Should I sign IRS Form 2751?

Have you received IRS Form 2751? What does it mean? How much trouble am I in?  Keep reading for answers to these questions.

IRS Form 2751 is part of IRS Letter 1153. Ok that’s great but what does that mean?  Letter 1153 is a letter that is sent out to owners, officers and check signers of a business that owes 941 taxes. 941 Taxes stem from Form 941 Employer’s Quarterly Withholding Tax Return. Basically 941 taxes are how a business reconciles its payroll taxes. 941 taxes are made up of Employee Withholding, Social Security and Medicare. Employers are required to match contributions to Social Security and Medicare. 941 taxes should be paid monthly or “semi-weekly” depending on your look back period via www.eftps.com. The payments are referred to as Federal Tax Deposits or FTDs.

941 taxes are what is known as “Trust Fund” taxes meaning the business was supposed to hold the taxes in Trust for the Federal Government. When a business does not remit the taxes to the federal government, the owners, officer and check signers can be held personally responsible for the “Trust Fund” portion of the 941 taxes. The Trust Fund does not include the interest and penalties and it does not include the employer’s contribution to Social Security and Medicare.

Keep reading we need to get through some of the background before we can answer the question, “Should I sign IRS Form 2751?”

A person can be held personally responsible for a corporate tax debt?  Yes. However, there is a process and procedure that needs to be followed before the IRS can pierce the corporate veil and hold an Individual personally responsible. Right off the bat, any officer or owner is going to be considered. The IRS will assign a Revenue Officer to investigate and collect the back 941 tax debt. They will conduct an interview with the owners and/or officers called a 4180 Interview. The questions in the interview are geared toward who determined the financial policy of the business and what did you do about the tax debt once you became aware of the debt.

Here’s some more bad news. Even a bookkeeper or receptionist that signs checks for a business can be held personally responsible for the company’s tax debt. The 4180 interview is the best way to exonerate a bookkeeper. Ideally the owners of the business fall on the sward and admit that they were the ones directing the bookkeeper on which bills to pay.

The Revenue Officer will also request information such as canceled checks and a copy of the business’ bank signature card. The bank signature card is the piece of paper you sign when you open a bank account so that the bank knows who has the authority to sign checks for the business.

Ok here comes the answer: After all of this investigation the IRS Revenue Officer will send out Letter 1153 the last page of which is Form 2751 to anyone they feel should be held personally responsible for the 941 tax debt. Form 2751 will show what the proposed amount of the Trust Fund is.  So what happens if you sign Form 2751? By signing the form you are agreeing that you are responsible for the accrual of the tax debt and you are agreeing that you should be held personally responsible for it.  If you don’t sign it, you will be personally assessed anyway after 60 days. So don’t feel compelled to sign it. You have 60 days to appeal the decision of being held personally responsible.

So what can I do about it? There are several options for someone that has received Form 2751.

Option #1: You can appeal the 1153 Letter. You have 60 days to file the appeal. You will need to prove that you were not willful or responsible for the accrual of the tax debt.

Option#2: You can request that the Revenue Officer not assess you personally because your business is going to pay the debt back via an Installment Agreement.

Option #3: There is a waiver that can be signed extending the statute of limitations on personal assessment. The idea here being that you have given the IRS more time to assess you personally down the road so that they don’t need to assess you now.

Option #4: Set up a business Installment Agreement with the understanding that you will be held personally responsible but the IRS will suspend any collection action on you personally so long as the business is current on its Installment Agreement.

For more information on 941 taxes click here.

Do you really want to learn all of the tax law that the tax professionals at Phoenix Financial Group already know? Do you think you could possibly represent yourself as well as someone who does nothing but represent businesses that owe back 941 taxes?

The tax Enrolled Agents and IRS Enrolled Agents at Phoenix Financial Group can be reached at (888) 572-2179 or send an email to info@pfgtax.com.