What are employment taxes?
The most forceful collection activities are applied to collect past due employment taxes. Employment taxes are one type of Trust Fund Taxes, meaning that the business owner has withheld the taxes with the purpose of sending them to a government body. Another type of Trust Fund Tax is sales tax collected.
Who is responsible for paying?
I have helped a substantial number of people survive collection of trust fund taxes. I can probably help you, too.
A business owner has personal liability for wage withholding taxes or for sales taxes collected, because the money was collected “in trust.” Within the IRS, the personal liability is imposed through IRS Code Section 6672, which governs “trust fund recovery penalty assessments.” A hearing process must take place before the trust fund penalty can be assessed. Only rarely does the IRS seek to impose the penalty against the wrong person, such as a bookkeeper.
While past due income taxes rarely lead to seizures of property, past due trust fund taxes often will result in a seizure if not promptly (and courageously) confronted and resolved by the taxpayer and counsel.
What is wage withholding?
Wage withholding in the form of trust fund taxes is aggressively collected because the government must provide social security benefits and pay tax refunds based on the withholding, whether or not the money was collected.
Wage withholding is comprised of two elements: the employee’s share and the employer’s share. How much of the withholding is paid by the business owner will depend on the fact pattern –whether the business is currently operating, the type of business entity (corporation, LLC or sole proprietorship), the responsibilities of the several business owners, etc. The payment of past due employment taxes has a number of complexities to it which may not be appreciated by professionals outside of the tax field (and even a number who represent themselves as expert in tax.) The amount the business owner pays may vary by as much as 60%, depending on the fact situation and on the professional advice he or she receives.
Who can help me?
I have helped a number of people survive collections of trust fund taxes. As I look at the internet, I realize that many other “tax experts” don’t know how to correctly represent a person with past due payroll taxes. Please get good advice on this point.
Please also see 100% penalties.