When businesses fail to remit payroll tax, the IRS has a time frame within which they can legally collect such funds from the business. This stipulated time frame is known as the “collection statute.”

Although the IRS has a definite period to collect the trust fund, some businesses may find it difficult to pay back the taxes within the statutory period. When such happens, the IRS will allow the company to stay in business once it keeps servicing the debt regularly. After the expiration of the statute, any debt remaining is written off and termed as “noncollectable” by the IRS.

In the same vein, a part of a company’s payroll tax liability may include trust fund tax. Trust fund taxes are funds held in trust for the employee and are meant to be remitted to the IRS.  Trust fund liability is when such funds are withheld by individuals and not paid.

When a business accumulates payroll debt, the IRS may go after responsible individuals who are supposed to pay the trust fund tax. In most cases, the business owners are the responsible individuals, but it may also include employees whose duty is to handle cash and tax deposit transactions. After the trust fund recovery penalty assessment is made, the business may still be opportune to pay back the unremitted tax instead of the individuals.

As long as the business chooses to take the responsibility, it is not typical for the IRS to keenly seek the trust fund tax collection from assessed individuals.

Assessment Statute Expiration Date

Business owners, as well as the responsible employees, may be personally assessed in regards to the trust fund recovery penalty (TFRP). However, the IRS is bound by time constraint as they only have three years from the trust fund tax accrued date to assess business owners or individual employees.

At the expiration of three years, the assessment statute is no longer active and the IRS loses the right to legally pursue the collection of any trust fund taxes from the responsible individuals for the tax.

For an individual been assessed in regards to trust fund tax, a 10-year standard collection period applies, which begins with the date of filing a return that shows the balance due, and extended through periods in which the business makes an appeal request or other actions which prohibits the IRS from collecting the tax.

Also, it could be ten years from the date a return was filed by the IRS to the company, which happens in the case that the business fails to file a return on its own. The IRS makes use of the most recent of these events to determine the expiration date of the statute.

A trust fund recovery penalty appeal typically extends the statute by only a few months, but filing for an offer in Compromise request may extend the collection statute by few years.

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