Businesses might experience a downturn in income due to poor economic conditions or decisions. This situation might force many business owners to seek for means to inject more money into the business. With mounting bank loans and other credit facilities, the safest option might be to borrow money from the employee trust fund account. The employee trust fund account is meant to cover income tax, social security, and Medicare, which is deducted and kept from the employee wages. In times of economic hardship, these funds might be used by the business to inject cash into the business.

Note that the business is responsible for remitting such withheld funds to the IRS promptly.

In a situation when the businesses assess such funds and refuse to return the money and fails to remit it to the IRS, the individual whose duty is to effect such payment is held liable. Due to the failure to pay this fund, the IRS may charge such an individual with a trust fund recovery penalty.

When an individual is identified as the culprit behind the company’s failure to pay the trust fund tax, the IRS may impose Section 66729 (a) on such an individual. This is what is called the trust fund recovery penalty. The IRS won’t tolerate making use of their money as a short-term loan and imposing the trust fund recovery penalty is the major way by which the IRS gets what they’re owed.

The reason why the trust fund penalty is imposed on an individual is that the responsible individual is deemed to have held such fund in trust for the government. While most business structure protects individuals from personal liability, it can’t protect individuals from the trust fund recovery penalty.

The trust fund recovery penalty is set up to enable the IRS to collect unpaid withheld tax from accounts of businesses and assets of the owners.

Delinquent Taxes

Trust fund recovery penalties may be imposed as a result of delinquent employee income taxes. When a business corporation or an individual fails to remit taxes to the IRS before the due date, such taxes are said to be delinquent.

A delinquent tax is unpaid taxes which has passed their payment due date. A penalty is usually attached once the taxes get delinquent. The law permits the state tax commission to collect all delinquent taxes from individuals and businesses. When a company fails to remit withheld income tax, they also become delinquent and a penalty will be attached to it.

Unfortunately, many employers don’t know the implication of withholding payroll and employment taxes, lending without paying back or failing to submit the funds to the IRS. The implication is that the individual employees within that company will be held personally accountable for payment of those taxes which is not best for the business.

Conclusively, businesses should see the trust fund as funds that must not be used for any other purpose and it should be remitted promptly to the IRS.

If you or someone you know thinks that he/she is eligible for a claim of Trust Fund Recovery Penalty or any other Tax Liability issue now would be a great time to come in and let us help you resolve the issue. I can be contacted at (212) 320-8191 or by email at info@urgenttaxservices.com.

Urgent Tax Services

6009 16th Ave,

Brooklyn, NY 11204

Ph. (212) 320-8191

Fax (646) 626-6447

sol@urgenttaxsrrvices.com

www.urgenttaxservices.com