Business owners incorporate or form LLCs to limit personal liability. But don’t think that gets them off the hook for unpaid company taxes. If the company fails to pay over “trust” (payroll/excise) taxes, the IRS will try to collect it somewhere else. When 941, 940, or 720 taxes are unpaid by a company, the IRS will eventually look to key employees or owners to collect. A Revenue Officer will assess what is called a Trust Fund Recovery Penalty (TFRP) IRC § 6672(a) against any officers/owners/employees the IRS determines is a “responsible person.”
You might be surprised to find out that it isn’t only the business owner who can be found to be a “responsible person.” Right off the bat, anyone with check-writing authority is at risk of being deemed a “responsible person.” The IRS Revenue Officer (RO) requests an in-person interview with individuals who may fit the bill for a responsible person. This is called a 4180 Interview.
Have you been asked to sit down with a Revenue Officer because of your company’s unpaid payroll or excise taxes? Contact Tom Tax Lawyer
For example: A Real Estate management company has 1) several investors, an 2) office manager who pays major bills for the company, a 3) bookkeeper who arranges for the filing and payment of taxes, and a 4) secretary who opens the mail and pays smaller invoices. The manager, bookkeeper and secretary all have signing authority. The IRS will consider all three of them as potential responsible persons. Depending on the facts of the case, the RO may or may not pursue the investors.
The basic idea is that if you have the authority to decide who to pay first, and you decide to pay other creditors or vendors before paying the IRS, then you should be held responsible for it. If the IRS decides that multiple parties are responsible, then it can try to collect the entire amount of the Trust Fund Penalty in full from each responsible person. Because of this Joint-and-several liability, the IRS has every incentive to find as many “responsible persons” as possible. See what the IRS Manual has to say about Trust Fund Recovery Penalties here.
If the IRS requests a 4180 interview with you, you should retain your own lawyer to guide you through the process and advocate for you during the 4180 interview. Many times when a company gets into hot water with the IRS, the officers and high-level employees will seek joint representation. While this has the advantage of saving them money – it may cause a conflict.