Trust Fund Recovery Penalty

The Trust Fund Recovery Penalty under IRC §6672 is one of the most powerful weapons in the IRS arsenal. It allows the IRS to take the trust fund portion of unpaid payroll taxes — the money withheld from employees — and assess it as a personal liability against anyone who was a responsible person and acted willfully.

Who Is a Responsible Person

The IRS defines a responsible person broadly. It is anyone with the duty to collect, account for, and pay over trust fund taxes. Officers, directors, shareholders with authority over financial affairs, bookkeepers who sign checks, even employees who have check-signing authority. The IRS will investigate using Form 4180, the Trust Fund Recovery Penalty interview.

Multiple people can be responsible persons for the same liability. The IRS can and will assess the penalty against all of them.

What Willful Means

Willful does not require intent to defraud. It means you knew the taxes were due and you chose to pay other creditors instead. Paying rent, suppliers, or even other taxes while the 941 liability went unpaid is willful. The bar is low.

Defending Against the TFRP

You have 60 days after the IRS sends Letter 1153 (proposed assessment) to appeal. This is your window. Once the penalty is assessed, it becomes a personal tax debt with its own 10-year collection statute. You can challenge responsible person status, challenge willfulness, or argue that the trust fund portion was calculated incorrectly.

The Form 4180 interview is adversarial. Do not go alone. We defend responsible persons against TFRP assessments.

Tax attorney Darrin Mish has spent 32 years getting taxpayers out of IRS trouble. Free consultation — no obligation.