Can an Offer-In-Compromise for payroll taxes include your personal liability?
This is our Morning Coffee Series, and we’re going to talk more about that today.
Can you include personal liability for payroll taxes in your Offer-in-Compromise?
The answer is YES!
Trust Fund Recovery Penalty
As a business owner, you must withhold payroll taxes from your employee’s wages and pay them over to the IRS. The IRS can hold owners, officers, and even employees related to the business personally liable for unpaid payroll tax.
This is what is called the Trust Fund Recovery Penalty, or what the IRS calls a civil penalty. You can be held personally liable for a penalty equal to the total amount of the unpaid payroll taxes plus interest.
For a more in-depth explanation of the Trust Fund Penalty check out “What is the IRS Trust Fund Penalty.”
An Offer-In-Compromise is based on your ability to pay ALL of your tax liability. If an IRS or State Tax Collection Officer determines that you are personally responsible for the payroll tax liability, you can rightfully seek to include it in your settlement.
Keep in mind that the ability to pay will include not only payment of the tax but also all of your reasonable personal and living expenses.
This is often the preferred solution when a business cannot pay its payroll tax liability. This is especially beneficial when the owner, accountant, or other responsible person is found to have personal liability as well.
Get Professional Help
If you find yourself in a situation like this, it is important to get professional help. A tax attorney can help you end up with the best possible result by:
- Getting a short-term deferment
- Negotiating an installment payment agreement
- Submitting an Offer-in-Compromise to reduce the amount owed
- Determining the statute of limitation for your debt
- Filing claims to reduce penalties and interest.
If you have any questions or need guidance on your existing situation, please reach out to us.
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