In last week’s blog, here, I spoke about the actions that the IRS takes against a business to collect delinquent payroll taxes, known as “trust” taxes.

What makes payroll taxes different than federal income tax is that the IRS had the ability to collect delinquent payroll taxes not just from the business itself but also from individuals who are considered “responsible persons” due to their role in the business or their relationship with the business.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

I also help businesses that have delinquent payroll tax problems.

“Trust taxes” are the federal income tax, Social Security and Medicare taxes (FICA) withheld from each employee’s paycheck.

Internal Revenue Code section 6672 allows the Internal Revenue Service to recover “trust funds” withheld from employee’s pay from “any person required to collect, truthfully account for and pay over any tax imposed” and “who willfully fails to collect such tax or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof”. This code section also allows the IRS to assess a penalty, called the “Trust Fund Recovery Penalty”, equal to the amount of federal income tax, Social Security and Medicare tax (FICA) withheld from employee’s and not forwarded to the US Treasury.

 “Responsible persons” may include:

  • Business Owners
  • Partners
  • Financial Officer(s)
  • Outside accounting firm

Internal Revenue Code section 3505 allows the IRS to collect delinquent payroll taxes from third party lenders.  These companies lend money to businesses to cover payroll expenses and the business may not then pay the “trust taxes” to the government. In that case, the IRS attempts to collect from the lender. Unfortunately, family members who lend money to business owners to cover payroll expenses may get caught up in this if the loan is specifically for payroll and the business doesn’t forward the taxes withheld.

If your business is falling behind on paying your payroll taxes and filing payroll tax returns, please call me before the IRS finds you.  I can help.