The Buck Stops With You: The Truth About Trust Fund Assessments

Trust fund - assets held for beneficiary's benefit - The Complex Tax Law Firm, LLCWhen it comes to tax responsibilities, the old saying holds true: The buck stops with you. As the business owner, you’re ultimately responsible for ensuring your employees’ payroll taxes are properly handled. So while it’s not uncommon to hear stories about others being involved in tax-related tasks, such as an ex-spouse managing the books or a CPA mishandling employment tax returns (941s), the IRS doesn’t let anyone off the hook easily.

At the end of the day, it’s the business owner’s neck on the line, and in some cases, even a third party like a bookkeeper who was aware of the issues can be held liable. What’s more, the IRS doesn’t hold employees accountable for payroll taxes. So, if taxes were withheld from an employee’s paycheck but not sent to the IRS, it’s the business owner who faces the consequences. This can lead to significant liabilities and serious personal repercussions. The IRS views this lack of payment as theft and fraud, and these situations trigger a trust fund assessment.

Trust fund assessments can be substantial, and it’s essential to address them promptly. I’ll share a couple of examples to illustrate how these assessments can play out and how to handle them effectively.

The Trust Fund Recovery Penalty For Employment Taxes

Here, I’ll share both a cautionary tale and a success story to demonstrate the do’s and don’ts of handling trust fund assessments…

The Cautionary Tale: A Business Owner Who Pointed Fingers & Ran Away

Years ago, I was called in to represent a staffing company. In a situation that’s quite common in the staffing industry, this company didn’t have many physical assets; it was all about lending employees to other businesses. This particular staffing company was providing employees to a major computer company, and there was a significant amount of money changing hands. Unfortunately, the person in charge lost control of the taxes and, in the end, there were millions and millions of dollars in trust fund assessments.

In the face of this, the individual behind the staffing company was reluctant to take any action on their own behalf. It became a tangled mess of finger-pointing – this person didn’t file that return, that person didn’t pay this money, and so on. At some point, I had to have a frank conversation with the owner. I explained that it didn’t matter whose fault it was. The assessments were in their name because they were listed as the owner of the company. The taxes were owed.

However, they persisted in claiming that they didn’t owe the money, and the IRS pursued the matter to the extent that they decided to leave the country. Naturally, this forced me to discontinue my representation because I don’t handle cases involving individuals engaged in international tax avoidance. From my perspective, this ending demonstrates just about the worst-case scenario.

The Success Story: A Partnership Who Took Responsibility & Came Out On Top

Now, let me share a positive example of how to handle a trust fund assessment. My client operated a medical health company that had individuals in their nursing homes who didn’t actually qualify for medical aid. As a result, they had unpaid balances because the government didn’t reimburse them for the services they provided. Once again, we were looking at millions of dollars in trust fund assessments.

However, in this case, the two individuals involved were quite forthright about the situation. So, after some time and some substantial negotiation, we managed to arrange monthly payments of around $500 for the millions they owed. The IRS recognized that it was a case of a failed business and was willing to work with them. And my clients? They understood that the aim of the IRS wasn’t to bankrupt them, but to ensure they made an honest effort to pay off the assessments.

Of course, it’s not an ideal situation when the IRS is pursuing you for trust fund assessments due to theft and fraud. However, there are steps that can be taken to either delay these assessments so they can be paid, or once they are assessed, to protect your income and assets as an officer. The goal is to enable you to continue your life without being burdened by crippling debts – or facing the prospect of being criminally charged and prosecuted for international tax avoidance.

For more information on The Buck Stops With You: Trust Fund Assessments, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (303) 720-6573 today.