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A trust fund tax is money withheld from an employee's wages (income tax, social security, and Medicare taxes) by an employer and held in trust until paid to the U.S. Treasury.

If these trust fund taxes are not withheld or are not deposited or paid to the U.S. Treasury, the Trust Fund Recovery Penalty may apply. The penalty is the full amount of the unpaid trust fund tax.

Small business owners have personal liability to the IRS for employment taxes that are not paid by the business. Owners may find themselves and their employees under investigation for repayment of these taxes.

If the business cannot pay the unpaid payroll tax liability then the IRS will look to certain indviduals they consider responsible and force them to pay.

The Trust Fund Recovery Penalty may be assessed on responsible persons if the unpaid trust fund taxes cannot be immediately collected from the business. The business does not have to cease its operations before the penalty can be assessed.

A revenue officer may impose the penalty on all persons who are determined to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so.

The IRS takes unpaid withholding taxes very seriously, and is very aggressive in the pursuit of recovering these taxes when they are not paid. The IRS will seek payment of these taxes from corporate officers, directors, stockholders and management level employees. Agressive IRS officers will also seek to pursue bookkeepers or clerical staff of the company, particularly if they had authority to sign checks.

Focus on the amount of responsibility and control you had over the company's finances, and the wilfullness of your actions will ultimately control the ability of the IRS to collect the liability from you.

It is highly suggested you engage an experienced tax professional to represent you before the IRS in Trust Fund Recovery Penalty cases.

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BA Tax Service
Tel: (918) 258-0009
Fax: (918) 251-6995
505 North Aspen Avenue
Broken Arrow, OK 74012
Smith Tax & Accounting, Inc. All rights reserved.

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