Payroll Taxes & Trust Fund Recovery

Payroll tax issues are among the most serious problems a business owner can face. Unlike other types of tax disputes, payroll tax matters carry the risk of personal liability for individuals who the IRS determines were "responsible persons" -- even when those individuals were acting in their capacity as corporate officers, directors, or managers. The trust fund recovery penalty (TFRP), codified under Internal Revenue Code Section 6672, allows the IRS to assess the unpaid trust fund portion of payroll taxes directly against responsible individuals, piercing the corporate veil in a way that few other penalties can.

At Lanphier LLP, we understand the gravity of these matters and provide aggressive, strategic representation to business owners and other individuals facing payroll tax disputes in Denver and throughout Colorado. Our goal is to minimize your exposure, protect your personal assets, and resolve the matter as favorably as possible.

Understanding the Trust Fund Recovery Penalty

When an employer withholds federal income tax and FICA taxes from employees' wages, those funds are held "in trust" for the United States government. The employer is required to deposit these trust fund taxes on a regular schedule and report them on quarterly employment tax returns (Form 941). When an employer fails to remit these taxes, the IRS can assess the trust fund recovery penalty against any individual who the IRS determines was both a "responsible person" and who "willfully" failed to collect, account for, or pay over the trust fund taxes.

The IRS defines "responsible person" broadly. It can include officers, directors, shareholders, employees, bookkeepers, and even outside parties who had authority over the business's financial affairs. "Willfulness" does not require fraudulent intent -- it can be established simply by showing that the responsible person was aware of the outstanding payroll tax obligation and chose to pay other creditors instead.

Our Defense Strategy

Defending against a trust fund recovery penalty assessment requires a detailed understanding of both the facts and the law. Our defense strategy typically focuses on two key elements:

• Challenging "responsible person" status -- We examine whether the IRS has correctly identified you as a responsible person by analyzing your actual authority and role in the business's financial decision-making. Not everyone with a title is a responsible person under Section 6672.
• Challenging "willfulness" -- We evaluate whether the IRS can establish that you willfully failed to pay over the trust fund taxes. Reasonable cause defenses, reliance on others, and lack of knowledge are all potential arguments depending on the circumstances.

Resolution Options

Depending on the circumstances, resolution of a payroll tax dispute may involve negotiating an installment agreement, pursuing an offer in compromise, challenging the assessment through the appeals process, or litigating in federal court. We evaluate all available options and recommend the strategy that offers the best combination of financial outcome and finality.

If you are a Denver-area business owner who has received an IRS notice regarding unpaid payroll taxes or a proposed trust fund recovery penalty, it is critical to seek experienced representation immediately. The earlier we are involved, the more options are available for resolving the matter favorably.