An IRS Form 4180 interview is an interview the IRS uses to gather information to identify potential responsible persons for Trust Fund Recovery Penalty (TFRP) purposes. If the IRS asks you to attend one of these interviews, it means the IRS thinks you or a colleague could be personally liable for failure to collect and pay required employment or other trust fund taxes.
If you’re a target for a 4180 interview, don’t ignore the IRS. That said, don’t automatically agree to the interview or attend one without preparing first. East Coast Tax Consulting Group LLC offers TFRP tax representation that can advise you on whether agreeing to an interview is in your best interests and, if so, help you prepare for it.
Contact us online or call us at (866) 550-7655 to get started.
Key Takeaways
- Trust Fund Recovery Penalty (TFRP): The IRS can hold responsible individuals personally liable if a business fails to collect and pay trust fund taxes, such as payroll tax withholdings.
- TFRP responsibility: A person is responsible if they had the obligation to collect and/or pay trust fund taxes and willfully chose not to comply with this duty.
- 4180 interview: An IRS revenue officer interviews those it believes may be a responsible person for TFRP purposes.
- Post interview: The IRS may assess the TFRP penalty against the person interviewed, but may also ask for additional information to identify other responsible individuals.
- Ask for help before the interview: The interview is a crucial point during the TFRP investigation process, and it’s important to get help from a tax professional before attending the interview.
What Is the Trust Fund Recovery Penalty?
Many businesses have the responsibility of withholding income and employment taxes for their employees. These businesses must then send this money to the IRS soon after collection. If this doesn’t happen, the IRS can impose the Trust Fund Recovery Penalty (TFRP).
If the IRS can’t collect the taxes from the business itself, the IRS may go after one or more individuals from that business who were responsible for the nonpayment of these trust fund taxes. This is notable because it means the IRS can impose personal liability for taxes owed by the business.
How the IRS Determines Who Is a Responsible Person
Before the IRS can hold someone personally liable for the TFRP, they must establish that the individual:
- Had the responsibility to collect and/or pay trust fund taxes, and
- Intentionally chose not to collect or pay the trust fund taxes.
The IRS will deem an individual to have this responsibility if they’re required to collect and/or pay trust fund taxes as a part of their job and have the power to comply with this obligation. This means anyone with financial control could meet this requirement and could potentially include:
- A business owner, partner, officer, or shareholder.
- A member of the taxpayer’s board of trustees.
- A third-party payer or payroll service provider.
- Anyone with authority and control over the disbursement of business funds.
As for the intentionality requirement, this person must have acted willfully. In other words, they either:
- Were aware (or should have been aware) of the obligation to collect and pay trust fund taxes, and
- Purposely ignored or were plainly indifferent to this requirement.
What’s notable about the intentionality requirement is that someone could be liable for the TFRP even if they had no malicious intent. Put another way, TFRP liability can attach even if the person was “trying to do the right thing” if they prioritized paying employees or the business’s utility bills over paying trust fund taxes to the IRS.
However, an employee won’t be a responsible person for the TFRP if they only pay bills as directed by management. Despite this, a responsible person can’t automatically avoid liability simply because they were “following orders” from a boss to not pay the taxes.
Factors the IRS Considers When Identifying Responsible Persons
When deciding if someone is a responsible person, the IRS will look for the presence of certain factors. Among the most notable are:
- Check signing authority.
- The ability to make payroll decisions.
- The power to hire and fire employees.
- An ownership interest in the business.
- Control over which bills get paid.
- Knowledge about the unpaid trust fund taxes.
If one or more of these factors apply to you, there’s a chance the IRS may look into you being a responsible person for the TFRP. But the IRS’s perception may not necessarily be reality. The IRS knows this, and that’s why they’ll try to get more information before assessing the TFRP against someone. The primary way of getting this information is through a Form 4180 interview.
What Happens During a 4180 Interview
It’s called a Form 4180 interview because of the form the IRS fills out during the interview: Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. Then, based on the information contained on Form 4180, the IRS decides whether to impose the TFRP against the person interviewed or identify other possible responsible individuals.
