Trust Fund Recovery Penalty (TFRP)

The Trust Fund Recovery Penalty is a penalty provided by IRC §6672 against any person required to collect, account for, and pay over taxes held in trust who willfully fails to perform any of these activities. The penalty is equal to the total amount of tax evaded, not collected, or not accounted for and paid over.

Individuals may be personally liable for trust fund penalties if the IRS can establish:

(1) RESPONSIBILITY the individual had a duty to collect taxes.

(2) WILLINGFULNESS the individual willfully failed to perform the duty.

What are trust fund taxes?  Trust fund taxes are payroll taxes specifically money withheld from employees (federal tax withheld + employee portion of FICA taxes) to be deposited using EFTPS.

Why is the nonpayment of trust fund taxes more serious than nonpayment of income taxes? 

Failing to deposit trust fund taxes is a serious issue for the federal government as employees are credited for taxes withheld even if those taxes have not been submitted to the federal government. Said another way, the federal government gets caught holding the bag for employee taxes withheld and never deposited.  If federal payroll tax deposits are not made the IRS goes after individuals with a duty to collect and deposit these taxes.

If the IRS assigns a Revenue Officer to your case to inquire about trust fund taxes it is our recommendation that you retain counsel.