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March 18, 2023    What You Need to Know About the IRS Trust Fund Recovery Penalty

If you are an employer who withholds income tax, Social Security and Medicare taxes from your employees’ paychecks, you have a legal obligation to pay those taxes to the IRS on time. These taxes are called trust fund taxes because they belong to your employees and the government. If you fail to pay these taxes, you may face a severe penalty known as the Trust Fund Recovery Penalty (TFRP), also known as the 100% penalty.

The TFRP is equal to 100% of the unpaid trust fund taxes. This means that if you owe $10,000 in trust fund taxes, you may also have to pay a $10,000 penalty on top of that. The TFRP is imposed on any person who is responsible for collecting, accounting for and paying over the trust fund taxes and who willfully fails to do so. This can include:

– An officer or an employee of a corporation

– A member or employee of a partnership

– A sole proprietor

– A corporate director or shareholder

– A member of a board of trustees of a nonprofit organization

– Another person with authority and control over funds to direct their disbursement

– A payroll service provider or a professional employer organization

To be liable for the TFRP, you must have acted willfully. This means that you knew or should have known about the unpaid taxes and either intentionally disregarded the law or were plainly indifferent to its requirements. For example, if you used the withheld funds to pay other creditors or expenses instead of paying them to the IRS, that would be considered willful.

The IRS can assess the TFRP against multiple responsible persons for the same unpaid taxes. This means that if you are one of several people who had control over your business’s finances and payroll, you may all be held jointly and severally liable for the penalty. However, this does not mean that each person must pay 100% of the penalty; rather, each person is liable for up to 100% of it until it is fully paid.

If you receive a notice from the IRS that they intend to assess the TFRP against you (Form 2751 with Letter 1153), you have 60 days (75 days if outside the U.S.) from the date of the notice to appeal it. You can request an appeal by filing Form 9423, Collection Appeal Request, with your local IRS office.

If you do not appeal or if your appeal is denied, then after 90 days (105 days if outside U.S.) from the date of the notice proposing assessment, the TFRP will be assessed against each responsible person by sending them Form2751, Proposed Assessment of Trust Fund Recovery Penalty. Once assessed IRS may begin enforced collection actions against the responsible persons.

The best way to avoid facing this harsh penalty is by paying your trust fund taxes on time. However, if you find yourself in trouble with unpaid trust fund taxes and facing potential liability for TFRP, then contact us today. Ensure that your bookkeeper or accountant is paying the monthly or semiweekly employment tax deposits when they are due.

We can help negotiate with IRS on your behalf. You may not know that an issue exists until a Revenue Officer visits your business or home and demands immediate full payment. Revenue Officers, without exception, are aggressive individuals when it comes to collecting Trust Fund taxes, and by the time they leave, they will probably with a partial or full payment. By the time they leave, you will know that they are very serious about collecting those taxes, penalties and interest the fastest way available to the IRS.

If you are contacted by a Revenue Officer (‘RO’), call us immediately after the visit, or inform the RO that you would like an opportunity to speak with an Enrolled Agent, CPA or attorney before answering any questions. You have a statutory right to be represented.

Revenue Officers cannot seize assets (but may threaten to do so) unless IRS has previously issued a Final Notice of Intent to Levy and Your Right to a Hearing (usually Letter 1058 or LT11) and thirty days passed, and you did not submit an appeal within thirty days from the date on the Final Notice. You should always open certified mail from IRS. More often than not it benefits you to do so.

If you have already received a Final Notice of Intent to Levy and Your Right to a Hearing, and an RO visits, you should act immediately. ROs usually give you two weeks to prepare a collection information statement so they can determine your ability to pay. If you do not meet their deadline, your life may become quite complicated. If you own/operate a business, IRS expects your books to be up to date, and they will request bank statements ranging from three to six months possibly before they leave your office.

We usually receive 30+ calls daily, so leave a voice message if we cannot attend to your call. Please note that at this time we are only accepting cases from businesses and individuals that owe back taxes.