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Trust Fund Recovery Penalty

Trust Fund Recovery Penalty

When a business has unpaid employment taxes (Employer’s Quarterly Federal Tax Return), the IRS may try to assert the Trust Fund Recovery Penalty against a responsible person, such as the owners, officers, directors, shareholders or bookkeepers of the business.   In determining whether to assert the Trust Fund Recovery Penalty against an individual, the IRS looks at who had check signing authority, the officers and owners of the business, the control the person exercised over the business’ financial decision, who signed the tax returns, who had bank and/or EFTPS pass codes or pin numbers, and who hired and fired employees.  Once the IRS determines who the responsible persons were, the IRS then must show that these individuals knew or should have known that the taxes were not getting paid while other creditors were getting paid.

The Trust Fund Recovery Penalty consists of all of the income tax that was withheld from employees’ wages and the employees’ share of FICA and Medicare.   The Trust Fund Recovery Penalty does not include the business’ portion of the FICA and Medicare tax, any penalties assessed against the business, or any interest due on these liabilities.

Resolving Trust Fund Recovery Penalty Assessments

If you are assessed with a Trust Fund Recovery Penalty, the IRS will look to collect that amount due from your personal income sources and your personal assets.   You have several options available to deal with Trust Fund Recovery Penalty assessments, you can set up an installment agreement with the IRS, you can request an uncollectable status with the IRS, or you can request a settlement with the IRS through their Offer In Compromise program.