The trust fund portion of the tax liability owed by a business is made up by the medicare, social security, and federal income taxes withheld from employees paychecks. When an officer of a corporation does not in turn take these monies and remit them to the Federal Government, the officer can be liable for what is called a trust fund assessment, or Civil Penalty. In essence the employees are "trusting" the employer to remit these taxes on their behalf so they pay in their fair share of SSA, Medicare, and Federal Withholding.
Our client came to us owing the government over $300,000 in 941 liability to the IRS. We immediately started having them remit voluntary payments to the IRS and designating these payments toward the trust portion of the taxes. After our initial financial review we determined the business could afford to pay approximately $5,000 per month toward the liability. We offered this proposal to the IRS. After much consideration, a few appeals, and waiting on the IRS to get back to us the proposal was accepted. The revenue officer we worked with also worked on the trust portion of the liability as explained above. She determined both officers were responsible. At first, the liability was calculated incorrectly, but we will save these details for another posting.
When it was all said and done, we were able to negotiate a stay on the trust assessment. We had convinced the Revenue Officer that due to the liability, installment proposal, and the fact the taxpayer had made well over $45,000 or so in voluntary payments, that she should hold off on assessment. She ultimately agreed and had the taxpayers sign a waiver agreeing to an extension of the statue to collect. All this means is she did NOT assess the trust fund to the officers. Liens will not be filed against the officers, and the collection department with the IRS will not attempt to collect on this liability. The business has been current and compliant with all Federal Taxes due and current with installment payments. Our client was ecstatic when we told them the IRS would not be assessing the trust at this time.
Remember, if you work with the IRS diligently, comply, and know your rights, great things will happen!!