The 100 percent payroll tax penalty is one of the worst tax problems that can befall a business. Formally known as the Trust Fund Recovery Penalty, this penalty of as much as 100% applies when income taxes and FICA taxes (social security and Medicare) are withheld from employees but not submited to the government.
The penalty is imposed by the IRS on any responsible person whose actions are deemed to be willful. This may include owners, officers, partners, bookkeepers, accounting firms, attorneys, lenders/creditors, parent companies or purchasing companies.
The assessment process starts with a letter from the IRS. The letter offers a critical 60-day response period. During this period, the individual and their CPA or attorney will develop a carefully formulated response strategy, including a hearing with the office of IRS Appeals.
What is the take away from this topic?
Businesses must always, always pay their payroll taxes on time.
Never use withheld taxes as a short term loan for any purpose, no matter how good your intentions are.
Be careful as to who has authority to sign checks and authorize tax payments, and be aware of what they are doing.
Open letters from the IRS right away and treat them as urgent. It is a good idea to show them to your CPA as soon as you receive them.
Questions? Feel free to reach out. I am happy to help the members of this community.