Penalty Abatment

My father was a silent partner in a fast food franchise with his brother. They were the only owners and had it classified as an "S" Corporation. My dad provided half of the money and owned half of the business but doesn't get involved in the day to day operations. His brother ran the business completely. The company had 6 employees but had to close. My dad and uncle sold the business and have been assessed a Civil Trust Fund Recovery Penalty in excess of $90,000. My dad doesn't have that kind of money and is afraid of losing his retirement, his home and his automobiles. What can he do, I thought he was protected by incorporating?

What has happened is the company failed to file Form 941's. They are the quarterly forms that are filed when the business pays payroll taxes. The IRS is very aggressive on these because it is regarded as theft. The company withheld money from the employee and did not pay it to the IRS as they are obligated to do. In this case the IRS will assess the Civil Trust Fund Recovery Penalty (CTFP) against anyone who was an officer of the company or had check writing authority. Although your father may have been completely innocent the IRS doesn't know this.

First of all the CTFP is not $90,000 per owner, it is $90,000 total whether there are 2 owners or 20. However, I believe your father has an excellent case for penalty abatement. As a silent partner, if he had no access to books, no check writing authority and was an owner in name only he may be able to eliminate his personal liability or get a reduction. The CTFP goes after the owners outside of the "S" Corporate veil because the owners could run up a tax bill, file bankruptcy and open another company and continue on doing this. This process is called pyramiding. This needs to be dealt with immediately because it is the highest level of IRS enforcement and they can not only place liens on his property, levy his wages and seize any other assets, he could face criminal prosecution if he is found to be responsible