An Experienced Atlanta Attorney Offering Support For IRS Payroll Tax & Trust Fund Tax Problems

If you own a business, you should be paying attention to payroll taxes and trust fund taxes, unless you want the IRS to be your worst nightmare and cause you many sleepless nights with accruing tax liabilities.

Trust fund taxes are the federal and state withholding amounts withheld from your employees’ paychecks. The reason they are called trust fund taxes is because the business is supposed to hold the funds “in trust” for prompt reporting and payment to the IRS and state government
When business owners face issues with unpaid payroll and trust fund taxes, they can benefit from the support of a knowledgeable tax attorney. Our attorney is a CPA with extensive knowledge of state and federal tax law. We can help you address payroll and trust fund tax issues and resolve them efficiently and effectively.

Understanding IRC § 6672 And Personal Liability For Payroll Taxes

Most business owners know the IRS can pursue the company for unpaid payroll taxes. Far fewer realize the IRS can also come after them personally. That authority comes from Internal Revenue Code § 6672, the Trust Fund Recovery Penalty.

Under IRC § 6672, the IRS can assess the full amount of unpaid trust fund taxes – the income tax and FICA withholdings taken from employee paychecks – directly against any individual it classifies as a responsible party. To make that assessment, the IRS must find two things: that the person had the status, duty and authority to collect and pay over the taxes and that the failure to do so was willful.

Willfulness does not require criminal intent. The IRS can find willfulness if you knew the taxes were due and used company funds to pay other creditors first. Officers, directors, shareholders, bookkeepers and outside accountants have all been assessed under § 6672. The IRS can assess more than one responsible party for the same liability and collect from all of them at the same time, though it cannot collect more than the total amount owed.

A corporate structure provides no shelter here. Trust fund taxes are not dischargeable in bankruptcy. Once the personal assessment is made, your bank accounts, real estate and other personal assets are fully exposed. A § 6672 threat calls for immediate action, not a delayed response.

IRS Letter 1153 And The Critical 60-Day Appeal Window

Before the IRS formally assesses the Trust Fund Recovery Penalty against you personally, it sends IRS Letter 1153, a proposed assessment notice. The deadline this letter carries is firm and missing it has serious consequences.

From the date on Letter 1153, you have 60 days to file your appeal. For proposed penalties under $25,000, you can file a small case request. For larger amounts, you must file a formal written protest that identifies the factual and legal basis for your dispute and meets specific IRS formatting requirements. Your case then goes before an IRS Appeals Officer, and you have the opportunity to argue that you are not a responsible party, that your failure was not willful or that the penalty amount is wrong.

Once that 60-day window closes, the IRS can assess the penalty without further review. At that point your options are limited to paying the penalty and requesting a refund or challenging the assessment in federal court, both of which are slower and more expensive than contesting the proposed assessment before it becomes final.

If you receive Letter 1153, contact a tax attorney the same day. The difference between a contested proposed assessment and a confirmed personal liability can be hundreds of thousands of dollars, and that difference turns entirely on what happens inside those 60 days.

Strategic Resolution Options For IRS Payroll Tax Debt

Once trust fund taxes are in default, the right resolution path depends on the size of the liability and the current condition of the business. Several options exist and each has specific requirements.

Appeals and Penalty Challenges

A formal appeal of Letter 1153 is the first line of defense. Beyond the 60-day protest window, businesses can also challenge failure-to-deposit penalties, which can reach 15% of the unpaid amount, by demonstrating reasonable cause rather than willful neglect. A written statement with full documentation is required, and each request is reviewed on its own merits. Appeals handled through the IRS Office of Appeals can produce significant reductions without going to court.

In-Business Installment Agreements

An operating business that cannot pay its 941 payroll tax balance in full may qualify for an In-Business Trust Fund Express Installment Agreement. The total liability must be $25,000 or less, though you can pay the balance down to meet that threshold. All current filings must be up to date and the agreement must be structured to pay in full within two years or before the collection statute expires. Balances over $10,000 require a Direct Debit arrangement. This option lets the business stay open and running while the debt is resolved on a fixed schedule.

