Company VP Avoids $3,100,000 IRS Trust Fund Recovery Penalty Assessment

THE CHALLENGE

Our client was a shareholder and executive vice president of a large industrial contracting company that failed to pay over $5,000,000 in payroll taxes to the IRS. As the insolvent company prepared to file bankruptcy, IRS revenue officers pursued our client aggressively and sought to assess a roughly $3,100,000 Trust Fund Recovery Penalty against him.

OUR APPROACH

When a business fails to remit payroll taxes, the law allows the IRS to impose the Trust Fund Recovery Penalty (TFRP) against any person who is responsible for collecting and paying those taxes and willfully failed to do so. The amount of the TFRP is the amount of money the business withheld from employee wages, and the penalty gets its name because these withholdings are held in trust by the business until they are paid to the IRS.

The IRS usually assesses the TFRP against shareholders, company officers, and those with signature authority on company accounts and our client was all three. While the IRS is most aggressive in payroll tax cases because they involve employee monies held in trust, the revenue officers, in this case, were particularly persistent because it was clear that the company would not be able to pay any of the liability.

Our team did a deep dive into the facts of the case and learned that our client was a hands-on, boots on the ground, manager of large construction projects. He spent his time on site, not in the corporate office. During the majority of the tax period during which the company failed to remit payroll taxes, our client was living roughly 300 miles from the company’s corporate headquarters and working nearly seven days a week supervising two projects in another city.

We gathered our facts and evidence, studied the relevant case law, and made three different presentations to the IRS Appeals Division.

THE RESULT

The IRS Appeals Office determined that the Trust Fund Recovery Penalty would not be assessed against our client.