Trust Fund Penalty Issues

[Richcpaman]

Have a client that owes $47k in Payroll Taxes, and $44k in penalty and interest to the IRS.

The IRS has really fallen down on the job on this one, the liabilities started in 2005. Mainly the owners payroll, but other staff earlier.

I have gotten the local agent to agree to put the case in non-collectible status. However, she is asserting the Trust Fund Penalty, for a total of $13,700. Becasue of IRS delays, the agent can't assert for 2005, 06 , 07 and 08.

So, here are my questions:

If the client pays the $13,700, the remaining balance of $77k will still be due, or, is this a whole NEW liability, and the client owes $105K total ($47+44+14)?

While the client is in NonCollectible status, how often does the IRS check? Or do they do nothing?

Can we file an OIC for the whole amount and end the Trust Fund Penalty Issue?

Any other thoughts from some who have gone thru this?

RIch

[Jack from Ohio]

I had a client with similar issues where their previous accountant dropped the ball big time. Three attempts with letters to get penalties abated was to no avail. This was in 2010

The IRS has become stiff-necked concerning anything with trust fund money.

[ILLMAS]

While the client is in NonCollectible status, how often does the IRS check? Or do they do nothing?

Yes, they do check in, just yesterday I spoke with a collection agent on behalf of my client, we submitted form 433-B about a year ago, so I would say they follow up yearly. His question was if the business situation has changed during the year, I am still waiting to hear from him if we need to submit financial statements. From the initial conversation I had, the account is active for 10 years and if your financial situation changes they'll come and collect.

[Guest Taxed]

I think the only way to bring this problem to a closure is an OIC.

I have had clients go on non collection status but that is NOT considered a waiver. IRS is just willing to wait to collect. MAS is correct.

[Jack from Ohio]

An OIC has a very slim chance due to it being trust fund money. The IRS will also seek to make the taxpayers personally liable and attach bank accounts and levy assets accordingly. That is what happened to my clients until they paid in full.

[Guest Taxed]

Filing an OIC does NOT mean that it will be successful. Depends on what assets the taxpayer has and the probability of IRS collecting what they want. Depending on the totality of the circumstance, it is possible IRS may settle for less than the total amount due including interest and penalties.

It is worth a try but make no promises like those TV ads!

[Mr. Pencil]

The IRS has really fallen down on the job on this one, the liabilities started in 2005.

I'm not sure what you mean. IRS was very lenient allowing the taxpayer to work out his problems, but did that somehow make the problems worse?

Trust Fund is a hard debt to clear. Reasonable cause doesn't usually apply, because the IRS won't believe the taxpayer's circumstances prevented payment. The IRS position is that the taxpayer HAD the money in hand, having actually withheld it from paychecks, but chose to spend it on something else. So you don't get much sympathy. Including it in a compromise is possible but difficult. Since payroll taxes are assessed quarterly, you must carefully allocate the debt to each period. I would recommend negotiations be handled by an experienced practitioner.

[michaelmars]

Is the 47k all trust fund or the total taxes? make sure any payment he makes goes to the trust funds due and not to the overall taxes due first.

[Guest Taxed]

I believe he mentioned $47k was payroll taxes. $44 in penalties and interest.

Obviously if you are making partial payments you want to apply to the trust fund deficit first.

[Richcpaman]

Not making any payment.

The IRS just ignored the problem. Really. It started slow and built up. And the IRS missed its opportunity to assess those earlier periods for the Trust Fund penalty. Which I fault them for.

Client is underwater. We filed the 433-A and 433-B. Agent was a all bluster up front, but backed down as soon as we provided the 433A-B. Cleint no longer has employees and only paying herself. And has been compliant for over a year.

Client will set up a payment plan to pay the $14k Trust Fund penalty. But to pay that, does that mean that she still owes the other $91K? I can do a OIC on those periods and years, just to clean it all up.

My original plan was to get to Non-Collectible status, and then do an OIC for xx amount and clean it up that way. But the agent threw this Trust Fund Penalty out there, and I wasn't sure what the angle was. I can surmise, but I was interested in a much more collective opinion might be.

Yes, it gets the taxpayer on the hook personally, and the IRS can do all the other collection activities against her. I understand that. But what would be the other reasons to do the TFP on the taxpayer?

Rich

[Mr. Pencil]

I'm not clear who your client is, an individual or a business entity, what the relationship is, or how the tax debt is assessed. All of this must be spelled out in an OIC, so you are not off to a good start. Also, an OIC must cover all amounts together, so you can't run a payment plan for some and compromise the rest. Well, unless the business is a separate entity maybe, but an OIC or payment plan for one will NOT protect the other. In other words, they can compromise the Trust Fund Penalty, and STILL go after business assets for the whole amount. So now we're talking TWO Offers in Compromise, with upfront payments on both.