Offer in Compromise for 941 Tax Debt

Settling 941 payroll tax debt through an Offer in Compromise is possible, but the conditions are tighter than a standard OIC. The IRS will not open the review until the trust fund portion is paid in full or the Trust Fund Recovery Penalty has been formally assessed against every responsible party in the case. One exception exists: where the delinquency traces back to a payroll service provider that committed fraud or simply failed to make deposits on the business’s behalf. In either scenario, thorough financial documentation has to be in place before a decision to file is made.

Penalty Abatement

For businesses with a clean prior compliance history, First Time Abatement can eliminate certain failure-to-deposit and failure-to-file penalties without a showing of reasonable cause. Reasonable cause abatement is also available where the penalty resulted from circumstances outside the business owner’s control, including reliance on a third-party preparer who did not remit deposits. Each abatement request stands on its own documentation, so the written submission has to be specific and thorough.

How Do Business Owners End Up In Difficult Situations?

Two of the most common ways business owners end up in trouble with trust fund tax delinquencies are when they experience cash flow problems and an economic downturn. Regardless, responsibilities remain. Employees want to be paid, suppliers and vendors insist on payment or they won’t ship or fulfill orders and the bank and lenders insist on their payments every 30 days. The only ones not hassling you initially are the IRS. You intend to pay it when the big check for this job comes in and all will be well. Then, something happens and the company doesn’t receive the big check. You then miss a payment and it doesn’t take long until the IRS notice or agents come knocking.

Another common scenario is that you hired a bookkeeper or an employee of the company who is responsible for filing the return and making the proper tax payments. However, one day your employee doesn’t come to work and it is discovered they have been embezzling the trust funds rather than forwarding them to the IRS. This does not necessarily excuse you, as the business owner, from the obligation to pay the IRS the trust fund taxes, the interest and the penalties.

Because the IRS views trust fund taxes as its money, it views unpaid trust fund taxes as embezzled funds, and it will aggressively seek to collect its money. Having an incorporated business or filing for bankruptcy will not resolve the problem because trust fund taxes are not dischargeable in bankruptcy. If left unpaid, the business trust fund taxes will eventually be assessed personally against the responsible parties.

Because in these scenarios, you are not innocent until proven guilty; you have the burden of proof that you are not the responsible party. This is the person or persons who the IRS determines have the status, duty and control over the finances, and it is determined on a case-by-case basis. The IRS can deem more than one person a Responsible Party and can collect from all of them at the same time. However, they cannot over-collect unpaid liabilities.

If you find yourself in the middle of a mess like those described above, employing an experienced tax attorney and CPA can be invaluable. Atlanta tax attorney and CPA Jeffrey S. Gartzman is a consummate professional with over 40 years of experience representing businesses and individuals facing challenging and complex legal and tax issues. From preparing unfiled or amended returns to helping you explore penalty relief options, The Gartzman Law Firm can help you protect your business from tax issues.

Did One Of Your Employees Commit Fraud?

Too often, even if people notice signals pointing to internal theft, they may mistakenly ascribe them to chance, error, coincidence, or some other benign circumstance. Then they ignore signals like:

• Double talk or inconsistencies
• Borrowing
• Violent temper or other unpleasant behavior
• Expensive habits
• Having or spending more than earnings could support
• Disgruntled
• Never takes time off
• In transition-marriage, divorce and children
• Money problems
• An abnormal fear of or antagonism toward security or management personnel

A thief, like a magician, depends upon your misinterpreting the obvious or upon his or her ability to confuse you. Do not be deceived, distracted or misled. Trust your gut. Even if a signal of fraud seems too obvious to actually be fraud, don’t ignore it.

Can You Prevent Fraud?

Preventing fraud is well worth your effort because the work you invest will be less work than dealing with fraud after the fact. Here are some prevention techniques:

• Have checks and balances measures in place internally.
• Hire an outside firm to audit your books annually.
• As the business owner, always confirm that you have filed returns and paid trust fund taxes quarterly.

