IRS Trust Fund recovery penalties pertain to the payroll taxes withheld by an employer, and which are supposed to be paid over to the IRS regularly. These taxes are onerous, because they are not discharged in a bankruptcy filing, for example. Moreover, the IRS takes aggressive enforcement action against those who have fallen behind on payroll taxes.
A case in point: a Federal Court in North Carolina has accepted a guilty plea from a Winston-Salem resident, Linda Finch, who was accused by the IRS of attempting to evade $578,926 in trust fund recovery penalties from 2003 to 2009.
Ms. Finch’s civil problems became criminal in 2011 when she sold a Texas ranch for $560,000 which was substantially lower than the fair market value. She hid the fact that she had arranged to be paid $365,000 outside of the real estate transaction by the buyer. She then used $308,000 of those funds to be paid for personal purposes and to other groups to whom she owed money. But the IRS was still owed more money!
She then failed to file income tax returns for 2011 and 2012, and when questioned by IRS agents in 2013, she denied that she had been paid $365,000 outside of her closing.
The lesson of this story is that the IRS vigorously investigates Trust Fund cases. So, if you’re involved with the IRS Collections Division, yes the IRS does devote time to investigate potential criminal activity. The IRS does pursue shady fraudulent transfers such as the one in this case, as well as criminal activity involving Offers in Compromise. In this case, Ms. Finch faces up to five years in federal prison for her charges.