How to Avoid the Trust Fund Recovery Penalty Interview (4180)
If the IRS believes you are responsible for the trust fund taxes, the agency will request a Form 4180 interview with you. The purpose of the interview is to figure out if you are responsible for the unpaid payroll taxes and to get your help identifying other people who may be responsible. This interview is very serious - the IRS uses the results of this interview to determine whether or not to assess a Trust Fund Recovery Penalty against you.
At 100% of the unpaid tax, the TFRP is one of the IRS's harshest penalties, and it gets assessed against individuals, not businesses. That means the IRS can go after your personal assets to collect the penalty - there's no protection from an LLC or corporate business structure, and unfortunately, even employees of a company (not just owners) can face this penalty. The IRS can only assess a TFRP against you if the following are true:
Because so much is at stake, you may want to try to avoid this interview if possible. Here are some tips on how to do that, depending on whether you believe you're liable for the penalty, not liable, or you don't have any money to pay even if you are liable.
How to Avoid the 4180 Interview If You Are Liable
If the IRS requests a 4180 interview, the best way to get out of it is to pay the bill and cancel the interview. You can also admit to liability by signing Form 2751 (Proposed Assessment of Trust Fund Recovery Penalty) and then attempt to set up payments or apply for a settlement.
In particular, if the bill is under $25,000, the business can pay it back over a 24-month period through an in-business express installment agreement. In some cases, you can get longer to pay, but generally, the IRS will require you to extend the statute for TFRP assessment and provide financial details to qualify. Once the business sets up payments, you don’t have to worry about your personal assets being at risk - unless you refuse to sign the statute extension waiver.
How to Avoid the 4180 Interview If You Are Not Liable
If you are not responsible for the payment, you may argue your liability. This can be very difficult, and you should get a tax attorney or an experienced lawyer to help you. Don’t just hire any attorney. You need one experienced with this issue in particular. The lawyer needs to prove that you were not responsible for the unpaid tax even if you were involved with the company’s finances.
If you accidentally signed Form 2751 but you aren’t really liable, a lawyer can help as well. That professional can argue that you were intimidated into signing the form. In other cases, a lawyer can argue that the other employees ganged up on you.
How to Avoid the 4180 Interview If You Don’t Have Any Money
The IRS isn’t into chasing rainbows. If the agency believes that you won’t be able to pay the bill, it will look somewhere else for the funds. To prove to the IRS that you don’t have any money, you need to submit Form 433A.
This is the same form you use when you apply for a settlement on personal tax liabilities. To fill it out, you need all kinds of information about your personal finances. You also need a lot of backup documents (bank statements, mortgages, utility bills, credit cards, etc).
Keep in mind that uncollectibility is hard to prove. You may feel broke, but the IRS may disagree. The agency has no problem taking your personal assets or garnishing your wages as needed.
What If You Can’t Avoid the 4180 Interview?
In some cases, you may not be able to get out of the interview. If you have to go to the interview, it’s important to know what to expect. It is also a good idea to consult with a tax professional to help with the situation. Here at TaxCure we have a large network of tax professionals from around the country and only certain professionals can help with this type of issue. To see the top trust fund recovery penalty professionals, visit this link here which displays the top trust fund recovery penalty pros based upon your unique algorithm.