Taking these steps does not guarantee fraud will never happen, but it puts you in a far stronger position if the IRS ever questions who was responsible for a payroll tax shortfall.

Georgia Department Of Revenue State Withholding Defense

Georgia state withholding taxes run parallel to federal payroll obligations and are enforced separately by the Georgia Department of Revenue. Falling behind on state employer withholding produces its own set of consequences that do not wait for the IRS to wrap up its own collection process.

The DOR assesses a $25 base charge plus 5% of the tax withheld for each late filing period, up to a maximum of 25%. Interest accrues monthly from the original due date at the Federal Reserve prime rate plus 3%, and any partial month counts as a full month. The DOR pursues unpaid withholding through tax liens, wage garnishments and bank levies under Georgia law. Under O.C.G.A. § 48-7-127, willful failure to withhold and remit state taxes is a criminal violation, not just a civil matter.

Resolution options include penalty waivers under O.C.G.A. § 48-7-126 for taxpayers who can demonstrate reasonable cause, submitted through Form TSD-3, and installment payment plans through the Georgia Tax Center or by mail using Form GA-9465. A resolution with the IRS does not close your Georgia account. Our firm handles both the federal and state sides of a payroll tax defense so nothing falls through between the two agencies.

Our Four-Step Payroll Tax Defense Workflow

When a business owner contacts our firm with a payroll tax problem, we follow a defined process built around protecting your assets and keeping the business open:

• Pulling IRS transcripts and DOR account history, confirming all outstanding 941 balances, identifying any Letter 1153 deadlines and evaluating whether any personal assessments have already been made
• Determining who qualifies as a responsible party under § 6672 and building the factual record to challenge the IRS’s designation where it is wrong or overstated
• Selecting the right resolution track based on the size of the liability, the business’s current condition and the stage of collection, then preparing the financial disclosures and legal arguments that track requires
• Confirming all current and upcoming federal and state payroll deposits are on schedule, because both the IRS and the DOR require continued compliance as a condition of any resolution

Every payroll tax matter is different. What does not change is the need to act before the IRS does.

Frequently Asked Questions About Payroll Tax Defense in Atlanta

Business owners across Fulton County, DeKalb County and Metro Atlanta dealing with IRS payroll tax enforcement ask the same questions when they first call. Here are direct answers to the three we hear most.

What is IRS Letter 1153, and how long do I have to respond?

IRS Letter 1153 is the IRS’s proposed assessment notice for the Trust Fund Recovery Penalty under IRC § 6672. It means the IRS intends to hold you personally liable for your business’s unpaid payroll taxes. You have 60 days from the letter’s date to appeal. Proposed penalties under $25,000 use a small case request. Larger amounts require a formal written protest. Once that window closes the IRS can assess the penalty and your options narrow considerably. Treat that 60-day deadline as a hard stop.

Can the IRS take my personal assets for my business’s unpaid payroll taxes?

Yes. Under IRC § 6672, the IRS can assess the Trust Fund Recovery Penalty directly against any individual it designates as a responsible party. That assessment attaches to your personal assets, your bank accounts, real estate and other property, not just the business’s. Corporate structure and bankruptcy do not protect you because trust fund taxes are not dischargeable. The IRS can pursue multiple responsible parties simultaneously for the same liability.

Can an active business get an IRS installment agreement for payroll taxes without closing down?

Yes. The In-Business Trust Fund Express Installment Agreement is designed for operating businesses that need time to pay a 941 payroll tax balance. The liability must be $25,000 or less, all current filings must be up to date and the agreement must pay in full within two years. Balances over $10,000 require Direct Debit. Qualifying businesses stay open and operational under a fixed monthly payment while the debt is resolved.

You Do Not Have To Face Tax Issues Alone; Call An Experienced Attorney Today

Squaring off against the IRS regarding unpaid payroll taxes or trust fund taxes without skilled tax representation is a surefire way to risk not only incurring severe financial penalties but also possibly even losing your business altogether. Call us in Atlanta at 770-695-7337. You can also email us to request an appointment.