The Texas Construction Tax Problem
Texas's construction boom created massive demand for contractors, but also massive compliance failures. Many contractors misclassify workers as 1099 subcontractors when they should be W-2 employees, creating payroll tax liability. The IRS has dedicated construction enforcement teams in Houston and Dallas actively pursuing these cases.
Trust Fund Recovery Penalty Exposure
Contractor owners face personal liability for unpaid payroll taxes through the Trust Fund Recovery Penalty (TFRP). The IRS can pursue the owner's personal assets, including their home, even if the construction business is incorporated. In Texas, 3,400+ contractor owners currently face TFRP assessments averaging $45,000.
Resolution Strategies for Contractors
Construction contractors may qualify for installment agreements that account for seasonal income fluctuation. Many can reconstruct records to demonstrate lower actual tax liability. Some qualify for Offer in Compromise based on business economic hardship, particularly during market downturns.
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