Trust Fund Penalty Abatement

Trust Fund Penalty Abatement

Posted By: Jennifer O'Neill // Jun 21, 2016

BACKGROUND: A client of IRS Help recently had a Trust Fund Penalty proposed by the IRS. Upon review of the Account Transcripts of the client's corporation we had discovered that Federal Tax Deposits had been made by the corporation during these periods of proposed Trust Fund Assessments. We contacted the IRS Revenue Officer and requested her worksheet of  proposed Assessments (Form 4184) to review how IRS applied the Federal Tax Deposits made by the client's corporation. After reviewing this Form we discovered that the IRS had applied the Federal Tax Deposits towards the Employer Portion of the Tax, while very minimal had been applied to the Employee Portion of Tax and almost $0 towards the Income Tax Withheld Portion. We then advised client to forward us verification of the Federal Tax Deposits made by the corporation through the EFTPS System. The EFTPS Reports breakdown how Federal Tax Deposits are intended to be applied to the taxes. The EFTPS Reports verify the Deposits should have been applied to 100% of the Employee Tax Withholding, 50% for the Employee's share of Social Security & 50% of the Employee's share of Medicare. During the Periods in question the IRS had applied almost all of the Deposits towards the Employer Portion of Tax, thus applying close to nothing towards the Employee portion – this portion is considered the Trust Fund portion.

We filed an Appeal to the IRS based on the Proposed Trust Fund Assessment by mailing an explanation of our request along with a a copy of our breakdown of Federal Tax Deposit application and copies of the EFTPS Reports to support our breakdown. After an Appeals conference call, the IRS Appeals agreed with our findings and abated a portion of the Trust Fund Penalty against our client. The abated amount for our client was $21,559.38. 

TIP: Anytime the IRS proposes the Trust Fund Penalty against our clients the rep should review the corporation's Account Transcripts to verify any Federal Tax Deposits made and if Deposits were made we should advise client to forward us the EFTPS Reports to see how Deposits were intended to be applied to the taxes withheld. Also request from the IRS Revenue Officer their worksheet of calculations (Form 4184) to review how IRS applied each Deposit and compare with EFTPS Reports. If the IRS had misapplied Deposits, Appeal their Proposed Trust Fund Assessment. You may also request Form 4184 with the Freedom of Information.

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