Trust Fund Recovery Penalty: Personal Liability for Business Taxes
Your business fell behind on payroll taxes. Now the IRS wants to hold you personally responsible for the trust fund portion. This is the Trust Fund Recovery Penalty, and it's one of the most aggressive collection tools the IRS has.
What the TFRP Is
When you withhold income tax and FICA from employee paychecks, that money is held 'in trust' for the government. If it's not paid over, the IRS can assess a penalty equal to 100% of the trust fund taxes against any 'responsible person' who 'willfully' failed to pay.
Who Is a Responsible Person
Officers, directors, shareholders, employees with check-signing authority — anyone who had the authority to decide which creditors got paid. The IRS casts a wide net. I've defended business owners, bookkeepers, and even outside accountants.
The Willfulness Element
Willfulness doesn't require intent to defraud. It means you knew the taxes were due and chose to pay other creditors instead. If you paid rent, vendors, or yourself instead of the IRS, that's willfulness in their eyes. The defense is narrower than most people think.
Fighting the Assessment
You have 60 days after receiving a Letter 1153 to appeal before the penalty is assessed. After assessment, you can pay a divisible amount and sue for refund. I use both administrative and litigation strategies depending on the case.