Trust Fund Recovery Penalty (TFRP)
When a business fails to pay its employment taxes, IRC section 6672 authorizes the IRS to assess the “trust fund” portion of the tax against responsible persons who willfully fail to collect, account for, and pay over that portion. The trust fund portion is the employee portion of the employment tax withheld from the employee paychecks, so 7.65% of Social Security and Medicare tax, plus any amount of employee income tax withheld.
With large companies, the IRS casts a wide net, usually assesses everybody it can, and investigates as the respective “responsible persons” point fingers at each other. With smaller companies, the assessment falls on the owners and officers, and possibly an outside bookkeeper. These individuals have the opportunity to dispute the proposed assessment of the TFRP through a Protest to the IRS Office of Appeals within 60 days of the letter of proposed assessment.
If no Protest is filed, the TFRP is assessed against the individuals, and they will need to pay a portion of the tax and sue for a refund in federal court. The IRS then will countersue, bringing the entire amount of tax before the federal court judge. Further, the TFRP is not dischargeable in Bankruptcy Court. If an individual has been assessed the TFRP, possibly the only way of finding relief is by filing an Offer in Compromise. The TFRP is a very serious matter, the defense of which should never be approached without highly-competent tax counsel. David A. Sprecace has more than 23 years of experience helping responsible persons who may be assessed the TFRP. Call 303-454-8260 or email Dave at Dave@MyTaxLex.com to set up a phone consultation.