The IRS has limited time to assess trust fund recovery penalties. Generally, the IRS has three years from the filing date of the employment tax returns to assess the trust fund recovery penalty. This seems simple but it does require further explanation.
Read blog “Trust Fund Penalty – What is it?” for more information on what is the trust fund recovery penalty. Also please note that there is no limitation period for returns that are false or fraudulent, willful attempt to evade tax or not filed.
Per Code Sec. 6501(a), the IRS has three years from the filing date of the employment tax returns to assess the trust fund recovery penalty. Under Code Sec. 6501(b), employment returns shall be considered filed on April 15 of the succeeding year.
What does this mean? For a timely filed June 30, 2010, return, the assessment period for trust fund recovery penalties starts on April 15, 2011. The IRS will have to April 15, 2014 to assess trust fund recovery penalties.
For a timely filed September 30, 2011, return, the assessment period for trust fund recovery penalties start on April 15, 2012. The IRS will have to April 15, 2015 to assess trust fund recovery penalties.
For late filed returns, assessment period starts on April 15 of the succeeding year or on the actual filing date of the return, whichever is later. For example, a March 30, 2010, return is filed late on May 1, 2012. The clock for the assessment of trust fund penalties starts on May 1, 2012, because May 1, 2012, is later than April 15, 2011. In this example, IRS will have to May 1, 2015 to assess trust fund recovery penalties. However, if the March 30, 2010, return is filed late on December 1, 2010. The clock for the assessment of trust fund penalties starts on April 15, 2011, because April 15 of the succeeding year is later than the actual filing date.
A good understanding on the statue of limitations for assessing trust fund penalties is important to understand. In my experience, there are times when the IRS does not assess trust fund penalties against individuals responsible. This is especially useful to understand if the business is shutting down or has closed.
If you have unpaid payroll taxes and need help, call ALG Tax Solutions 855-MI-Tax-Help (855-648-2943) or provide your contact information online. We are a trusted resource to resolve your payroll tax problems.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.