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Don’t let the trust fund recovery penalty derail your business

On Behalf of | Jun 21, 2021 | Tax Law |

Business operations and taxes are inextricably intertwined. Regardless of how your business generates its income, taxes will need to be paid unless you can find enough exemptions and credits to shield you from that liability. Even seemingly minor mistakes can be extrapolated to result in penalties that can be financially ruinous to your business and, perhaps, to you on an individual level.

A quick look at the trust fund recovery penalty

The trust fund recovery penalty is one of those penalties imposed by the IRS that can have a huge impact on your business’s financial stability. Businesses are often hit with this penalty when they withhold Social Security, Medicare, and income tax payments from employees’ paychecks, but then fail to pay that money to the government.

The penalty imposed on those businesses that fail to pay these funds is equivalent to the taxes that were unpaid. That means that if you failed to pay $100, then you’d end up owing the IRS $200: the initial $100 owed in taxes plus the $100 penalty. Of course, if you’re like most businesses, then you’re dealing with tens or even hundreds of employees who are paid on a biweekly basis. So if taxes are underpaid for multiple employees over a significant period of time, then the penalty can be devastating.

Proving the penalty

Before the IRS can impose the trust fund recovery penalty, it has to prove certain legal elements. Amongst them are that you were aware of the unpaid taxes and willfully ignored the law. This is often done by showing that you intentionally set aside those tax funds and used them to pay other bills.

Know how to defend yourself in complex tax matters

The trust fund recovery penalty is a serious matter that can have tremendous ramifications for your future. With that in mind, it’s imperative that you know the law and how to use it to your advantage. This may mean acquiring the assistance of a skilled legal advocate, such as those at our firm, who have a track record of successfully dealing with and beating the IRS in these kinds of cases.