A revenue officer (RO) often conducts this interview, which can take place over the telephone or in person. Before the interview, the RO might send you Letter 3586, Meeting Scheduled with Individual for TFRP Interview. There might also be pre-interview document requests by the RO to provide some background information on whom to interview.
During the interview, the RO will ask questions about the individual’s responsibilities at work and their reasoning for doing (or not doing) certain things concerning the collection and payment of trust fund taxes.
It’s important to understand how pivotal these interviews can be. Saying or doing the wrong thing during an interview can move someone from a “possible responsible person” list to a “definite responsible person” list. It can also put attention on individuals who weren’t previously on the IRS’s radar.
What Happens After the 4180 Interview
After the interview, the RO may:
- Send IRS Letter 1153 to the responsible individual(s);
- Send follow-up requests for additional information; and/or
- Request more 4180 interviews.
If the RO sends someone Letter 1153, it means they intend to assess the TFRP against that person. Because of this, the 1153 letter is usually accompanied by IRS Form 2751, Proposed Assessment of Trust Fund Recovery Penalty. The responsible person has 60 days (there’s an extra 15 days for overseas recipients) to either sign Form 2751 or file an appeal.
Signing Form 2751 means the responsible person agrees with the assessment, while filing an appeal provides an opportunity to challenge the penalty assessment.
How To Prepare for the 4180 Interview
The best way to prepare for the interview is to contact a tax professional with experience handling TFRP investigations. They’ll not only examine your case and help you anticipate what the IRS will try to prove, but they can also answer any TFRP questions you might have about the interview process.
Common 4180 Interview Mistakes To Avoid
The most important thing to realize is that the 4180 interview is adversarial. The primary goal of the IRS is to find the person who’s responsible for the unpaid trust fund taxes and collect the TFRP from that individual.
This makes it easy for the IRS to jump to conclusions or mistakenly identify the wrong responsible person. Because of this, mistakes taxpayers make that can lead to wrong TFRP assessments include:
- Guessing when answering questions during the interview.
- Providing information when not asked
- Attending an interview without preparation.
The best way to avoid these mistakes is to seek out help when confronted with a 4180 interview.
Get 4180 Interview Help With East Coast Tax Consulting
It’s easier to fight a Trust Fund Recovery Penalty before it is assessed against you. And a critical point during the TFRP assessment process is the 4180 interview. If you think the IRS suspects you of being responsible for the TFRP, contact the East Coast Tax Consulting Group as soon as possible. We handle a variety of payroll tax issues, including TFRP assessments and interviews.
We’ll help you prepare for the 4180 interview, represent you through the process, and help you resolve any underlying tax problems that lead to this situation. We offer free consultations, which you can arrange using our online contact form or by calling (866) 550-7655.
IRS Form 4180 Interview FAQs
What makes someone a responsible person?
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A person is responsible for the TFRP if they had responsibility for collecting or paying trust fund taxes and they willfully failed to comply with this responsibility.
Can more than one person be liable for the TFRP?
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Yes, the IRS can hold multiple people responsible. In certain cases, the IRS may choose to collect the TFRP from one or all responsible persons.
Do I have to attend the Form 4180 interview?
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No, you can’t be forced to attend the Form 4180 interview. You can usually have your representative either meet with the RO or submit a completed Form 4180 and answer any questions the RO may have. But if you don’t go or no response is provided, you should assume the IRS will conclude you’re a responsible person and impose the TFRP against you. On very rare occasions, the RO may issue a summons requiring you to attend.
My boss ordered me not to pay the trust fund taxes; can I still be liable for the TFRP?
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It’s possible. Acting under the direction of someone else won’t automatically immunize a person from potential TFRP liability. However, it’s likely that the TFRP won’t be assessed against you if you have no signature or financial authority within the company.
How much is the Trust Fund Recovery Penalty?
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The amount of the penalty is equal to the full unpaid trust fund amount.