6 Tips for Avoiding the Trust Fund Recovery Penalty

If you are running a business and it is not withholding or remitting payroll taxes to the IRS, you should be aware of the trust fund recovery penalty. This penalty can make the business’ payroll taxes your personal tax problem.

The IRS is able to assess the penalty against you individually. That means that the IRS can go after your personal assets to satisfy the liability.

The dollar amount for trust fund recovery penalties are typically quite large. The penalty is equal to the amount of the unpaid payroll taxes.

With that background, if you are running a business and it is not withholding or remitting payroll taxes to the IRS, here are six tips for avoiding the trust fund recovery penalty:

  1. Do not assume that the business will recover or be able to satisfy the unpaid payroll tax liabilities.
  2. Do not assume that the business will indemnify you for the trust fund recovery penalty or that you will be covered by directors and officers insurance.
  3. Establish procedures to periodically verify that payroll taxes are being withheld and remitted to the IRS, follow the procedures, and document compliance.
  4. Do not engage in activities to earn a profit that require making payments to third parties before paying the IRS.
  5. Do not pay your employees before paying the IRS.
  6. Do not pay yourself a salary before paying the IRS.

We help taxpayers with payroll tax liabilities. If you have payroll tax problems, we would like to hear from you. Please contact us today to schedule an appointment to see how we can help.