In the United States, the phrase trust fund recovery penalty refers to an illegal tax liability assessed against the officers or directors of an unincorporated business entity that failed to pay a required personal tax on behalf of all its employees. This type of tax is a penalty imposed because of an inability to satisfy the requirement of the Internal Revenue Code. In some instances, the penalty assessed can be in excess of 20% of the total penalty or fee assessed. The failure to pay the tax imposed on an individual or company by an unincorporated entity may result in serious financial consequences for those individuals and companies involved.

Individual taxpayers face the prospect of having their wages garnished. Wage garnishment occurs when a collector takes your wages directly from your checking account, bank account, or another specified bank account. The number of wages to be garnished can vary, but typically it is around ten percent of the monthly salary. This penalty is assessed whether you were able to pay your payroll taxes on time or if you did not pay at all. It is possible to receive a more severe wage garnishment penalty if you owe more than ten thousand dollars.

A business could be assessed payroll taxes due in excess of the thirty days allowed. If you are granted a penalty for late payroll taxes, you will be required to pay the entire penalty plus any additional interest and fees. There is no grace period associated with the assessment of payroll taxes; however, the statutory penalties do become less severe as time goes on. You can be penalized for not paying your payroll taxes on time even if you believe that you have a valid explanation for the late payment. The IRS is not required to validate your payroll deductions or wages, so the burden of proving that you were not able to pay your payroll taxes falls squarely on you.

The IRS also has an interest in collecting back taxes from businesses that have signed up for Self-Employment Identification (ESI) cards. Businesses may be assigned an Interest Paid Account (IA) for the tax year in which they owe the tax. If they fail to pay their taxes in the specified period, the holding of the IA will be considered an insufficient balance, and the IRS will place a lien against your business assets. If the holding period expires, the IRS can issue a large penalty for failing to repay the withholding tax.

In addition to income taxes, the IRS may also go after a payroll tax or a self-employment tax. Both of these types of federal tax obligations are considered income taxes. Trust funds are considered the “excess” funds left over from a payee’s check, after deductions, and before the applicable tax is due. Once an individual receives the funds, they are required to pay the taxes unless they can prove that the funds are exempt. For some taxpayers, that proof may be found by way of trust fund recovery penalties.

In order to settle your payroll or self-employment taxes, you can work with a certified public accountant (CPA). If you don’t have one, many reputable bookkeepers specialize in trust fund recovery. A qualified CPA can help you settle the income taxes and administrative fees associated with your payroll or EFRBS. They can also help you to determine which of the two tax relief options may be right for you and your particular situation.

Trust fund penalty abatement involves the process of notifying the IRS about your financial hardship. If you can show that you can afford to make the payment, the penalty may be waived. At this point, the agency will review your request and either allow you to settle the debt in full, reinstate the tax, settle the penalty, or negotiate another plan with the agency in order to settle the debt.

Trust fund penalties on EFRBS plans are different than penalties for filing federal tax returns. These types of funds operate independently from the U.S. government. To avoid charges on the tax due and any penalties associated with them, you and your trustee must work out an agreement before the start of the debt. This ensures that you pay the right amount of taxes and abate any penalties associated with the tax without going through a cumbersome process. For more information on trust fund recovery penalty, contact IRS Help Attorney now.

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