Ask the Taxman: Can the IRS Access My Stay at Home Mother, Wife For Payroll Trust Fund Penalties, When She Was Not Involved In the Business?
The IRS has the ability to assess the “Trust Fund Recovery Penalty” against those that it determines are “Responsible Parties”. The Trust Fund Recovery Penalty is equal to 100% of the unpaid employers’ payroll tax liability. In the case of Fitzpatrick v. Commissioner, T.C. Memo. 2016-199, the taxpayer is a stay-at-home mom who was wrongfully assessed with Trust Fund Recovery Penalty. The key element in this case was the determination of who was a “responsible person”. Under IRS Section 6672, a “responsible person is any person required to collect, account for, or pay over withheld taxes. In this case, the Eleventh Circuit Court of Appeals ruled that the indicia of responsibility include “the holding of corporate office, control over financial affairs, the authority to disburse corporate funds, stock ownership, and the ability to hire and fire employees.
In each case the determination of “responsible party” should be made by looking at the status, duties and authority of the taxpayer as it related to the company. In this case the Court of Appeals found that the taxpayer’s role in the company was ministerial only and she lacked decision making authority. Therefore, the court found that she was not a “responsible party”.
Conclusion: The IRS tends to cast a wide net when it comes to the Trust Fund Recovery Penalty and who is determined to a “Responsible Party”. As in the Fitzpatrick case, the fact that a taxpayer is assessed as the “Responsible Party” is not an indication that the assessment is correct, in keeping with IRS Section 6672. It is best to hire a Certified Tax Resolution Specialist (CTRS), who is someone specially trained to handle tax resolution matters, early to the assessment process to prevent a wrongful assessment. If the assessment has already been made, with the help of a CTRS, the taxpayer should explore their appeal rights.