Undeposited payroll taxes can pile up so quickly that the IRS has a name for them—pyramiding. It also has a very effective solution: personally charging a company’s responsible persons with 100% of the undeposited taxes.
Relief: Under revised guidelines, responsible persons can avoid personal liability if their company owes no more than $25,000 (up from the previous $10,000) and it applies for an express installment agreement. Companies that owe more than $25,000 can qualify if they pay down their balances to $25,000 or less. (SBSE-05-0312-034)
Who’s responsible for what
It doesn’t take much to become liable for 100% of your company’s undeposited payroll taxes. You will be liable for this so-called trust fund penalty if you’re a responsible person. You can be a responsible person without being a corporate officer. There’s a two-part test to determine whether you are a responsible person:
- You exercise some authority over the company’s finances (e.g., you have check-signing authority, even if you don’t have absolute autonomy over the company checkbook).
- You willfully fail to deposit payroll taxes. What’s willful: You pay other creditors before you pay the IRS or you fail to investigate or correct mismanagement after noticing that the company’s payroll taxes haven’t been remitted to the IRS.
Criteria for relief
An In-Business Trust Fund Express Installment Agreement is available to companies that owe up to $25,000 and that meet these criteria:
- You agree to use the IRS’ direct debit payment option
- Your tax debt is paid in full by the earlier of 24 months or before the collection statute of limitations expires
- You owe payroll taxes only for the current or prior calendar year
- You’re current with your tax deposits
- Payroll taxes for two or more calendar quarters haven’t been assigned to a Collection Field function employee.
HOW TO APPLY: To apply for an express installment agreement, call (800) 829-4933 or the number on your tax bill, or file Form 9465.
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