IRS Letter 1153 is an important document to be aware of if you’re an employer. The IRS sends out this letter to inform you that they’re proposing to assess (charge) the trust fund recovery penalty (TFRP) against you. This penalty may apply to your business if you collect employee employment taxes but don’t send them to the IRS by the applicable tax deadline.
The TFRP can be significant on its own. But if you fail to respond to Letter 1153 and don’t pay your debt, your personal finances could be at risk. If you receive this letter, you should not ignore it, and it may be a signal that you should start consulting with a tax professional to get this issue resolved.
This guide walks through what IRS Letter 1153 entails, what to do if you get one, how to avoid the TFRP as an employer, and frequently asked questions about Letter 1153.
What is IRS Letter 1153?
Employers must collect employment, or FICA, taxes from employee wages, hold these withholdings in trust, and send them to the IRS when due. Employment taxes include Medicare, Social Security, and some income taxes. These taxes are then reported on an employee’s W-2 in the new year so they can report these withholdings.
You will likely be hit with a penalty if you fail to pay these taxes. The purpose of Letter 1153 is to inform you that the TFRP is being assessed against you. If you receive this letter, it means the IRS has deemed you a “responsible person” for the unpaid taxes at hand and that you willfully failed to pay these payroll taxes. This means you:
- Were found to know about the unpaid payroll taxes and chose not to pay them
- Are an officer or employee of the business with authority to direct payments to the IRS
The responsibility determination is usually made after the IRS conducts the Form 4180 interview, wherein an agent asks questions to determine who knew about the failure to pay and who was responsible for sending tax payments.
Along with Form 1153, you’ll receive Form 2751. If you do not dispute it, this form needs to be signed as an agreement to the proposed assessment. If you receive these documents from the IRS, don’t hesitate to reach out to a tax professional who can help you navigate what to do next to avoid additional trouble.
Diving into the Trust Fund Recovery Penalty
The TFRP is a significant penalty that you’ll be assessed if you are found liable for not paying the employment taxes that are owed. Letter 1153 outlines the assessment and other details about your obligations, including how to appeal the penalty. While it is referred to as a penalty, it is a portion of the unpaid payroll taxes that the IRS can attempt to collect against individuals in addition to the company. They can only collect it once, so there is no extra charge on the payroll taxes.
To calculate the TFRP, the IRS simply adds up the withheld federal withholding and the employee’s share of FICA taxes that were not paid to the IRS. Keep in mind that interest will accrue on tax penalties the longer you wait to pay them.
Note that the TFRP does not apply to the employer’s Medicare and Social Security tax portion. It only applies to the portion of those taxes withheld from the employees’ paychecks.
Avoiding the TFRP requires you to pay the employment taxes you collected when they’re due. Staying compliant with tax laws is critical to keeping your business in good standing with the IRS.
Steps to Take if You Receive IRS Letter 1153
So, you may have already received IRS Letter 1153 regarding a TFRP assessment. What should you do next? Follow these steps:
- Pay the full amount if possible: The best way to avoid further issues is for the company to pay the unpaid payroll taxes in full.
- Sign Form 2751: If you agree to the letter, indicate your agreement by signing Form 2751, which is included with Letter 1153, and returning it.
- Respond within 60 days: You must act within 60 days from the date of the letter. If it was sent to you at an address outside the U.S., you have 75 days.
- Don’t ignore the letter: Doing nothing could lead to serious problems, such as the IRS filing a federal lien so they can seize your assets and property. Never assume the problem will go away.
- File an appeal: If you believe the TFRP was assessed in error or want to fight it, you can file an appeal within those 60 days from the letter date. Letter 1153 will include specific instructions for filing an appeal, so follow those steps carefully. You will usually need to mail a written appeal to the person and address listed on the letter.
- Be aware of the consequences if the matter isn’t resolved: If you don’t ask for an appeal or agree to the assessment and pay, the letter will be considered ignored. You may then face additional penalty charges, legal action, and liens and levies on your assets. These outcomes could have huge impacts on your personal and business financial situation.
Comply with all instructions on IRS Letter 1153 and take some kind of action by the deadline to avoid issues. As soon as you receive this letter, it’s best to talk over your situation with a tax attorney right away.
How to Avoid TFRP Assessments
Moving forward, you want to do everything you can to avoid these penalties and potential issues for your business. What can you do to stay compliant?
Get Organized
Organized, efficient businesses have an easier time complying with tax laws. Establish filing and recordkeeping systems that ensure accessibility, manage who has access, and include necessary dates and timestamps of correspondence. Working with an outside professional can help your business put the right organizational practices in place moving forward.
Implement Better Payroll Management
Payroll guidelines can be confusing and overwhelming, but failing to comply can put your business in hot water with the IRS. Improve your payroll management system so compliance is understood, tracked, and executed properly.
Use Technology for Notifications and Reminders
Incorporating billing or payroll technology can be a major improvement for your business. These systems use automation to send out reminders of upcoming deadlines and check documents for accuracy, reducing human error. Consider investing in payroll software that can streamline these tasks and improve efficiencies.