Apparently the business is still functioning. You need some REAL analysis of its prospects for the next five years. IRS might agree to a carefully structured OIC that will put the company back in black. But if the business is likely to default on the OIC (such as late filing or non-payment) it could end up worse off. It sounds like you don't have much to offer at this time. A payment plan is probably your only realistic option anyway.

[michaelmars]

still not sure on the amounts owed, if the 47k is the total tax then is the 13k a penalty or the trust fund amount of the 47k? the company can close and the only amount due by the shareholder is the trust fund portion of the taxes due.

[Richcpaman]

still not sure on the amounts owed, if the 47k is the total tax then is the 13k a penalty or the trust fund amount of the 47k? the company can close and the only amount due by the shareholder is the trust fund portion of the taxes due.

Michael:

That is some of the information I was looking for. $47k was the tax due for the S-Corp. $44k is the penalty and interest for the Scorp on that tax. Thay have not assessed the sole-shareholder owner personally, yet. And what they want to assess is the $13,700 in Trust Fund Penalty to her personally. They can't get more than that, that is the calc by the IRS agent.

So the point you are making, and I like to hear, is if the taxpayer agrees to the TFP on the $14k, than the other amounts, ($47k and $44) go away if the corporation closes or folds up.

Becasue the IRS assessed what it could and the rest is gone.

If the business continues, then we have to OIC or Payment plan those 47k and 44K amounts.

Rich

[Jack from Ohio]

An OIC has a very slim chance due to it being trust fund money. The IRS will also seek to make the taxpayers personally liable and attach bank accounts and levy assets accordingly. That is what happened to my clients until they paid in full.

Michael:

That is some of the information I was looking for. $47k was the tax due for the S-Corp. $44k is the penalty and interest for the Scorp on that tax. Thay have not assessed the sole-shareholder owner personally, yet. And what they want to assess is the $13,700 in Trust Fund Penalty to her personally. They can't get more than that, that is the calc by the IRS agent.

So the point you are making, and I like to hear, is if the taxpayer agrees to the TFP on the $14k, than the other amounts, ($47k and $44) go away if the corporation closes or folds up.

Becasue the IRS assessed what it could and the rest is gone.

If the business continues, then we have to OIC or Payment plan those 47k and 44K amounts.

Rich

I repeat what I posted earlier. Unless an OIC is accepted, the owners will ALWAYS owe the trust fund monies. It is/was NOT THEIRS. The penalties may go away, but the trust fund taxes owed will not. Not even bankruptcy. Shame on the IRS for allowing the owners to miss out on more penalty that they are claiming they can't pay anyway.

I had an employer abscond with $2,500 of my money. Cannot get SS credit for the money he kept. IRS allowed income taxes deducted because I had a paystub. This is why I have NO SYMPATHY for trust fund embezzlers. This is exactly what they have done.

[Richcpaman]

Jack:

I don't like folks who don't pay thier taxes either.

Sorry about your experience.

However, I need to help my client, just like you would/should. The taxpayer has been compliant since coming to my office, and will continue to do so.

Or, I will fire her.

I just want to make sure that I am not signing up my client for something without knowing other ramifications of that.

I would rather her write the check for the full amount. She ain't got it, and she probably never will. She will pay something on the balance for the rest of her working life if needed. But the IRS isn't interested in that.

Rich

[Guest Taxed]

I don't think you will be able to negotiate down on the $14K Trust Fund Penalty. From what I have read, IRS is not backing down on that and as you know that survives bankruptcy.

You may catch a break with a OIC for the rest of the balance due, interest and penalties.

If this was my client I would refer them to an experienced professional who had dealt with OIC involving trust funds.

[Jack from Ohio]

Jack:

I don't like folks who don't pay thier taxes either.

Sorry about your experience.

However, I need to help my client, just like you would/should. The taxpayer has been compliant since coming to my office, and will continue to do so.

Or, I will fire her.

I just want to make sure that I am not signing up my client for something without knowing other ramifications of that.

I would rather her write the check for the full amount. She ain't got it, and she probably never will. She will pay something on the balance for the rest of her working life if needed. But the IRS isn't interested in that.

Rich

This is not a matter of your client not paying THEIR taxes, they have taken OTHER PEOPLE"S MONEY that was supposed to be sent to the government and SPENT IT. In any company, business or organization in America, this is embezzling and is a felony. Sorry, still no sympathy. I would not take on a client that is trying not to repay trust fund money that they have embezzled. The client I had, suffering from a previous accountant, only wanted to pay what they should and do what was right. The IRS was cold and unbending until it was all paid. Took my clients less than a year, but all is complete and current today.

[Richcpaman]

Jack:

Nice soap box. And I am glad to know that you are not interested in helping certain clients. Just like I am sure you are handling folks I wouldn't touch with a ten foot pole.

But they have a different forum for those debates now.

