The income and social security taxes an employer withholds from the wages of employees are called “trust fund” taxes because they are constructively held in trust for the government. All too often, when business owners encounter financial trouble, they fail to pay these taxes – not because of any plan to steal the money from the government, but because they don’t have the money to pay the government. The intention is to catch up on the payroll taxes when there is enough money to do so. But often that doesn’t happen.

The IRS is very aggressive in pursing unpaid payroll taxes. The United States Attorney’s Office has not been shy to prosecute those who have willfully failed to file payroll tax returns, or to pay payroll taxes. Before resorting to a criminal prosecution, the IRS attempts to collect the unpaid taxes from anyone who had anything to do with running the company, particularly those who made the financial decisions.

This is done by assessing the “trust fund recovery penalty” (TFRP). Corporate officers, directors, shareholders, and employees are normally immune from personal liability for the debts of their corporation. But the TRFP is assessed directly against the so-called “responsible persons” in their individual capacity, piercing the corporate veil.

This is a problem of immense proportion. First, the amounts are often huge. Indeed, the amount of the penalty personally attached is equal to the full amount of withholdings taken from all employees and not turned over to the IRS. Second, the TFRP is not dischargeable in bankruptcy. Thus, the TFRP can thwart any efforts to rebuild and start over after the demise of a failed business

And third, the TFRP is not just assessed against the owners of a business. It can also be assessed against any “responsible person.” A responsible person is not just limited to owners and accountants of the company. Instead, a responsible person is any person who has the duty to perform and the power to direct the collection and payment of withheld income and employment taxes. Thus, it is not unusual for the IRS to assert the penalty against accounting clerks and other folks who are named as officers merely for the convenience of the person who really runs the business

If you receive a notice from the IRS identifying you as a responsible person, you have a short window of time in which to contest the proposed assessment of the trust fund recovery penalty. Call us. We will vigorously defend you against assertion of the penalty