What is Collection Due Process?

 

If you owe money to the IRS, after some time and a certain amount of notices, they will begin to initiate collection activities. This means they will look to reclaim the outstanding dues from either you or your business, depending on which owes the IRS money. Usually, the way the IRS attempts to collect this money from individuals is by one of two methods, either by filing a bank levy, or by using the Notice of Federal Tax Lien (NFTL). If you disagree with the amount owed and want to dispute it, a Collection Due Process hearing is your opportunity to do so.

But you have to act fast! 

In this blog post, we’ll discuss what collection due process is, how to file for it and how long you have to do so. If you’re looking for more information about tax relief options, our previous blog posts discuss all things related to employment tax, from what it is and how it’s different from self-employment tax, to some of the penalties associated, like trust fund penalties. 

Collection Due Process

As of November 16, 2020, according to the IRS page, Collection Due Process (CDP) FAQs, a Collection Due Process is a hearing during which you have “an opportunity to discuss alternatives to enforced collection and permits you to dispute the amount you owe if you have not had a prior opportunity to do so.” This hearing will be before an impartial member of the IRS and is your legal right under the IRS Code Section 6320. However, there are some requirements when it comes to requesting and receiving this Collection Due Process hearing. 

When to Request a Collection Due Process Hearing

According to the same IRS Page, “You have 30 days from receipt of an LT11 or L-1058 to request a Collection Due Process (CDP) hearing” and “you should request a CDP hearing using Form 12153 if you feel the levy is inappropriate.”

• LT11 – The LT11 is a letter from the IRS issuing a “Notice of Intent to Levy and Notice of Your Right to a Hearing.” This means that they are formally beginning the collection activities against you and you officially have 30 days to request the Collection Due Process hearing to dispute the claims.
• L-1058 – As of November 17, 2020, according the IRS Page, Understanding Your LT11 Notice or Letter 1058, the L-1058, as well as the LT11 are both ways of communicating that the IRS has not “received your payment for overdue taxes [and they] intend to seize your property or rights to property.” 

How to Request a Collection Due Process Hearing

As mentioned in the previous section, to request a Collection Due Process hearing, you must file Form 12153 with the IRS. Typically, this is sent to the address given in either the LT11 or L-1058, but you can also call the IRS in an attempt to verify where you should send Form 12153 to.

When it comes to something as serious as a Collection Due Process hearing and the potential levies and collection activities taken against you by the IRS, it’s always best to seek professional assistance. If you’re considering requesting a CDP, check out our Collection Due Process page for more information, or contact the team at Bullseye Tax Relief today.

Sources:

https://www.irs.gov/appeals/collection-due-process-cdp-faqs

https://www.irs.gov/pub/notices/lt11_english.pdf

https://www.irs.gov/individuals/understanding-your-lt11-notice-or-letter-1058

Trust Fund Penalty Assessment Interview

 

Trust Fund Penalties are fines and fees imposed by the IRS on businesses, or, as we discussed in our previous blog post, Employment Tax: Trust Fund Penalty Assessment, responsible and willfully neglectful members of the business that did not properly pay the business’s Trust Fund Taxes. Trust Fund Taxes are the taxes that a business is required to withhold and match on behalf of their employees. These Trust Fund Taxes are made up mostly of Medicare taxes and Social Security taxes, and are sometimes also referred to as payroll taxes or employment taxes.

If you’re new to the subject, you can learn more about employment taxes, like what they are and what the differences are between employment taxes and self-employment taxes, by viewing the beginning of our Employment tax blog series here: What is Employment Tax?

In this blog post, we’ll build on our previous blog post, Employment Tax: Trust Fund Penalty Assessment, and dive a little deeper into the process following a Trust Fund Penalty Assessment.

The Trust Fund Penalty Assessment Process

If the IRS has found that a business has failed to pay its Trust Fund Taxes on time or in an insufficient amount, they will look to assess responsibility and willfulness. To assess this responsibility and willfulness, the IRS will look to conduct a Trust Fund Penalty Assessment Interview with any members of the business it views as potentially accountable. This is sometimes also known as a 4180 Interview, since the IRS representative will conduct the interview using Form 4180, the Report of Interview With Individual Relative to Trust Fund Recovery Penalty.

