An individual can be held personally liable for a penalty for the willful failure to collect, account for, and pay to the IRS the employment taxes of a business. This is known as the “trust fund recovery penalty” (TFRP). The TFRP is not a penalty in the traditional sense, but rather, is a collection device that permits the IRS to impose liability on a “responsible person” who “willfully” failed to remit the employment taxes that were held in trust for the government.
If you are responsible for paying a the employment taxes of a business and those taxes are unpaid, a large portion of those taxes may be assessed against you personally as a trust fund recovery penalty.
The TFRP is particularly troublesome because it is not dischargeable in bankruptcy. That’s why individuals assessed with the TFRP must seek immediate assistance from a tax resolution professional.
In order for the IRS to assess the TFRP against a person, the IRS must show that the person is a “responsible person” under the law. A “responsible person” includes any officer or employee of a corporation, or member or employee of a partnership, who has the duty to collect or pay employment taxes. It’s not the title of the person that matters as much as whether that person had the status, duty, and authority to control the company’s affairs.
Sometimes, the IRS casts a wide net when assessing the TFRP. The IRS may assess the TFRP on any person who writes checks for a company, for example. That means that even the bookkeeper may be assessed the TFRP.
So what happens if you are assessed the TFRP, but are not a “responsible person” who controls the company’s affairs? You may defend the assessment of the TFRP through what’s known as “responsible person defense.”
We would assist you in presenting your responsible person defense and show that you should not be assessed the TFRP. Most of the time, the company will even pay our fee in such a case.
So what if you are a responsible person, but were not able to pay the employment taxes? We can resolve the TFRP the same way that we would resolve other tax debts. We can use tools such as Offers in Compromise and Installment Agreements to get you back on track and get the TFRP behind you. In many cases, you do not even have to pay the entire amount!
If you’ve been assessed a trust fund recovery penalty, call now to schedule your free consultation to start you on your path to relief. You can also request a free copy of our book, The Essential Tax Resolution Survival Guide.