Seek Financial Help for the Business
Maybe the business wasn’t able to pay employment taxes on time because it was having financial trouble. If this is the case, it may be time to consult with an expert about your financial situation so you can put more effective practices in place to manage cash flow and the revenue cycle. One key to ongoing tax compliance is to ensure financial practices are strong so the business continues to grow and earn a profit.
Work with a Tax Professional
Tax experts, such as tax attorneys, accountants, or CPAs, assist businesses with tax and payroll management to ensure compliance throughout the year. This kind of help can ensure you’re following all payroll requirements, withholding taxes properly, and paying the IRS by each applicable deadline.
You may think tax assistance is expensive, but it’s nothing compared to the penalties and legal trouble your business could face without it.
Avoid Common Letter 1153 Mistakes
Don’t create a worse situation for your business by making common Letter 1153 mistakes, such as failing to respond within 60 days, ignoring the letter, failing to appeal or pay what’s owed, or not paying the full amount. You may believe this letter is just a first notice, and you still have time, but if you don’t respond, the IRS will assess the TFRP and may take other collection or legal actions.
Finding Help with IRS Letter 1153 and TFRP Issues
Receiving Letter 1153 can be stressful. Maybe you didn’t realize you made a mistake, or you’re worried about affording your employment tax bill. Maybe you’re already struggling to keep your business afloat and are drowning with the stress of owning a business. Either way, you’re being assessed by the IRS for making a mistake with business employment taxes. Letter 1153, the TFRP, and Form 2751 can all seem overwhelming when you’re unsure what to do and what rights you have.
You don’t have to deal with these matters on your own. The team at Wiggam Law is ready to help you settle your TFRP issues. We provide expert tax guidance and can represent your business in tax cases. We know the importance of responding to Letter 1153 and can help you negotiate with the IRS, pursue an appeal, or get your tax debt paid.
Get the tax help you need by contacting Wiggam Law today. Call us at (404) 233-9800 or complete our online consultation form to get started.
FAQs about Letter 1153 and the TFRP
Does the trust fund recovery penalty apply to businesses?
No. The Trust Fund Recovery Penalty is a portion of the unpaid payroll taxes that the IRS can attempt to collect against individuals. It applies to owners and officers or others with check-signing authority who knew or should have known about the unpaid payroll taxes and did not pay them. The business already owes this debt as part of its outstanding payroll taxes, and it is not an addition to these taxes.
How is IRS Letter 1153 different from other IRS notices?
Many IRS notices alert you of your failure to comply with tax law and outline penalties. However, Letter 1153 is specific to individuals who are found to be liable for the trust fund portion of the unpaid payroll taxes.
Can negotiation or settlement reduce my TFRP assessment?
You may be able to reduce the penalty if you make a compelling argument to the IRS. You may also be able to set up monthly payments. However, you generally cannot settle these taxes for less than owed.
How long does the IRS have to assess the TFRP after sending Letter 1153?
You have 60 days to respond to Letter 1153 with an appeal request or 75 days if your address is outside the U.S. If you don’t respond within this time frame, the IRS will move forward with the assessment and could take additional collection actions if you don’t respond or pay. Note the IRS has three years from the date the payroll returns were filed to give rise to the TFRP. You should consult with a tax attorney to determine whether the IRS can assess the TFRP against you.
What documentation will support my response to IRS Letter 1153?
Your letter will include specific instructions on how to appeal and what documentation to send to the IRS for review. Provide all necessary documents requested so the IRS can review the appeal request properly and hopefully give you the desired outcome.
Does IRS Letter 1153 affect my personal credit score?
No, receiving Letter 1153 should not impact your personal credit score. This is a notice of the TFRP, which you have the opportunity to appeal within 60 days.
How do I prove I am not a “responsible person” for TFRP purposes?
You receive Letter 1153 after the IRS determines you are responsible for the unpaid employment taxes. The agency conducts Form 4180 interviews to talk to executives, directors, or employees about their role in payroll and billing management. You would have to show the IRS that you were not involved in the failure to pay the tax or that you were unaware of the unpaid tax.
Are payment plans available for TFRP liabilities from Letter 1153?
Yes, you are usually allowed to apply for an installment agreement to pay off the debt and penalty over time. After receiving Letter 1153, contact the IRS or a tax attorney to discuss your payment plan options.
Will bankruptcy release me from TFRP assessments?
No, unfortunately, the TFRP usually cannot be discharged in Chapter 7 or 11 business bankruptcies. If you are considering filing for bankruptcy for yourself or your business, talk to a tax attorney about your options and what the best path forward looks like.
Can the IRS levy my personal assets for TFRP debts?
Yes, if you fail to respond or pay, the IRS could file a federal tax lien against your assets or property, including wages, bank accounts, or real estate. Don’t let the situation get this far; pay off your debt and penalty, ask for an appeal, or set up a payment plan with the IRS.