If you run your own business, whether large, medium, or small, your taxes and accounts will almost certainly result in you spending a great deal of your time on matters that you aren’t completely comfortable with. If you employ anybody, no matter who they are, or what their role in your company is, you need to understand how the law works regarding TFRP 4180, also known as the Trust Fund Recovery Penalty. You see, when you are an employer, you withhold employee social security and Medicare payments from their paycheques each month, along with income taxes in most cases. By law, you are legally obliged to hand this money over to the IRS. Failing to make these payments will result in the government taking action, usually coming in the form of a very steep penalty. The penalty in question is the TFRP 4180 and it is this penalty which we are going to look at today.
What is the TFRP? – The Trust Fund Recovery Penalty, also known as the TFRP, is a penalty which employers may face if they withhold Medicare, social security, or income taxes from their employee’s paycheques, but fail to pay this money to the IRS. The IRS, as you probably are aware, do not pull any punches when they’re owed money, and if you get on the wrong side of the taxman, there will always only be one winner. As you know, the IRS has the legal ability to impose a wide range of fines on people, for all kinds of things. The TFRP however, is one of the largest penalties that the IRS can charge. This serves as some indication of just how seriously the IRS takes withholding/missing payments and if you owe them, they will not hesitate for one second to recoup their money, either in the form of a hefty fine, or by seizing your assets, or possibly even both.
Get a free case evaluation today by calling us at 877-788-2937.
Who is at risk? – In reality, anybody is at risk when it comes to the TFRP 4180, as the penalty can be levied upon absolutely anybody who happens to have withheld trust fund payments and taxes to the IRS. So, whether you’re a CEO, a director, or a business owner, you can face a very steep penalty if you aren’t careful and if you don’t abide by the law. Bookkeepers, accountants, third-party payroll administrators, and even employees, can also be hit by a fine. Basically, any individual in an organization that is responsible for collecting and/or paying the taxes in question, can be faced with a TFRP fine. Before a fine can be invoked however, it is down to the IRS to prove that the people in question were indeed fully aware that these payments were due, and that they deliberately withheld them and failed to pay to the IRS. Basically, the IRS needs to be sure that the individual in question deliberately ignored the law.
How much is the fine? – We mentioned earlier that the IRS does not mess around when it comes to the TFRP 4180, and you’re about to see proof of this right now. This fine is equal to the amount of money that the organization/individual in question, owed to the IRS. So, if this has been going on for a number of years, and an employer was doing this with each of his employees each month, you can imagine how much the individual in question would owe. This means that the individual not only has to pay back the money owed to the IRS, but they also have to pay the amount owed as a penalty. So, say for example, they owed the IRS $2000, they would pay back the $2000 they owed, plus an additional $2000 in the form of a fine. Now, if you imagine a large organization, employing more than 20 people, if the business owner was withholding payments for each of the employees, over the course of several years, this shows you just how much money they could end up owing.
How does the procedure work? – If the IRS suspects that a company/individual, is withholding money and has not been paying trust fund taxes, the IRS will launch an investigation and look into who is responsible. This process alone can cause business owners a great deal of hassle and hardship, as the IRS will request a whole variety of legal documents and paperwork from the company in question. This can be anything from employee payslips to bank statements, and they may even request info on individuals that have access to bank cards and info relating to the company accounts. This is so they can try to figure out who is controlling the money, and so that they can figure out where it may be going. Once the IRS is confident that they have a rough idea of who is responsible, the next part of the process will be the IRS requesting a meeting with the individual/individuals in question. This meeting is sometimes known as a Form 4180 interview and here the IRS will ask questions about the individual’s name, personal details, their role at the company, and so on. The aim of the interview is basically to establish whether the individual in their sights is indeed responsible for withholding trust fund taxes, and whether or not it was deliberate.
How to settle the penalty – The easiest way to deal with a TFRP is to avoid it in the first place. If the IRS is pressing you for payments however, the thing to remember is that you do have options. If you can’t afford the full amount, you can work with them to setup an installment agreement, or perhaps a monthly payment plan so that you can pay it off little by little, without taking too large of a financial hit. There is also an ‘Offer in Compromise’ program or a ‘Partial Payment Installment Agreement’ where you can reach a deal to pay back less than you owe. Speak to the IRS and figure out what your options are, and do that ASAP, as the IRS has the ability to garnish your wages, and to seize your assets. It is also very important to remember that filing for bankruptcy will not discharge the penalties in question. The best thing to do is to hire professional tax representation firm and experts, who will advise you on which steps you should take next.
Get a free case evaluation today by calling us at 877-788-2937.