The IRS utilizes a very broad definition of “responsible person” in the context of trust fund recovery penalties. The term, which may extend to more than one party within a corporation, partnership or LLC, applies to any person who willfully fails to perform a duty to pay trust fund taxes. It may be a corporate officer, director, employee, or shareholder, as well as a manager, employee, or member of a limited liability company. If a person is in any of the aforementioned positions where he or she controls a business’s financial affairs, liability as a responsible person for trust fund recovery penalties is a genuine possibility.
A responsible person under I.R.C. §6672(a) is:
Any person required to collect, truthfully account for, and pay over any tax imposed by this title 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, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
For the IRS to assess a TFRP, two tests must be applied. The first determines whether an individual is a “responsible person” and the second determines whether this person, if deemed responsible under the first test, willfully failed to pay the required taxes. The IRS is authorized by I.R.C. §6672 to pierce the corporate veil and proceed against any person who is responsible for the company’s failure to deposit payroll taxes. A failure to pay payroll taxes is willful if it is a voluntary, conscious, and intentional. It may not be a negligent act. To be willful, an individual must either know of or recklessly disregard the payment of taxes when due. All the facts and circumstances of a case are considered in any determination of liability.
The term “person” in §6672 includes, but is not limited to the following:
- Officer or employee of a corporation;
- Partner or employee of a partnership;
- Member or employee of an LLC;
- Corporate director or shareholder;
- Another corporation; and
- Surety or lender.
- Payroll Service Provider (PSP)
- Responsible parties within a PSP
- Professional Employer Organization (PEO)
- Responsible parties within a PEO
- Responsible parties within the common law employer (client of PSP/PEO)
If you have are an employer, especially one facing financial difficulty, and have questions or concerns about payroll taxes and/or the trust fund recovery penalty, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
