What are Trust Fund Taxes?
Trust fund taxes include the Social Security, Medicare, and federal income tax a business withholds from its employees’ wages. These amounts are held in trust by the business until they are transferred to the IRS.
In other words, these taxes are effectively being paid by the employee to the IRS. The employer is just an intermediary responsible for facilitating the transaction.
When the employer fails to remit these amounts to the IRS, bad things can happen. First, the employer can face the failure to deposit penalty for unpaid payroll taxes if the payments are even one day late.
Next, the IRS may decide to assess the trust fund recovery penalty (TFRP). This penalty is severe for several reasons:
- The penalty is equal to 100 percent of the unpaid trust fund taxes.
- The penalty is assessed against “responsible persons” as individuals, not the business itself
Letter 1153 and Form 2751
If you receive Letter 1153 and Form 2751, the IRS is proposing to assess the TFRP (trust fund recovery penalty) against you. You have 60 days to respond to the proposed assessment, but you should notify the IRS within 10 days if you disagree with the proposed assessment.
First, don’t sign Form 2751 without talking to a tax attorney first. This is an admission of guilt and should only be signed once you are absolutely sure you know what you’re admitting to. You also have the option of paying the trust fund taxes personally in order to avoid the TFRP.
If you disagree with the TFRP, your tax attorney can help you try to resolve the matter informally with the IRS. You may be able to use any of the following facts as a defense:
- You aren’t a responsible person who can be assessed the TFRP.
- Your actions in failing to remit tax deposits were not willful.
- The statute of limitations for assessing the TFRP has expired.
If you can’t come to an informal resolution, you have 60 days from the date Letter 1153 was sent to submit your case to the IRS Office of Appeals.
Collecting the Trust Fund Recovery Penalty
If you don’t do anything within 60 days, the IRS will proceed with the proposed assessment. They can then begin the collections process and file a tax lien against your property or attempt to levy your assets.
Contact an Attorney
Contact a tax attorney immediately if you are notified of a proposed trust fund recovery penalty assessment to make sure you handle the situation properly.
Get help fighting a trust fund recovery penalty assessment by calling Ayar Law at 248-262-3400 or filling out our contact form. We offer free, no-obligation tax advice for all matters. You have nothing to lose and everything to gain by picking up the phone and calling us today.