You may have been required to collect payroll taxes for your employees. If so, you were probably also responsible for making monthly payroll tax payments.
Some business owners fail to make those payments. If this has ever been you, keep reading.
In that case, an IRS revenue officer may seek to determine whether you were personally responsible for payroll tax – for paying over payroll taxes. The Revenue Officer will seek to have the Trust Fund Recovery Penalty assessed against you. In that instance, a determination is made after IRS does some fact-finding, interviews, and document gathering.
See this short VIDEO on handling the Trust Fund Penalty.
The IRS collection officer’s results are recorded on the IRS Form 4180, Report of Interview. The interview is actually called the “4180 Interview”. The IRS uses this Form 4180 internally to document and help make their determination of whether you are personally responsible.
Watch this VIDEO on How to Avoid IRS Personal Responsibility for Payroll Taxes Trust Fund Penalty.
Two primary factors affect IRS’s determination of whether you had personal responsibility for the failure to collect and/or pay over the payroll tax:
- That you had control and responsibility to withhold and pay over,
- That you knew you had that responsibility and failed to do it.
This idea of personal responsibility also relates to state withholding tax and sales taxes.
Question: As the “Responsible Person,” is my failure to pay the tax actually a crime?
The short answer is “yes.” It can be a crime.
Consider the Internal Revenue Code §7202, Willful failure to collect or pay over tax. This is a Criminal Tax statute that criminalizes “willful” failure. Under that IRS Code Section, willful failure means that:
- You had a known responsibility to withhold and then pay the tax,
- You had the control, and therefore the means to pay the withheld tax, and
- You knowingly failed to pay that withheld tax.
The language between the two situations is so very similar, although one is a civil matter, and the other is criminal. Both have the same basic requirements. Therefore, if a responsible person willfully fails to collect and pay over tax, that event could also be considered a criminal offense.
If you were the person responsible for withholding payroll taxes for your employees but did not send that withheld tax to the government, you may need to be represented by a tax lawyer. Before speaking with the IRS about any “personal responsibility,” explain to your tax lawyer about your role and actions related to the payroll taxes. Because this may also become representation for a potential criminal problem.