To encourage prompt payment of withholding, lessee of tangible personal property and/or public accommodation taxes, the General Assembly passes a law that provides for the trust fund recovery penalty. This 100% penalty is used as a tool for collection of these taxes.
If you are a responsible person, we can apply this penalty against you immediately after you do not pay trust fund taxes in response to a notice and demand for payment. Also, we can apply this penalty regardless of whether you are out of business or without assets.
Caution: Once we assert the penalty, we can take collection action against your individual assets, such as filing a Notice of judgment if you are the responsible person(s).
Figuring The Penalty Amount The amount of the penalty is equal to the unpaid tax.
WHO IS SUBJECT TO THE PENALTY
We may impose the penalty against any person who is responsible for collecting or paying trust funds AND who willfully fails to collect or pay them.
WHO IS A RESPONSIBLE PERSON FOR TRUST FUND TAX
A responsible person is one who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. Therefore, responsibility involves status, duty, and authority.
This person may be:(1) An officer or an employee or a corporation; (2) A member or employee of a partnership;(3) A corporate director or shareholder; (4) A member or a board of trustees of a non-profit organization; or (5) Another person with sufficient authority and control over funds to direct their disbursement.
In some situations the responsible person may be a person who is not directly affiliated with the delinquent business. For example, the penalty may be assessed against an official or employee of a bank or other financial institution who has the authority to direct the financial affairs of the business and: (1) furnishes funds to a business and directs how (2) funds are to be distributed; or (3) Directs the business not to pay the taxes.
PROOF OF WILLFULNESS
By willful, we mean conduct that is intentional, deliberate, voluntary, and knowing as opposed to accidental conduct. You are considered to have willful attitude if you have free will or choice and yet either intentionally disregard the law or are plainly indifferent to legal requirements.
For willfulness to exist, the responsible person must:
(1) Have known about the unpaid taxes, and (2) Have used the funds to keep the business (3) going or allowed available funds to be paid to other creditors.
Willfulness does not imply that you had acted for personal gain. For instance, the courts ruled in one case that the actions of a corporate officer, in permitting withheld taxes to be used for operating expenses of the business (whether at the officer's direction or with his tacit approval) is sufficient evidence of willfulness that the trust fund recovery penalty can be charged to that officer.
In addition, if any employer meets payrolls, we can infer that sufficient funds were available to pay the tax, regardless of whether the funds were actually set aside or otherwise specifically identified for tax purposes.