Understand What to Expect When a Revenue Officer Initiates a Trust Fund Recovery Penalty Investigation

If your business fails to pay its employment taxes, you may receive a visit from an IRS Revenue Officer. The Revenue Officer is there to collect the unpaid taxes as well as to initiate a trust fund recovery penalty investigation. This investigation is an attempt to uncover whether the business or its decision makers followed through with their obligation to give the IRS the employment taxes withheld from the paychecks of employees. This typically consists of income taxes and the employer’s contribution to the employees’ Social Security and Medicare accounts.

What You Need to Know About a Trust Fund Recovery Penalty Investigation

If an IRS Revenue Officer shows up at your office in order to conduct a trust fund recovery penalty investigation, you may be unsure of what to expect of the process. The following is an overview:

  1. The Revenue Officer will investigate who had the decision-making authority with regard to the unpaid employee withholding taxes.
  2. The IRS is permitted to collect part of the unpaid employment taxes directly from the individuals who were in control of the business and made financial decisions for the business.
  3. The IRS can also collect unpaid employment taxes from the business or from its owners, officers, and employees.
  4. The IRS can collect these taxes in any manner and in any proportion that it deems fit. For example, the IRS may collect 40% of the tax from the business, 10% from the owner, and 50% from the business’s CEO. The only restriction is that the IRS cannot collect more than 100% of the trust fund amount.
  5. The IRS cannot collect the non-trust fund portion of the employment taxes from any party other than the business. The non-trust fund portion of the taxes consists of the withholding taxes that were not deducted from employees’ paychecks.

Any business, business owner, or employee who is the subject of this type of investigation is well advised to seek guidance from an experienced attorney.

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