Trust Fund Recovery Penalty
Defending Trust Fund Recovery Penalty Cases in Maryland
The Trust Fund Recovery Penalty (“TRFP”) is a powerful tool used by the Internal Revenue Service (“IRS”) to collect the unpaid employment taxes of a company. Employers are responsible for holding the taxes and Social Security they withhold from their employees in trust and then promptly paying those funds over to the IRS. Companies that are in financial distress will often use the employees’ money for other purposes and, as a result, an assessment will be made against the company. The IRS will then conduct a thorough investigation, often using their authority to serve summons for financial records and other investigative techniques. This can take the form of either a civil investigation, conducted by Revenue Officers or a criminal investigation, conducted by Special Agents. The TFRP enables the IRS to pierce the corporate veil and make and assessments against the persons that were involved in the decision to not pay the employment taxes due from the company. This assessment is then assigned for collections and the IRS can seize the personal assets of the individuals.
It is important to have experienced tax counsel onboard as soon as possible in this process. The investigating IRS agent will certainly interview those that are potentially responsible for the TFRP. During my tenure as a Revenue Officer, I conducted many such interviews. The IRS will use this information to make TFRP assessments and, possibly, refer the matter to IRS Criminal Investigation (“CI”) for prosecution. Defenses to the proposed TFRP should be raised as early as possible in this process. If you are ultimately assessed with the TFRP, there are administrative appeal rights that must be exercised timely to prevent the assessment from being made. Once administrative appeal rights are exhausted, a disputed TFRP can still be contested in U.S. District Court. As a general rule, the IRS is overly aggressive in making TFRP assessments and many are overturned, in whole or in part, on appeal or through litigation.
Defining Willfulness & Responsibility & Seeking Legal Assistance
The law mandates that the IRS establish “responsibility” and “willfulness” in order to assess the TFRP. Responsibility requires that an individual had sufficient stature and authority within the company to authorize the payment of taxes and other corporate expenses. The corporate officers are usually found to be responsible, but this doesn’t mean that they are all liable for the TFRP. It is also possible for CFOs, controllers, vice-presidents, and managers to have their roles scrutinized by the IRS. Willfulness is satisfied if the individual knew that other obligations of the company were being met during the period that the employment taxes were not being paid over to the government. Willfulness can also be satisfied if the individual knew that that the company was in dire financial straits and, even so, was recklessly indifferent to its tax obligations. Obviously, these cases are fact-intensive and a careful analysis of those facts and the applicable law is necessary to defend a proposed TFRP assessment.
An Experienced Tax Attorney is Necessary to Prevent a TFRP Assessment
If you are or were associated with a company that has unpaid employment taxes and you were involved in any manner with its financial operations, I can assist with evaluating and minimizing your exposure to the TFRP. During my career as a revenue officer and in more than 25 years of private legal practice, I have successfully resolved many TFRP cases. These resolutions have occurred during the initial investigation, in administrative appeals, and in U.S. District Court. Please contact my office for a consultation to discuss your case and options.