Minnesota businesses that are facing issues with the Internal Revenue Service will be understandably fearful as to what might happen. Not only might it negatively affect their business, but in extreme cases, it can cause them to be financially ruined and confronted with jail time.
One common challenge is payroll taxes. Even business owners who are vigilant about payroll taxes might try to skirt some rules. Perhaps they were having trouble with cash flow, did not make the necessary payroll tax deposits, and might have used money from trust funds to make up the difference between revenue and costs. The IRS tends to notice these types of behaviors, and it can lead to a Trust Fund Recovery Penalty (TFRP).
The business owner should be aware of what this means, how to avoid personal liability, keep the business operating, try to find a viable way to repay what is owed, and avoid a repeat of this issue. Anyone receiving notifications from the IRS must be protected. This is especially true for the overwhelmed business owner, who will need advice to address these matters and reach a positive outcome.
Understanding TFRP and unpaid payroll taxes
A willful failure to pay or collect payroll taxes can lead to a TFRP. The penalty will be equal to the full amount of that which was not paid plus interest. The IRS investigates and decides who is to blame for the taxes not being paid. This is known as a responsible person.
The responsible person is who controls the business and its finances. The owner will generally get caught up in the investigation. There might be subordinates such as a manager or bookkeeper, but ultimately, the owner will bear the brunt of the allegations.
If the IRS believes the behavior was willful, it does not necessarily mean the person was committing criminal acts intentionally, but they might have taken steps to try and retain some financial flexibility to continue the business operation and used money that was earmarked for the payroll tax to do it. Paying vendors is one example.
There are myriad potential penalties along with 100% of what was unpaid. It could include penalties for failing to deposit; failure to file; interest; and criminal penalties. The criminal penalties will come about if particularly excessive behaviors took place such as failing to pay the taxes for an extended time-period. There are defenses to these allegations and ways to appeal.
Recognize the problems with TFRP and know how to be protected
There are several negative outcomes that can come with the TFRP. They include business and personal assets being seized; criminal charges; the business closing entirely; damage to the individual’s and the business’s reputation; not being sure where to turn; and the nonstop notices from the IRS.
As the investigation proceeds, it is imperative for the business owner to understand all aspects of tax law and be aware of the available options. There could be a settlement to pay what is owed. There could be a review of the charges, an appeal, and mediation. Regardless of the allegations, the business owner must be protected and have assistance from professionals who are fully experienced in tax law and know how to help those in trouble.