As of October 21, 2020, according to the IRS, responsibility can be determined “based on whether an individual exercised independent judgment with respect to the financial affairs of the business.” Meaning that an employee doing as directed by a superior is not held responsible in the eyes of the IRS, while the superior might be, unless they were also directed to do so. 

Since one of the main reasons a business might not be able to pay these Trust Fund Taxes in the proper amount or in a timely manner is because they used the funds to pay for something else, the IRS included that scenario in their example of willfulness, stating that “using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness.” So, unfortunately, even if a business has fallen on hard times and needs to borrow money from other sources, like withholdings, that’s not a good enough reason for the IRS, and may actually be evidence of willfulness.

Avoiding the The Trust Fund Penalty Assessment Interview

Fortunately, there are ways to avoid the The Trust Fund Penalty Assessment Interview and mitigate the Trust Fund Penalty! 

If you, your business, or someone you know is struggling with the Trust Fund Penalty process, check out our Trust Fund Penalty Assessment Interview page to learn more or call us today to get help! 

In our next blog posts, we’ll discuss what a Collection Due Process is and what it means for your business. 

Sources

IRS – Employment Taxes and the Trust Fund Recovery Penalty (TFRP): https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes-and-the-trust-fund-recovery-penalty-tfrp

Trust Fund Penalty Assessment

 

As we discussed in the previous blog post in the series, Employment Tax: Trust Fund Penalty, a Trust Fund Penalty is associated with ‘Trust Fund Taxes,’ sometimes known as employment taxes or payroll taxes. These ‘Trust Fund Taxes’ specifically refer to the taxes a business is required to withhold and match on behalf of their employees. These withheld taxes are the contributions to Social Security taxes and Medicare taxes that a business also matches for its employees and then pays to the IRS in the form of a federal tax deposit. A business will be assessed a Trust Fund Penalty if it does not pay these taxes to the IRS by the correct time or in the correct amount.

If this is a bit confusing so far, check out the previous post on Trust Fund Penalties to get caught up!

In this post, we’ll discuss the terms under which the IRS will assess this Trust Fund Penalty, also known as the Trust Fund Recovery Penalty (TFRP), and who the IRS will hold responsible.

Criteria for a Trust Fund Penalty Assessment

There are two major factors when it comes to Trust Fund Penalty Assessment: responsibility and willfulness. According to the IRS, as of October 21, 2020, the Trust Fund Penalty can be assessed against anyone who:

• “Is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and
• Willfully fails to collect or pay them.”

What this means is that the Trust Fund Penalty can be assessed against the people in the business who were responsible for handling the Trust Fund Taxes. But it also requires that the person willfully failed to pay these taxes. We’ll cover what the IRS defines as ‘willful’ and who it defines as ‘responsible’ next.

Trust Fund Penalty Assessment: Responsibility and Willfulness

As of October 21, 2020, the IRS defines a ‘responsible’ person as “a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.” In general, this means that if a person is, in some way, involved in or in charge of the finances, accounting, collection or payroll, the IRS could view them as someone eligible for a Trust Fund Penalty. But, as we mentioned above, willfulness to not pay these Trust Fund Taxes must also be determined.

According to the same IRS page about Employment Taxes and the Trust Fund Recovery Penalty (TFRP), for the IRS to determine willfulness, a person:

• “Must have been, or should have been, aware of the outstanding taxes and
• Either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).”

While willfulness may seem harder to prove than responsibility, the next step in the Trust Fund Penalty Assessment is the Trust Fund Penalty Assessment Interview, during which the IRS will attempt to determine whether a person is responsible and acted willfully or not.

If you, your business or your colleagues are in any of the stages of a Trust Fund Penalty Assessment, give us a call today! For a full list of who can be held responsible for Trust Fund Penalties, visit our Trust Fund Penalty Assessment page to learn more.

In our next blog post, Employment Tax: Trust Fund Penalty Assessment Interview, we’ll discuss the Trust Fund Penalty Assessment Interview and the next steps the IRS taxes during a Trust Fund Penalty Assessment.

Sources

IRS – Employment Taxes and the Trust Fund Recovery Penalty (TFRP): https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes-and-the-trust-fund-recovery-penalty-tfrp