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S
Understanding, and
Protecting Your Client
Against, Civil and
Criminal Liability for
Trust Taxes
Kevan P. McLaughlin, Esq...
Introduction
oWhat are trust taxes?
oExamples
Civil Liability
What to look for:
• Unsophisticated taxpayer
• Financially distressed companies
• Embezzlement from those ...
IRC § 6672
General rule
Any person required to collect, truthfully account
for, and pay over any tax imposed by this title...
Calculating Trust Fund Amount
 Unpaid income taxes
withheld, plus
 Employee’s portion of withheld
Federal Insurance Cont...
TFRP Elements
oResponsibility
oWillfulness
Indicators of Responsibility
o Authority to sign checks
o Control financial affairs of business
o Officer, director, share...
Investigating Civil Liability
McLaughlin Legal
Defense Strategies
o Full pay
o Lack of knowledge
o No duty or authority
o Following orders
o Establish negligence
o Reaso...
McLaughlin Legal
Federal Tax Deposit Alert
Assigned to Revenue Officer
1. Compliance
2. TFRP Investigation
Summons bank si...
Criminal Liability
IRC § 7202
Any person required under this title to collect,
account for, and pay over any tax imposed b...
Criminal Elements
• Duty to collect, and/or to truthfully
account for, and/or pay over a tax;
• Failure to collect, or tru...
Duty
“the authority required to exercise significant control over the
corporation's financial affairs, regardless of wheth...
Civil and Criminal Liability for Trust Taxes
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Civil and Criminal Liability for Trust Taxes

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Trust fund taxes are unique, especially in that the IRS has the ability to personally assess responsible individuals for their collection. In addition to the civil issues, criminal exposure exists for the same conduct.

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Civil and Criminal Liability for Trust Taxes

  1. 1. S Understanding, and Protecting Your Client Against, Civil and Criminal Liability for Trust Taxes Kevan P. McLaughlin, Esq., LL.M
  2. 2. Introduction oWhat are trust taxes? oExamples
  3. 3. Civil Liability What to look for: • Unsophisticated taxpayer • Financially distressed companies • Embezzlement from those in financial control
  4. 4. IRC § 6672 General rule Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 or part II of subchapter A of chapter 68 for any offense to which this section is
  5. 5. Calculating Trust Fund Amount  Unpaid income taxes withheld, plus  Employee’s portion of withheld Federal Insurance Contribution Act (“FICA”) taxes.
  6. 6. TFRP Elements oResponsibility oWillfulness
  7. 7. Indicators of Responsibility o Authority to sign checks o Control financial affairs of business o Officer, director, shareholder o Authorized in by-laws o Ability to hire and fire employees o Sign 941’s o Make EFTPS payments
  8. 8. Investigating Civil Liability
  9. 9. McLaughlin Legal
  10. 10. Defense Strategies o Full pay o Lack of knowledge o No duty or authority o Following orders o Establish negligence o Reasonable causes o (In)ability to pay o Directed payments to TFRP amount o In-Business Installment Agreement o Statute of limitations
  11. 11. McLaughlin Legal Federal Tax Deposit Alert Assigned to Revenue Officer 1. Compliance 2. TFRP Investigation Summons bank signature cards 4180 interview 4183 Recommendation1153(DO) Letter AppealRefund Appeals Conference Refund 1 Employee, 1Quarter ($100) Form 843 Judicial Appeal (6 mon. or Notice of Disallowance) U.S. District Court Court of Federal Claims Bankruptcy Court Collections 1. OIC DATL 2. CDP
  12. 12. Criminal Liability IRC § 7202 Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both,
  13. 13. Criminal Elements • Duty to collect, and/or to truthfully account for, and/or pay over a tax; • Failure to collect, or truthfully account for, and/or pay over the tax; and • Willfulness
  14. 14. Duty “the authority required to exercise significant control over the corporation's financial affairs, regardless of whether [the individual] exercised such control in fact.” U.S. v. Jones, 33 F.3d 1137 (9th Cir. 1994) the "persons" who are "responsible" for the payment of withholding taxes are those who "had the final word as to what bills should or should not be paid, and when.” Purcell v. U.S., 1F.3d 932 (9th Cir. 1993)

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