Who is Liable for a Business’s Unpaid Taxes?
In an ideal situation, a business’ profit would be used to pay any outstanding tax debt and systems would be in place to pay necessary employment taxes. However, as we all know, this does not always happen and the IRS expects to receive any unpaid taxes. So, what happens when a business has not paid or cannot pay their taxes? As with most things, the answer is a bit complicated. In truth, there are many people who are part of the business who can be held liable for this debt, so it may be helpful to think ahead about protecting yourself if you think you may be liable.
The Trust Fund Recovery Penalty
If you are the business owner, an officer, decision maker or even the individual responsible for writing office checks, it is possible that you could be assessed a penalty personally for the business’s unpaid debt. This is called the Trust Fund Recovery Penalty, for anyone who willfully failed to withhold the trust fund portion of the 941 liability. The IRS interpretation of “responsible party” is quite broad, and there have been recent cases which have surprisingly ruled against individuals with limited knowledge and control of the employment taxes being paid. These penalties are extremely serious and can have an incredibly negative impact on your financial future and your credit score. This penalty is not waived even in circumstances of bankruptcy, so it is absolutely in your best interest to avoid the penalty altogether.
What can you do to protect yourself?
One strategy is to make sure if you are beginning work in a business, you include language in your contract or employment letter concerning the level of your responsibility. This is especially important if you do not have knowledge or responsibility over how the employment taxes are paid. That way, if anything were to be remiss with the business paying the IRS, you are protected.
Another critical step you can take is to seek help or guidance from a tax firm if you have questions or concerns about whether your business is paying appropriate employment taxes. A reputable and experienced tax firm can review your unique situation and help determine the level of risk that you have and help you put in additional safeguards to protect yourself from being held responsible for this significant debt.
Seek help and guidance for complicated tax issues
Success Tax Relief specializes in resolving a wide variety of tax issues for our valued customers. We have been working with individuals and businesses all over the country for more than a decade and have extensive experience negotiating directly with the IRS, so our customers do not have to. We can help you avoid being subject to the Trust Fund Recovery Penalty and thus not responsible for the tax debt of the business you are affiliated with. Give our trained tax specialists a call at (877) 958-6638 for a free consultation. Paying your own taxes is enough of a burden – make sure that you are not responsible for anything more!