Can the IRS Go After Corporate Officers for Unpaid Taxes?
If you are a corporate officer of a company that accrues federal tax liability, the IRS can assess you personally for the unpaid taxes. The IRS can only assess a portion of any unpaid 941 payroll taxes, and will not go after you for any other corporate tax balance.
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Trust Fund Recovery Penalty
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The Trust Fund Recovery Penalty, or TFRP, is a portion of your 941 payroll tax. The trust fund amount includes only the taxes you withhold from employees for federal income tax, plus the employee portion of Social Security and Medicare taxes. The trust fund does not include any company matching tax. When you accrue a corporate payroll tax liability, the IRS will interview the corporate officers to determine if one or all of the officers should be held personally responsible for the TFRP. The IRS only has three years from the date a 941 tax balance accrued to assess a corporate officer personally.
4180 Interview
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The IRS corporate officer interview is called a "4180" interview. The interview gets the name from the form number the IRS agent fills out with your answers to the interview questions. The interview asks questions about the officer who is listed on bank signature cards, the officer who is allowed to endorse payroll checks and the officer who authorizes the hiring and firing of employees. The officer who oversees the payment of employees is generally the officer who is responsible for making sure the 941 payroll taxes are paid and in most cases is the person who is personally assessed with the TFRP. The TFRP can be assessed to more than one officer if the officers shared responsibility for employment issues.
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Business Installment Agreement
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Even if you are personally assessed with the TFRP, the business can pay the tax back. The personal assessment is not an additional tax, but a portion of the original payroll tax balance. The IRS does not care if you or the business ultimately pays the Trust Fund taxes. As long as the business is on an active installment agreement, you do not have to personally make additional payments; however, your individual tax refunds will be intercepted to pay the TFRP until the balance is satisfied.
Voluntary Payments
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You can make voluntary payments before a formal business installment agreement is established. When you're on an installment agreement, the IRS applies your installment payments in their best interest, but you have the right to designate all voluntary payments. Any amount you pay above your normal monthly payment is voluntary. If you make a voluntary payment, make sure you indicate in the memo line of your check that the payment is for "Trust Fund Taxes Only." Write your EIN number and keep a copy of the check. In addition, make sure you tender separate checks for the installment and voluntary payments. Personal assessments are linked to your Social Security number and can damage your credit, so it's best to pay off the trust fund balance as soon as possible.
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