you inadvertently incriminating yourself.

A tax attorney can also help you establish if you are truly the responsible party at your business for submitting the trust fund taxes, how to file an appeal, and how to get the penalties reduced.

Contact an Attorney

If you are being investigated by an IRS Special Agent, call Ayar Law at 800.571.7175 to receive free, no-obligation tax advice from a tax attorney.

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Executive Summary

  • Failing to submit trust fund taxes to the IRS can result in penalties.
  • A tax attorney can help you file an appeal, get the penalties reduced, or represent you in dealings with an IRS Special Agent.
  • Contact Ayar Law to get free, no-obligation legal advice at 800.571.7175

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Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.