There are two key forms related to the Trust Fund Penalty Recovery. They are IRS Letter 1153 and Form 2751. You may also hear about Form 4180—that is not a form you have to fill out; it’s just the form the IRS agent uses to interview people who may be responsible for the unpaid payroll taxes.
WHAT IS THE IRS LETTER 1153?
Letter 1153 is the notice the IRS sends to individuals about the Trust Fund Recovery Penalty. It indicates the amount of unpaid tax and the amount of the penalty. Typically, the IRS sends this letter when the business has refused to pay the payroll taxes, and the IRS has decided to hold you personally responsible for the debt.
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You may also receive this letter if a business has refused to pay certain excise taxes. In both cases, the last page of Letter 1153 is Form 2751. If you sign this form, you admit that you are liable for the unpaid taxes.
SHOULD YOU SIGN FORM 2751?
Signing Form 2751 is an admission that you are responsible for the unpaid payroll tax. Once you sign that form, it is almost impossible to reverse it. The only way to change your mind is to hire an attorney who can argue that you were coerced into signing.
If you don’t agree with the letter, don’t sign Form 2751. You have 60 days to appeal. To appeal, you need to prove that you were not responsible for the unpaid tax debt.
Finally, if you want, you can just ignore the letter. In that case, the IRS will assume you’re responsible, and the agency will start trying to collect the debt after 60 days.
WHAT ARE THE OTHER OPTIONS IF YOU RECEIVE LETTER 1153?
Besides the options listed above, there are a couple additional options. If you are in a position of power in the company, you can set up a payment plan through the company. If you aren’t in that position, you can try to convince the people in charge to set up a payment plan.
Once the company sets up a payment plan, that deters the IRS from holding you responsible. However, if the company defaults on the payment plan, you may be held personally responsible again.
You can also opt to just pay the tax bill and the penalty, even if you don’t believe you are liable. Then, after you pay the bill, you can request a refund using Form 843. This is not an easy option. Usually, the IRS ignores the request for the refund, and taxpayers have to sue to recoup the funds. If you decide to do this, don’t sign Form 2751. You are paying the bill to stop the IRS from taking collection action. You don’t want to admit liability.
If you have received Letter 1153, you should get help from a tax professional. You may not want to sign Form 2751 until you have consulted with someone who can explain the consequences to you.
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