I was a signor on our company checking account and now the IRS says I am liable for the unpaid payroll taxes. If the preceding sentence describes you, then you are not alone. The IRS is serious about collecting payroll taxes – very serious.
After serving the business entities’ banks with an administrative summons demanding bank account signature card copies, the IRS will review a sampling of checks to see who signed them. Revenue officers will also search public records to find out who owns the business.
Part of the Revenue Officer’s job is to determine who is liable for the trust fund recovery penalty.In many cases, simply being a signor on the checking account is enough for the IRS, although its really not the fact that you are a signor that really matters — it is whether you had the actual “authority” to approve the issuance of payroll checks.
It’s just an interview right? Wrong.
Revenue officers will then typically demand potential targets to submit to an in-person interview to answer live questions. At the end of this session the officer will fill out IRS Form 4180, “Report of Interview with Individual Relative To Trust Fund Recovery Penalty”, followed by the revenue officer’s request/demand the interviewee sign the form 4180 as factually accurate.
After the Revenue officer has interviewed all the potentially liable individuals, he/she will prepare IRS Form 4183, “Recommendation re: Trust Fund Recovery Penalty Assessment”; once this form is approved by his/her manager, the IRS will send via certified mail, to each trust fund recovery penalty target, an IRS statutory notice of deficiency letter 1153, formally alleging personal trust fund recovery penalty liability, beginning the legal procedure to assess against individuals.
Time is short.
In order to stop the IRS from assessing the penalty, the IRS letter 1153 target (in this case you) must file a written appeal within 60 days from the letter 1153 date by certified mail, return receipt requested, and retain evidence establishing timely mailing. Failure to file for an appeal within 60 days from the letter 1153 date results in the IRS assessing against the individual personally, a trust fund recovery penalty liability, and removes the future opportunity to challenge trust fund recovery penalty liability administratively before the IRS.
You waited too long. You owe the IRS! Now what?
If you have read this far and realize that you missed all your opportunities to timely appeal, you have a problem, but a couple of ways remain to effectively deal with it.
OPTION A – Pay Part of the Tax and File a Lawsuit
A. Pay a portion of the Trust Fund Recover Penalty (TFRP), file a claim for refund (an 843 Claim), and when the claim is denied sue in the United States Court of Federal Claims. Doing this can be accomplished by paying the amount due for a single employee for each quarter that was allegedly unpaid. This will bring the entire matter before the Court and allow your liability to be determined by the Court and not the IRS.
OPTION B – Make an Offer
B. File an Offer in Compromise under Doubt as to Liability stating that you are offering X to settle the entire claim, but that the legal basis for your liability is in serious doubt. Therefore, the IRS should take what you offer and call it a day. While this sounds straight forward, it will require, as would Option A, a reconstruction of the events, and we would need to obtain admissible evidence and identify possible witnesses. In the event of Option B, we could attach statements from these folks in the form of Affidavits as well.
If you prevailed in A, you would end up recovering what you paid and owe nothing. In my estimation, it is really an all or nothing argument for TFRP. You either owed it or you did not.
If you prevail in B and an offer is accepted, you must offer more than $0.00 and the argument must be strong and the offer still enough to entice the IRS to accept it. If accepted, and the offer amount is paid, your remaining liability would be zero.
What to do?
Doing nothing resulted in the assessment, but don’t be hasty either. Talk this decision over with your CPA, your attorney and your husband/wife. Neither course of action can guarantee a positive result, but if you are certain that you are on solid legal ground, either course of action is worth considering.