Dealers Face Risks When Dipping Into Trust Fund Taxes

SUMMARY BOX

* Failure to gather truthfully account for and pay your employee's trust capital taxes can result in harsh effects for both you and your gallery.

* The 100 percent penalty upon responsible persons makes liable the someone responsible for collecting the tax who fails to do so

* Running the gallery as a corporation affords no protection in the case of trust stock taxes. A responsible person can be held personally liable for the penalty if the corporation can't pay the tax. In addition, this potential liability is not discharged in bankruptcy.

At more [i]or[/i] less time or another, most art dealers remember getting caught with their hand in the cookie jar. Getting caught may have been a little embarrassing back then, on the other hand if a dealer gets caught with his/her hand in the "trust fund" tax jar the originates can be far worse.

Trust capital taxes are taxes that a dealer withholds from an employee's paycheck. These include income taxes and an employee's share of Social Security and Medicare taxes. They are many times called trust fund taxes because they are basically held in trust for the employee until they are paid to the rule on the employee's behalf. Thus, dealers do not have a title to the money but are acting as an uncompensated collection agent for the federal government

In addition to trust capital taxes, dealers must also pay a portion of Social Security and Medicare taxes upon their employees' wages. Since the trust stock taxes often sit in the dealer's account until they must be deposited, there can be a great temptation to temporarily use the standard of value when the gallery faces a cash crunch--and that's when things obtain risky for the dealer.

not long ago an owner finally found on the outside how serious the IRS can realize when he repeatedly failed to bring together truthfully account for and pay trust stock taxes.

Slippery Slope

The proprietor was behind in the payment of trust stock taxes in the late 1980 Later the possessor developed another company and again malignant behind with the payment of the taxes withheld from the employees' paychecks.

The IRS made a tax assessment against the possessor for a Trust Fund retrieval penalty of $67,900 to overlay the past due taxes from the first business. The IRS again made an assessment for a Trust stock Recovery penalty of $26,000 for the unpaid trust capital taxes from the second business. above several years, the amount owed to the government climbed to more than $194000 The IRS eventually filed federal tax liens to preserve its interest.

Finally, the IRS went to federal court seeking a brains and an order to foreclose upon the owner's home, which had been the make submissive of the federal tax liens. The U District Court agreed with the IRS, entering a judgement in its favor for $194000 plus additional interest. It then directed that the liens upon the property be foreclosed and the quality sold with the proceeds of the sale to proceed to the mortgage holders and the U rule to satisfy part of the tax assessment.

Although the management waited several years before it could put in motion on the owner's property, it was eventually foreclosed and sold--an most remote remedy but as this case present to views it is one that the IRS will use when trust capital taxes are involved.

Responsible Persons

The IRS has a certain quantity of very strong ammunition and controls when it comes to protecting trust capital taxes. The IRS frequently uses the 100 percent penalty upon responsible persons, which means the tax and additional penalties can be bring togethered from any and all somebodys responsible for collecting and paying the tax and who willfully fail to do thus Although all responsible persons are liable for the filled amount of the assessed penalty, according to a novel IRS legal memorandum, it is IRS policy to muster the amount due only one time When one responsible person makes a payment, that payment is cros referenc against the liability of all other responsible ones If the amount collected from all responsible ones exceeds the amount due, the IRS then reimburses the excess to the somebody whose payment caused the overage.

A responsible individual is any person, including officers and employee of corporations, partners or employee of a partnership and flat an employee of a single proprietorship, who has a what one is bound [i]or[/i] under obligation to do to collect and pay trust stock taxes. Responsible persons may also include those who sign checks for the gallery or who have the authority to decide by what mode gallery funds are spent. Running the gallery as a corporation affords no protection in the case of trust stock taxes. A responsible person can be held personally liable for the penalty if the corporation can't pay the tax. In addition, this potential liability is not discharged in bankruptcy.

The IRS frequently determines who the responsible somebodys are by first looking for those who have the authority to muster and pay the tax on the other hand did not do so and instead make choice of to pay other debts or creditors before paying the tax.

It is fairly easy for the IRS to show willfulness in trust fund cases. Willfulness does not require that the dealer have a fraudulent or evil intent It only requires a knowledge of the obligation or an intentional disregard of the withholding requirements. barely knowing that the taxes are not being paid could trigger willfulness in a certain number of cases.