She is going to pay the TFP. I just want to be sure what happens to the rest of the debt, if she signs the TFP document, has she signed away other rights?

Pretty simple really. This isn't my first OIC rodeo.

Rich

[Jack from Ohio]

Jack:

Nice soap box. And I am glad to know that you are not interested in helping certain clients. Just like I am sure you are handling folks I wouldn't touch with a ten foot pole.

But they have a different forum for those debates now.

She is going to pay the TFP. I just want to be sure what happens to the rest of the debt, if she signs the TFP document, has she signed away other rights?

Pretty simple really. This isn't my first OIC rodeo.

Rich

Let us know how the OIC for the trust fund monies works. Again, it was NOT THEIR MONEY. I care to help clients with morals about other people's money.

If she agrees to the penalties, she is agreeing that she owes the monies that penalties were assessed against.

Again, no sympathy for people that take other peoples money and expect to get away with it.

[michaelmars]

Let us know how the OIC for the trust fund monies works. Again, it was NOT THEIR MONEY. I care to help clients with morals about other people's money.

If she agrees to the penalties, she is agreeing that she owes the monies that penalties were assessed against.

Again, no sympathy for people that take other peoples money and expect to get away with it.

so I guess you won't take a client that ever defaulted on a loan or declared bankruptcy?

[Richcpaman]

Jack:

I just reread all my posts on this topic, just to be clear, she is going to PAY the TFP in full, via payment plan.

We will OIC the remaining balance. If possible.

My concern was what happens if she agrees to the the TFP, and does that close any doors, or open her up to more liabilty that I haven't considered.

Rich

[joanmcq]

There seems to be some confusion on the trust fund penalty and the actual trust fund taxes. The trust fund tax, that she withheld from employee's paychecks and didn't pay, should be negotiated to be paid first. The TCP is just another penalty. The TAXES need to be paid. Then the employer portion of the taxes. The easiest part to OIC will be the penalties & interest. The trust fund taxes will attach to any responsible party, including ANYONE that had control over whether the taxes were paid or not.

[Jack from Ohio]

There seems to be some confusion on the trust fund penalty and the actual trust fund taxes. The trust fund tax, that she withheld from employee's paychecks and didn't pay, should be negotiated to be paid first. The TCP is just another penalty. The TAXES need to be paid. Then the employer portion of the taxes. The easiest part to OIC will be the penalties & interest. The trust fund taxes will attach to any responsible party, including ANYONE that had control over whether the taxes were paid or not.

I don't think Richpaman gets the difference. Whether they pay penalties or not is irrelevant to my position. The tax money they withheld from OTHER PEOPLE and spent on themselves is the issue. Rich will soon find out that the IRS is NOT very LENIENT when it comes to trust fund taxes. The IRS will look for and acquire liens on their personal assets to collect them. My clients were actively paying the trust fund taxes that were owed due to the former accountant's incompetence, and the IRS still started proceedings to place liens on their personal assets. Time from assessment of taxes owed to pursuing liens was 6 months and my clients had already paid 40% of the amount owed.

Good Luck Richpaman with the OIC.

As I posted, if they agree to pay the penalties, they are agreeing that they owe the monies that he penalties have been assessed for.

Will they send apologies to all the employees whose money they embezzled? Again, embezzling the money is what they are guilty for.

[Mr. Pencil]

Jack:

I just reread all my posts on this topic, just to be clear, she is going to PAY the TFP in full, via payment plan.

We will OIC the remaining balance. If possible.

My concern was what happens if she agrees to the the TFP, and does that close any doors, or open her up to more liabilty that I haven't considered.

Rich

I appreciate what you said earlier about serving your client's interests professionally without regard to the ethics of failure to pay. And I agree entirely, having no knowledge whatsoever of the facts. I still don't see that you are properly positioned for an Offer in Compromise.

First, I want to clear up a definition. The Trust Fund Recovery Penalty includes only the payroll taxes that were actually withheld from employees' wages. It does not include the employer half of FICA or any penalties related to the company's failure to pay. You are right to recommend she pay that personally, because she is probably going to have to anyway.

Although you continue to confuse me on this point, it sounds like the Offer in Compromise will be filed by the corporation, not the shareholder. The IRS will probably look at the shareholder's relationship if corporate assets (including compensation) were transferred to her. Even if the IRS closes the corporate account, that may not protect your client. This is something you need to think through.

You seem to have a goal of getting the debt discharged rather than compromised, but that doesn't make a very strong offer. I mentioned the difficulty of correctly identifying the debt to be compromised. Another caution is that the IRS will apply any payments in a way that benefits the government, which is very likely not what you would choose. There may be ways to control that; again, you have to think about this carefully.

[joanmcq]

"Probably" is too soft a term. The IRS WILL look at all of her personal assets, including compensation for recovery of the trust fund taxes. After all is said and done, getting an OIC for the other penalties & interest is a possibility.