Standing for Trust Fund Recovery Penalty, the TFRP brings great focus by the IRS in terms of enforced collection action. This is because the TFRP is considered a pecuniary penalty in which the government cannot fund entitlements such as Social Security and Medicare. Therefore, the IRS is going to be quite aggressive when it comes to collecting such taxes.

For business owners, understanding what the TFRP is, how it works, and why it should be paid will help you maintain your focus on keeping in line with IRS policies. This will help you avoid evasion of paying trust fund taxes. After all, the beneficiaries of such taxes are your employees.

What are Trust Fund Taxes?

The taxes combine withheld income tax along with the employee’s share of Social Security and Medicare taxes. Because the employer holds the money earned by the employee in trust until the taxes are paid, that is why they are called trust fund taxes. The taxes are paid to the federal government and include the following.

  • FICA or Federal Insurance Income Taxes
  • Railroad Retirement Taxes
  • Withheld Income Taxes

And collected excise taxes. These are taxes on services such as communication, transportation, and even indoor tanning and more. Trust fund recovery penalties can be assessed on FIRPTA taxes, even if it is not really a payroll tax. It should be noted that the trust fund recovery penalty does not apply in terms of Social Security and Medicare taxes from the employer’s share. Because while they are payroll taxes, they are not considered trust fund taxes. That is an important distinction.

It should be noted that payroll trust fund taxes are paid quarterly and not every pay period. This is why one of the most common ways that business owners can get into trouble with the IRS is by using the trust fund taxes by employees to pay for expenses other than the taxes themselves.

Call Mike Habib today for immediate help at 1-877-788-2937.

How a Tax Professional Can Help with Trust Fund Recovery Penalty

In virtually all cases of the IRS wanting to collect the TFRP, you should retain and help of a qualified tax professional, EA, attorney, CPA.

This is because not paying carries with it serious penalties. However, the IRS can be successfully negotiated when you have the proper professional by your side. After all, if the tax has not been paid, penalties will undoubtedly occur. And there is a considerable difference of what is paid between those who have hired a proper tax professional and those who go it alone.

A tax professional starts by assessing the situation based on gathering all the pertinent information. This means not only bringing in all the information, but also assigning who is responsible for each area of tax payment. This means that a tax professional may be able to identify parties that should’ve paid the taxes apart from you.

Of course, that may not always be the case, but you should know the truth about your responsibilities in this regard. From there, you can take the next step of creating a proper defense. The tax collection system in this regard is not unlike a civil case in which there is the prosecution (IRS) and the defense (you). A good tax professional, EA, CPA, attorney can help you create a proper defense that fits the facts.

The tax professional will ask you and those who gather the taxes for the TFRP-trust fund recovery penalty a series of questions to ensure that all the proper information has been gathered. It may be that the IRS is wrong. It also may be that the money you allocated for the TRFP is simply not sufficient. Whatever the case, it is important to understand everything to prepare your defense.

While the solution may seem like a simple one. If you owe taxes, you should pay them. The truth is that your ability to pay will make that determination. The individual responsible might be you, the business owner. Or it might be the individual who is responsible for the bookkeeping and signing of the checks. The latter is possible if they do not need the authority of the business owner to do their work.

However, if the business owner is the one who makes all the pertinent decisions, then that person is going to be responsible.

The tax professional can provide you with the ability to negotiate. This is important, especially when the IRS starts the investigation process to determine who is responsible see our 4180 article, if the lack of payment was willful, and that all the records are properly gathered. You may find that the investigation process alone calls for a tax professional on your part to handle the details while you run your business.

A proper tax professional offers year of experience, knowledge of all applicable tax laws, and can provide solid advice and direction during this trying time. More importantly, you can get the proper guidance if the IRS does find something wrong with the TFRP that may help you in terms of paying back what you owe. At the very least, a good tax professional may keep things from getting worse.

You can avoid issues with the IRS over the TFRP by ensuring that all employment taxes are collected. That you account for all the taxes owed. And that you pay the IRS as required. Make sure that your tax deposits along with payments are made on time. Plus, you can find out additional information by accessing Publication 15, the Employer’s Tax Guide, and Form 941, the Employer’s Quarterly Federal Tax Return.

If you find that the TFRP trust fund recovery penalty has not been assessed within three years of the filing from Form 941 or Form 944, then the statute of limitations comes into play. But if no form was filed, then there is no statute of limitations. The penalty can be assessed at any time.

However, if you find yourself at odds with the IRS, then you will need the assistance of a tax professional. In fact, having a tax professional from the start will help prevent any issues from taking place. The trusted hand of the tax professional will help you understand, allocate, and pay your taxes on time.

Call Mike Habib today for immediate help at 1-877-788-2937.

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