Commonly Asked Questions about the
Trust Fund Recovery Penalty
The answers provided below are for general informational purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship.
Q: What is the Trust Fund Recovery Penalty?
Answer: This occurs when the person who collected and is withholding trust fund taxes, fails to send the money to the IRS. Congress authorizes Revenue Officers to collect the unpaid taxes. It’s also known as the Civil Penalty (or "CIV-PEN") or "6672 Penalty,” and it’s equal to 100% of the unpaid taxes in the trust fund.
Q: Who Does the IRS Typically Assess the Trust Fund Recovery Penalty Against?
Answer: The IRS typically assesses the Trust Fund Recovery Penalty against the employer if they are holding back on forwarding the pending taxes on behalf of employees.
Q: Is the Trust Fund Recovery Penalty Only Assessed Against the Owner of a Company and Just One Person?
Answer: No. Legally, the Trust Fund Recovery Penalty can be assessed against anyone whose job it was to collect and pay the trust fund taxes, but knowingly refused to do so. The penalty can be assessed against more than one person who is responsible and they are jointly responsible. The penalty is non-dischargeable in bankruptcy.
Q: What if I am Broke? Would the IRS Assess a Penalty Against Me if There is No Way I Can Pay It?
Answer: Your financial situation will not stop the IRS from accessing a penalty but it may cause a pause in efforts to collect.
Q: Can the IRS Collect More Than What is Owed By Going After Everyone Separately?
Answer: No. The IRS collects the tax liability once.
Q: Can I Appeal a Revenue Officer Assessment of the Trust Fund Recovery Penalty Against Me?
Answer: Yes. You can appeal to the IRS Office of Appeals once the Trust Fund Recovery Penalty is assessed against you.
Q: What if I Never Appealed the Decision? Can I Undo the Assessment of the Trust Fund Recovery Penalty?
Answer: Yes. You must claim a refund. If the refund is administratively denied you then have the opportunity to go to Federal District Court.
Q: Can I File an Offer in Compromise to Settle a Debt Created By the Assessment of the Trust Fund Recovery Penalty By the IRS?
Answer: Yes. The personal tax liability that’s non-dischargeable in bankruptcy can be negotiated via an installment agreement, a partial payment installment agreement, currently non-collectible status, or an Offer in Compromise.
Q: Is There a Time Limit the IRS Has to Collect On the Trust Fund Recovery Penalty?
Answer: Yes, the IRS generally has ten years from the date of assessment to collect.
Q: My Business is Already Paying Back All Unpaid Payroll Taxes. Why is the IRS Trying to Add the Trust Fund Recovery Penalty?
Answer: This is common. The IRS will still attempt to impose the Trust Fund Recovery Penalty to maximize collection potential.
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The Trust Fund Recovery Penalty (TFRP) is a penalty that can be assessed by the Internal Revenue Service (IRS) against individuals who are responsible for collecting, accounting for, and paying over certain taxes, such as income and employment taxes, but fail to do so. The penalty can be significant, and the IRS has broad powers to enforce it, including the ability to seize assets and pursue legal action against the responsible individuals.
Hiring a tax attorney when the IRS is assessing the TFRP is important for several reasons. First, a tax attorney can help you understand your rights and obligations under the law and the specific facts of your case. They can review the evidence and determine whether the penalty has been correctly assessed, and if so, how much you may owe.
Second, a tax attorney can represent you in dealings with the IRS, including negotiating a payment plan or settlement of the TFRP, or challenging the penalty in court if necessary. They can also help you respond to any other tax issues that may arise, such as audits or other tax disputes.
Third, a tax attorney can provide valuable guidance on how to avoid future tax problems and ensure compliance with tax laws going forward. They can help you establish procedures for ensuring timely payment of taxes, identify areas of risk, and advise you on tax planning strategies that can help minimize your tax liability.
Overall, a tax attorney can provide valuable guidance and representation when the IRS is assessing the TFRP, and can help you avoid or mitigate the significant financial and legal consequences that can arise from noncompliance with tax laws.