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Can you overcome a trust fund recovery penalty?

On Behalf of | Apr 3, 2019 | Tax Controversies

As a Massachusetts business owner, executive or bookkeeper with employees, you know that you are responsible for keeping a portion of each worker’s check for withholding and Social Security taxes. After putting these amounts in a trust, you are to transmit them to the IRS. When the agency believes you failed to fulfill this duty for some reason, it could find you personally responsible for a trust fund recovery penalty.

If this happens to you, your company or the Massachusetts business you work for, it may not be necessary for you to pay this penalty yourself. You have the right to contest it and defend yourself. There are certain defenses to this accusation and associated penalty.

First, you can show the IRS that the failure to transfer the funds was simply an error. If you prove that you did not willfully withhold the money, the agency may decide that pursuing the matter is not necessary. You could also show that you were not directly responsible. If you are not in direct control of the account because you are not a signatory, then you may not be held liable. Finally, if collecting the funds is not possible, the IRS may determine that pursuing the case would not be economically feasible.

The one thing you should never do is ignore communications from the IRS, especially if a potential penalty is involved. Doing so will only make the matter worse and more than likely prompt the agency to diligently pursue collection of the trust fund recovery penalty, believing that it was a willful act. Instead, you may want to find out what your rights and legal options are for resolving the matter in the best possible manner.


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