Settling the IRS Trust Fund Recovery Penalty
If you own or manage a business with employees and have been charged with an IRS trust fund recovery penalty, you must act quickly before the IRS decides to garnish your wages or seize your assets.
What is the Trust Fund Recovery Penalty (TFRP)?
The Trust Fund Recovery Penalty (TFRP) is a fine charged for unpaid trust fund taxes and is equal to a portion of the business’ unpaid payroll taxes. It can be a hefty fine that the IRS aggressively attempts to collect and they have three years to do so.
Trust fund taxes include Federal income taxes and the employee portion of FICA taxes (Social Security and Medicare). An employer is responsible for monthly payment to the IRS, as well as quarterly reports.
Who is Responsible for the TFRP?
The IRS states, “the TFRP is a penalty against any responsible person required to collect, account for, and pay over taxes held in trust who willfully fails to perform any of these activities.”
The IRS identifies one or more individuals who are responsible for collecting and/or paying withheld income and employment taxes, and willfully does not collect or pay. A responsible person may be:
- An officer or an employee
- A board member
- Another person with authority and control over funds
- A payroll service
- A third party payer
The responsible person must also “willfully fail” to collect or pay. This means the responsible person should have been aware of the unpaid employment taxes, and either purposefully chose to ignore the law or did not care to adhere to the requirements.
Trust Fund Recovery Penalty Defense
The Wiggam Law defense for a potential Trust Fund Recovery Penalty involves collecting information about your role within the organization, as well as the roles of others to prove that someone else is responsible and willful. Even if you are a responsible party who willfully did not pay the payroll taxes, it can sometimes be argued that you should not be charged the penalty if you are uncollectible.
When an IRS revenue officer decides to assess the penalty against an individual, you have sixty days to file a protest to dispute the officer’s determination. You are then entitled to a hearing with the IRS appeals office where an independent IRS employee will review your case.
If you cannot dispute the TFRP or pay the amount in full, other options include:
Our tax attorneys have the professional knowledge and skill to represent you during your Trust Fund Recovery Investigation, and negotiate for your unique situation.
IRS Trust Fund Recovery Defense Success Stories
Our clients, a mother and daughter, were both being assessed a Trust Fund Recovery Penalty of $505,634 as the IRS claimed they were a responsible party for unpaid payroll taxes for a hospital that previously employed them as CEO and CFO, respectively. We successfully argued that the clients should not be personally liable for the non-payment of trust fund liabilities for the hospital. The IRS agreed with our position and determined that our clients should not be held personally liable, saving them both the full amount of $505,634.