I.R.C. §6672

Who Qualifies As A Responsible Person To Pay A Trust Fund Penalty?

The IRS utilizes a very broad definition of “responsible person” in the context of trust fund recovery penalties. The term, which may extend to more than one party within a corporation, partnership or LLC, applies to any person who willfully fails to perform a duty to pay trust fund taxes. It may be a corporate officer, director, employee, or shareholder, as well as a manager, employee, or member of a limited liability company. If a person is in any of the aforementioned positions where he or she controls a business’s financial affairs, liability as a responsible person for trust fund recovery penalties is a genuine possibility.

The Trust Fund Penalty – No One Is Safe

Employers are required to withhold federal income and payroll taxes from their employees’ wages for payment of payroll taxes such as federal income taxes and FICA (Federal Insurance Contributions Act) taxes. Such taxes are held in trust by an employer until it makes a federal deposit of the due amounts.

The IRS applies a term, “Trust Fund Recovery Penalty” (TFRP), for the fine related to an employer’s willful failure to pay over necessary federal income and FICA taxes. “Responsible persons” making such payments may be subject to criminal charges for any willful failure to remit these taxes. Most TFRP cases involve corporate officers and companies that are no longer in business, in which case the IRS may only collect TFRP from “responsible persons.”

Fitzpatrick V. Commissioner & The Trust Fund Penalty – The Aggressive IRS Loses A Big Case

How aggressive is the IRS in enforcing and collecting Trust Fund Recovery Penalties? A case from the U.S. Tax Court case illustrates the aggressive nature of the IRS when using the trust fund recovery penalty (TFRP) to collect trust fund taxes. Business enterprises must be careful to ensure that they do not incur Trust Fund Recovery Penalties for any failure to remit federal payroll and trust fund taxes when due.

Who Is Liable For Failure To Pay Over Employment Taxes?

Employers are required to withhold federal income and payroll taxes from their employees’ wages for payment of payroll taxes such as federal income taxes and FICA (Federal Insurance Contributions Act) taxes, which are held in trust until the employer makes a federal deposit of these amounts. The IRS applies a term, “Trust Fund Recovery Penalty” or TFRP, well-known by employers, to describe the fine for employer’s willful failure to pay over these taxes. Persons responsible for making such payments may be subject to criminal charges for any willful failure to do so. Most TFRP cases involve corporate officers.

PAYROLL TAX: THE TRUST FUND RECOVERY PENALTY

Employers must deduct taxes fromPAYROLL TAX:  THE TRUST FUND RECOVERY PENALTY their employees’ wages. Employers must make tax deposits and payments on time or they are subject to a Trust Fund Recovery Penalty (“TFRP”). To avoid the TFRP, employers must make sure that all employment taxes are collected, accounted for, and paid to the IRS when required . There are three parts or types of payroll or employment taxes withheld from the employee and reported on form 941, filed quarterly:

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