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Trust Fund Recovery Penalty
Defend Against Personal Liability for Business Payroll Taxes
The Trust Fund Recovery Penalty (TFRP) converts a business payroll tax liability into a personal assessment against individuals who had authority over the business finances. The IRS can assess the TFRP against multiple people simultaneously.
Do not attend a TFRP interview without representation
The IRS conducts a Form 4180 interview to determine responsible-person status. Statements made during this interview are used to support the TFRP assessment. You have the right to representation under Circular 230 — exercise it before the interview, not after.
What Is the Trust Fund Recovery Penalty?
Under IRC §6672, the IRS can assess a penalty equal to 100% of the unpaid trust fund taxes against any person who was responsible for collecting and paying over those taxes and willfully failed to do so. The penalty is called the Trust Fund Recovery Penalty (TFRP).
The trust fund portion of payroll taxes includes the employee income tax withholding and the employee share of Social Security and Medicare taxes. It does not include the employer share of FICA or FUTA.
The TFRP can be assessed against owners, officers, directors, shareholders, employees, and even third-party payroll processors — anyone with authority over the business finances who had knowledge of the unpaid taxes and chose to pay other creditors instead.
The Two-Part Test: Responsible and Willful
Responsible Person
A person is responsible if they had the duty and authority to collect, account for, and pay over the trust fund taxes. Indicators include: signing checks, authority over payroll, control over financial accounts, corporate officer status, and ownership interest.
Title alone is not determinative — the IRS looks at actual authority and conduct.
Willfulness
Willfulness does not require intent to defraud. It means the person knew about the unpaid taxes and either intentionally disregarded the obligation or was recklessly indifferent to it.
Paying other creditors — including employees, suppliers, or secured lenders — while knowing payroll taxes are unpaid is the most common basis for a willfulness finding.
TFRP Defense Services
- Form 4180 interview preparation and representation
- Responsible-person analysis — who had actual authority
- Willfulness defense — documenting lack of knowledge or authority
- Protest of proposed TFRP assessment
- IRS Office of Appeals representation
- Coordination with business counsel on corporate governance issues
- Analysis of multiple responsible-person assessments
- Installment agreement or OIC for assessed TFRP
TFRP Appeals Process
After the IRS proposes a TFRP assessment, the taxpayer receives Letter 1153. You have 60 days to protest the assessment to the IRS Office of Appeals. If the protest is not filed timely, the assessment becomes final and collection begins. An experienced representative can challenge both the responsible-person determination and the willfulness finding at Appeals.
TFRP Interview Scheduled? Get Representation First.
Statements made in a Form 4180 interview are used to support the TFRP assessment. We prepare you for the interview and represent you throughout the process.
No resolution strategy is recommended until we have reviewed your transcripts and financial position. Eligibility depends on your specific facts.