- Trust Fund Taxes: Employers are required to withhold employment taxes from their employees’ payroll and pay over to the IRS this owed “Trust Fund Tax.” The most common types of Payroll Taxes are 941 taxes and 940 taxes. Whether the business is closed, files for bankruptcy protection, or continues to operate, the IRS may look to the owners, officers, and even employees of the business to collect the unpaid payroll liabilities.
- Trust Fund Penalties: If the taxes are not paid over to the IRS, personal liability will be imposed on those individuals who were responsible for, but willfully failed to collect, account for, and pay over the withholding taxes. The IRS determines this personal liability in part by interviewing individuals, including shareholders, officers, and directors of the business. The “trust fund recovery penalty” will be assessed against the parties deemed responsible for an amount equal to the unpaid withholding taxes. Liability may be imposed on more than one individual, but the total amount of the penalty would only be collected once.
Since these liabilities cannot be discharged in bankruptcy, you must attempt to find a solution.
You should act quickly.
Tax penalties will quickly reach up to 25% of the original amount owed.
The IRS is aggressive in enforcement of Trust Fund Taxes, and does not allow Trust Fund Taxes to be discharged in bankruptcy, no matter how old the tax liability is. This means that if you owe delinquent Payroll Tax, you must address the liability and find a solution.