How Long Does The IRS Have To Assess The Trust Fund Recovery Penalty?

The IRS can assess the trust fund penalty for payroll taxes for up to two years after the payroll tax itself is assessed.

If My Business Pays The Payroll Taxes In Full, Do I Still Owe The Trust Fund Recovery Penalty?

No, because the payroll taxes and the trust fund penalty are both on the same tax. The payroll tax is the entire amount that the company owes while the individual owners and other responsible people are assessed a portion of that total payroll tax. That is the trust fund penalty. So, if the company pays the entire payroll tax, then the trust fund penalty is also automatically paid and the individuals will not have any liability.

Can I File An Offer In Compromise To Settle The Payroll Tax Debt?

Generally, the IRS does not like for a company that is ongoing and in business to file an offer in compromise. The theory is that if the business is still active, they can eventually pay the delinquent payroll taxes over time. However, in some situations, very rare, a company that is still in business can file an offer. More likely is that the responsible parties who owe the trust fund penalty or civil penalty, can file an offer in compromise if they qualify because of their assets.

Do I Have Any Appeal Rights If The IRS Deems Me Liable For The Trust Fund Recovery Penalty?

Yes, you do. The first letter you get will say that the IRS proposes to assess the trust fund penalty against you. You can call or communicate with the writer of that letter first to talk to that person about the situation. Then, if you cannot agree with that person, you can file a collection appeals process, appeal, which is not a very formal appeal but it gets you to talk to someone else, usually the supervisor. If you cannot agree with that person, they will assess the trust fund penalty. Then, if you get a letter threatening to levy you, you have the right to a collection due process hearing, which is another area you can dispute the trust fund penalty. Finally, if you do not agree with the outcome of that hearing, you have the right to go to tax court to litigate the issue.

What Are Payroll Taxes?

When you receive your paycheck as an employee, you may notice that the amount that you were supposed to receive known as the Gross Amount is not the amount on the check. The net amount is actually the gross minus these payroll taxes. What comes out of your paycheck as an employee are things such as your federal income tax withholding, which is going towards your possible tax liability for that current year, as well as your FICA Taxes, which are taxes for the purposes of funding Medicare and social security. On the employer side, a business is also responsible for payroll taxes where they actually have to match those FICA taxes that the employee also has to pay, so the employer is also paying additional Medicare and social security taxes as a part of that paycheck.

Who Is Responsible For Payroll Taxes?

When it comes to making payments for payroll taxes, both the employee and the business as employer are responsible for payroll taxes. When the employee receives their paycheck, the payroll taxes such as their federal income tax withholding and their FICA taxes, which fund social security and Medicare, those automatically come out of their paycheck and are held by the employer. The employer also has a tax liability where they are obligated to match the FICA taxes that the employee pays.

Am I Responsible For Payroll Taxes For My Independent Contractors?

As defined by statute, independent contractors are exactly that they are independent of the company. They are typically small business owners themselves or they control their own terms of the work or services that they provide. Because of that, employers or companies who hire independent contractors are not responsible for withholding payroll tax for those independent contractors. Because the relationship is different, the IRS takes the position that independent contractors are actually responsible on their own to take this money that they are making, which is essentially having no taxes withheld and do things such as making estimated tax payments to account for their tax liability instead of having payroll taxes withheld from the money that they receive.

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