Tax Set-Aside and Trust-Fund Liability Build-Up
Leverage / base / 1 to 3 months
What it detects
whether the cash a business is sitting on includes money that was never its own to spend, and whether the balance of that money is growing. Two legs. Leg A reads tax set-aside COVERAGE: an implied income-tax reserve (the disclosed [redacted]% assumption applied to year-to-date pretax profit, net of income tax already paid in cash, floored at zero) plus the payroll-liabilities and sales-tax-payable balances, measured against unrestricted cash. Leg B reads trust-fund liability BUILD-UP: payroll and sales-tax liabilities rising across consecutive closes by a material amount.
Why it matters
Some of the cash sitting in a company's account was never really its own to spend: payroll withholding and sales tax are collected on behalf of the government and are only being held in trust. When a business spends that money to cover its own operations, it can feel solvent while quietly falling behind on obligations that can carry personal liability for owners and officers under trust-fund rules and that tax authorities pursue aggressively. A balance of these liabilities that keeps building is an early sign the company is leaning on trust-fund cash to stay afloat, which is one of the hardest holes to climb back out of.
Severity levels
- MEDIUM
- HIGH
- CRITICAL
Thresholds
- TAX_SETASIDE_COVERAGE_CRITICAL
- TAX_SETASIDE_COVERAGE_FLOOR
- TAX_SETASIDE_RATE
- TRUST_FUND_BUILDUP_MATERIAL_PCT
- TRUST_FUND_BUILDUP_PERIODS
Exact thresholds, formulas, and severity bands are omitted from this public view. The full methodology, with every figure, is available in the authenticated app.
When this signal does not apply
This signal reports not applicable only when neither exposure can be read at all: no identifiable trust-fund liability, no profit-and-cash context for the reserve leg, and too little payroll-balance history for the build-up leg. A determinate no-exposure result is a pass, not a gap.
Sources
- Internal Revenue Code, withheld taxes held in trust
- Internal Revenue Code, trust fund recovery penalty
- Internal Revenue Code, employee share of FICA
- Internal Revenue Code, employer share of FICA
- Internal Revenue Code, federal corporate income tax rate
- Treasury Regulations, employment tax deposit rules
- IRS Employer's Tax Guide (Circular E)
SEE IT ON REAL NUMBERS
The exact thresholds, the formula, and your own figures are in the authenticated app. See it against a real, simulated dataset for Integra Executive Services, our public demo company, or connect your own QuickBooks Online account.