941 tax workouts and responsible person payments…the “source of funds” issue.

Unfortunately there are subtleties associated with paying off the 100% civil penalty from the responsible party tax obligations for unpaid 941 tax payments. This highly stressful situation must be understood or you may find yourself in a more difficult situation then you thought.

The issue is the source of funds used for your payment to the IRS. If the funds can be tracked back to the corporation that originally owed the 941 taxes, and you draw the payment directly from the corporate account, you may not be credited for the payment as a responsible party payment.

It may be credited directly to the now defunct corporation leaving you, the responsible person, still indebted for the same amount owed before you made the payment.

This is a very important distinction and can be overcome if you are aware of the issue.

The answer is to make certain the cash comes from the responsible party or an outside party which you can document or from a loan or dividend distribution or unpaid payroll from your corporation or payback from a loan to the corporation, so in some way the money is a valid distribution from you personally and not a corporate distribution from the defaulting company paid on your behalf.

Pass the cash through your personal account first and then to the IRS but there must also be some viable reason for the distribution. Failure to do this could cancel the credit to you and will be credited to the defunct corporation. This is a very common trap unwary responsible party tax payers can fall into if they are unaware of this requirement.

Be very careful about this matter it can be overcome if you understand the issue and plan accordingly. Call for help 413-549-2966.