Landmark Tax Group

Trust Fund Penalty Tax Relief in Costa Mesa


What to Know About Payroll Taxes and the Trust Fund Penalty in Costa Mesa

What is the IRS Trust Fund Recovery Penalty (TFRP)? Business taxpayers are responsible for withholding certain income taxes and social security taxes from employees’ wages. The withheld funds and the payroll taxes (FICA) that the employer owes are collectively known as “trust fund” taxes. When these taxes are not turned over to the IRS, the agency conducts an investigation whereby a trust fund recovery penalty can be assessed against one or more responsible parties.

How does the trust fund recovery penalty work?

Payroll taxes are reported on Form 941 Employers Quarterly Federal Tax Return. When an employer fails to pay the trust fund taxes when due, the IRS conducts a trust fund interview with those parties that may be considered “willful” and “responsible” for managing the company’s finances, especially the payroll taxes and federal tax deposits. If a party is deemed responsible and willful, per IRC 6672, the IRS will assess the trust fund penalty against that person’s social security number and proceed with collection of the liability.

What else do I need to know about this employment tax penalty?

The amount of the penalty is equal to the total unpaid trust fund taxes. Because a corporation’s (or LLC’s) employment tax debt is converted to a personal tax liability of a responsible party, the trust fund recovery penalty is one way that the IRS can pierce the corporate veil and collect the back taxes.

See: 10 Things to Know About the IRS Collection Process

If you need help with payroll taxes or the trust fund recovery penalty in Costa Mesa, contact us today at 1-714-382-6780 for a free, confidential consultation with knowledgeable Costa Mesa CPAs, enrolled agents, and tax attorneys.

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