Tackle Your Payroll Tax Debt: Proven Strategies Every Sub-Contractor Business Owner Should Know by Jacob Merkley, EA - HTML preview

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Defenses Against Personal Assessment

Silo everything. Break up responsible and willful. That is the easy answer. You cannot retroactively do anything (fraud) but moving forward you should structure your company to have one person that is responsible, and one person that is willful. Separate the duties of those officers to have a defense if it comes up again.

Fighting Responsibility

  • Do not play CFO
  • Do not prepare 941s
  • Do not prepare payroll
  • Do not be on the bank account as authorized check signer
  • Do not be the name on EFTPS
  • Do not have access to online banking

Fighting Willfulness

  • Do not be the person paying the bills
  • Do not be the person deciding which bills to pay
  • Do not be in the loop on financial matters
  • Do not interact with the IRS.

Post-Assessment Collection

Just to be clear…

It is exceedingly rare to avoid personal assessment in small companies except in IBTF-E situations discussed earlier (and even then, it is mostly deferred). Therefore, if you have a chance to qualify for IBTF-E, it is a great option even if it is just deferred.

Single member LLC and single shareholder S-corps are going to get assessed, no questions.

Can you truly separate willful/responsible criteria in a business? Yes, but it takes careful advanced planning and cannot be retroactive (fraud).

Status 63

I would like to specifically talk about Status 63. This may be an interesting option for you. Status 63 is when a person is personally assessed (TFRP) but the IRS does not take collection action. It has a suspension of collection activity against an individual who has been personally assessed. For this suspension to happen, an IBTF installment agreement needs to be in place with the business and the debt liability will be cash paid in full over the next few years.

If you can get that done, ask the RO if they can put this into Status 63. Status 63 is your friend. They will not give it to you by default, but if you have played nice and the business is doing its job to pay it back, the likely will put the suspension in place.

The best part about it is that there will not be any Notice for Federal Tax Liens put into effect for you personally. Although, you will not qualify if there are any other tax debts assessed against you, for example other 1040-individual debts. If that is the case, you will not qualify.

A Few Final TFRP Notes

Remember, the IRS must prove you both responsible and willful in the failure to make Federal Tax Deposits. If they cannot prove both parts, you will not be assessed the penalty.

Also, multiple people can be assessed, but the responsibility to pay back the trust fund portion is a joint and several liability with the business. Payments from any party reduces the liability of other parties. Even if the business closes, personal assessment stands (it is an entire separate case, debt, responsibility, resolution situation.)

You also should not get these two specific forms confused:

  • Form 2751 – Acceptance of TFRP assessment and waiver of Appeals rights as well as waive judicial review. Do not sign unless you have a good reason.
  • Form 2750 – Waiver of ASED. This is a good form to use as a bargaining chip.

TFRP Appeals

Should you get assessed the TFRP, you will have the option to take your case to Appeals. You need to do this within 60 days of receiving Letter 1153 (the letter that personally assesses you the tax).

Remember, Appeals is your best friend. However, Appeals cannot determine the assessment itself, but they can make an independent determination about willfulness and responsibility. They can review a Revenue Officer’s decision on that front.

The other way to get into Appeals is if you get Notice CP 15B. If you get this notice, pay one quarters worth of the Trust Fund debt and file Form 843 with collections. They will never want to agree to this Form, which means that they will send you a denial with Appeals rights for 30 days after that denial. From there, you can have the exact conversation you wanted pre-assessment.

Letter 1153 Appeal Process

If the amount in question is $25,000 or less, you have a small case request. If any single tax period is more than $25,000, you must have a Formal Written Protest. The only difference is that a Formal Written Protest includes a signature that is under penalty of perjury.

In both cases, you need to send a letter to the person proposing the assessment against you (Revenue Officer), who will then you are your appeal to the Appeals division.

There is no formal form for filing this type of Appeal, which is why you need to send a letter. Include:

  1. Your information (name, address, and social security number)
  2. A copy of the Letter 1153 you were sent
  3. A statement specifically saying that you want an “Appeals hearing”.
  4. A list of the tax periods you are appealing as a part of this process.
  5. Provide a statement explaining why you disagree with the assessment, that you are not responsible or willful (or both) and provide ample reasoning.

From there, you should include a last paragraph if you are doing a Formal Written Protest that should state:

“Under penalties of perjury, I declare that I have examined the facts presented in this statement and any accompanying information and to the best of my knowledge and belief, they are trust, correct, and complete”.

Within those 60 days, you should be building your case and cleaning up any final messes. Provide citation to relevant statues, procedures, and/or case law to help back you up for the Appeals hearing.

Send two complete copies of your letter and documentation to Appeals.