Can the IRS collect payroll taxes from the owner of an LLC?
If a business is an LLC and is a disregarded entity (or one where an individual elects to be taxed as a sole proprietorship) does the IRS have to assess the Trust Fund Recovery Penalty (TFRP) in order to collect from the individual Taxpayer?
The answer is it is going to depend upon the date the payroll taxes are assessed. The owner of a single member limited liability company (LLC), who is taxed as a disregarded entity and files a schedule C will be held responsible for both trust fund and non-trust fund payroll taxes paid prior to January 1, 2009. Another words, the owner of the LLC, rather than the LLC itself is considered the taxpayer for payroll tax purposes.
The case law upholds the collection of pre-January 1, 2009 payroll taxes from the owner of the a single member LLC. The US Tax Court case, Medical Practice Solutions, LLC v. Commissioner, 132 T.C. 7 (2009) provides there is no trust fund recovery penalty process for a single-member LLC.
For wages paid after January 1, 2009, Treasury Regulation 301.7701-2(c)(iv) makes the disregarded entity or LLC the taxpayer, not the owner. For post-Janary, 2009 employment taxes, the owner of the single-member LLC will no longer be immediately responsible for all taxes (trust and non-trust), but should expect the trust fund recovery penalty recovery investigation. There is de minimum exception of 10 K where administratively it is not economical for the IRS to pursue the investigation.