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Federal Court Enters $760,000 Judgment Against Couple Who Failed to Pay Trust Fund Taxes More Than Ten Years Ago

Federal Court Enters $760,000 Judgment Against Couple Who Failed to Pay Trust Fund Taxes More Than Ten Years Ago

In U.S. v. Kraft, a New Jersey couple was assessed a combined trust fund recovery penalty of more than $430,000 in 2001. Federal law states that employers in the U.S. are required to withhold social security, Medicare, and certain other taxes from each worker’s paycheck. Since the employer holds the money in trust on behalf of each employee until the funds are submitted to the Treasury, such taxes are normally referred to as “trust fund taxes.” Under the Internal Revenue Code, an employer or other responsible person who willfully fails to remit trust fund taxes to the IRS may be held personally liable for the entire unpaid amount. This is called the trust fund recovery penalty.


In 2012, the U.S. government sought to obtain a judgment against the couple in order to collect the unpaid federal tax assessments. As part of its lawsuit, the government filed a motion for summary judgment with the New Jersey federal court. Such a motion is submitted when no material issue of fact is in dispute and the moving party feels it is entitled to judgment in its favor based upon the law. The couple’s only response to the U.S. government’s motion was to argue that the case was untimely because it was not filed within the 10-year statute of limitations prescribed by 26 U.S.C. Section 6502(a)(1). A statute of limitations typically limits the amount of time during which a lawsuit may be filed with a court.



According to the District of New Jersey, 26 U.S.C. Section 7122 suspends the 10-year statute of limitations while the IRS considers a taxpayer’s offer in compromise. In addition, the law suspends the time period for 30 days following the rejection of such an offer. The court also stated that a bankruptcy proceeding may suspend the statute of limitations for six months following completion of the bankruptcy. Since the couple submitted an offer in compromise that was rejected by the IRS more than one year later, the court held that the lawsuit was commenced within the applicable statutory time frame. In addition, since the wife later filed for bankruptcy, the statute of limitations with regard to her was suspended for an even longer period.


Since the case was not time-barred and the couple offered no other defenses to the lawsuit that was filed against them, the District of New Jersey granted the government’s motion and entered judgment for more than $760,000 against the couple.


If you would like more information regarding your federal payroll or other tax obligations, contact tax attorney William Hartsock today. Mr. Hartsock is a certified tax law specialist with more than 30 years of experience helping clients in Southern California navigate the Internal Revenue Code. To discuss your case with a hardworking tax lawyer, please call Mr. Hartsock at (858) 481-4844 or contact him online.


Additional Resources:

U.S. v. Kraft, Dist. Court, D. New Jersey 2014



Photo Credit: gracey, MorgueFile


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