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How to Handle a Trust Fund Recovery Penalty Assessment

Payroll Taxes

The Trust Fund Recovery Penalty (TFRP) is a severe tax penalty assessed against individuals who fail to comply with certain payroll tax obligations. You may have several defenses and appeal options if the IRS assesses the TFRP, so contact a tax attorney for assistance.

Key Insights We Will Discuss:

  1.  When the TFRP may be assessed
  2. What to expect if the IRS is investigating a potential TFRP case
  3. Possible defenses to a TFRP assessment

What is the Trust Fund Recovery Penalty?

Trust fund taxes are the employee’s portion of employment taxes and federal income taxes withheld from employee paychecks.  The employer holds this money “in trust” and is responsible for submitting it to the IRS.

The TFRP can be assessed against an individual who meets the following criteria:

  • He or she is responsible for collecting, paying, or remitting withheld income and employment taxes, and
  • He or she willfully fails to do so.

The penalty is equal to 100% of the unpaid trust fund taxes.   The penalty is assessed against each responsible individual instead of the business itself.

TFRP Investigations

An IRS revenue officer can ask for documentation to determine the amount of unpaid trust fund taxes.  An interview may also be scheduled with individuals who may be considered “responsible persons” for the TFRP.

You have the right to bring a tax attorney with you to the interview.  Going to the interview alone may be a big mistake because the revenue officer is generally going to be far more knowledgeable and experienced in tax matters than you are.

At the conclusion of the investigation, the IRS may issue a proposed TFRP assessment.

Defenses to the TFRP

You have 60 days to file a written protest if you disagree with the TFRP.  You may be able to present any of the following defenses to the TFRP assessment:

  • You are not a responsible person for TFRP purposes
  • You did not act willfully when failing to pay or collect trust fund taxes
  • The amount of the penalty assessment is incorrect
  • The statute of limitations on the penalty assessment has expired

The IRS may also consider collectibility when assessing the TFRP.  If you are experiencing a financial hardship and can’t realistically pay the TFRP, the IRS may decide not to assess the penalty.

Contact an Attorney

Get help with Trust Fund Recovery Penalty Assessments by calling Ayar Law at 800.571.7175 to get free, no-obligation tax advice from a tax attorney.

Executive Summary:

The Trust Fund Recovery Penalty is equal to 100%% of any unpaid trust fund taxes.  There are many potential defenses to a TFRP assessment.  You also have the right to appeal the TFRP by filing a written protest.

 

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.