Trust Fund Penalty

The Trust Fund Penalty is often times referred to as the 100% tax penalty. The tax amount assessed is equal to the total amount of the federal tax deposits that should have originally been made to the government. In order to promote immediate payment of withheld income and employment taxes, including social security, Congress passed a law that enables the enforcement of the TFRP. These taxes are called trust fund taxes because businesses actually hold the employee’s money in trust until a federal tax deposit in that amount is submitted. The TFRP may apply to you if the unpaid trust fund taxes cannot be collected from the business. Just because a business has failed or is going under does not mean the government will not assess you personally.


If The IRS has determined that you are deemed a responsible person, they serve you with a letter plainly stating that the IRS plans to assess the TFRP against you. You will then have 60 days after the date of the letter to appeal.

You must understand that once the IRS declares the penalty they have full right to enforce collection actions by taking your personal assets. The IRS may initiate federal tax liens, bank account levies, wage garnishment, seizure of property and other collection action.

Impact Tax Resolution will be there for you should you find yourself facing the uncertainty of being assed with the TFRP.

The IRS must prove both responsibility and willfulness.

In order for the IRS to assess the penalty to an individual they must show both willfulness and responsibility. A good defense must be able to show the absence of just one of the variables needed to assess the penalty. You must prove that you were either not responsible for paying that tax or that you did not willfully fail to give the government their money. Have you ever successfully defended yourself in the formal process of protesting a Trust Fund Penalty Assessment? ITR representatives are available to listen to your circumstances.

Are you responsible?
The IRS defines a responsible person as the person responsible for collecting or paying withheld income and employment taxes.

It is specifically stated that a responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. That person may be the owner, or even an employee that the owner delegated certain duties to or possibly any other person with authority and control over funds to direct their disbursement.

Did you act willfully?
When determining if you acted willfully the IRS says that you must have been, or should have been, aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).

As you probably expected, the IRS is very liberal in whom they assess this penalty to and how they interpret responsible and willful. Once you have been deemed responsible then it is up to you to prove that you were either not responsible or not willful.

In order to successfully protest the TFRP you must present very sound arguments as to why you are not responsible nor did you willfully fail to pay the IRS.

The 4180 Interview. How the IRS determines whom they will assess.
If a Revenue Officer has contacted you to do an interview understand no matter how nice he or she is, the purpose of the interview is to gather information in order to assess you personally. Be very careful how you respond to the questions being asked. It would probably be prudent to have a representative with you during the interview.

The Internal Revenue Manual says that the purpose of the personal interview and completion of form 4180 is intended to be used as a record of personal interview with a potentially responsible person, to secure direct, detailed information regarding the individual’s or other persons’ involvement in the business in order to determine if he or she meets the criteria for responsibility.

Understand the purpose of the questions and the motive of the individual conducting the interview. Their job is not to be your friend although they may act sympathetic, or understanding. Their mandate and responsibility is to first determine whom they are going to assess, then assess the tax liability. After the liability has been assessed they will enforce the collection of what is due to the IRS. Don’t be misled.

If you would like to discuss what you may be facing during a 4180 interview ITR

What can you do if it is determined that you are indeed responsible and willful?
Impact Tax Resolution would exhaust all possible resolution strategies in order to help settle your liability such as: Offer in Compromise, Payment Plan, Penalty Abatement, Business Restructure, Currently Not Collectible, Appeal and more.

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