Trust Fund Recovery Penalty Defense — MD, DC & VA

When a business withholds payroll taxes from employee wages but doesn't remit them to the IRS, the government treats that money as though it were held in trust for the employees — hence "trust fund" taxes. The Trust Fund Recovery Penalty (TFRP) allows the IRS to assess the unpaid trust fund portion directly against individuals personally, separate from any action against the business itself.

This is what makes TFRP so serious: Corporate and LLC liability protections don't apply. The penalty follows the responsible individual even if the business closes, files bankruptcy, or the corporate entity has no assets left. It's calculated as 100% of the unpaid trust fund taxes (the employee withholding portion), not the employer's matching share.

Who counts as a "responsible person"? The IRS looks at authority and duty, not job title. Someone can be assessed if they had the authority to decide which creditors got paid and either knew payroll taxes weren't being paid or recklessly disregarded a known risk that they weren't. This can include:
- Officers and directors
- Anyone with check-signing authority or control over payroll
- Majority shareholders involved in financial decisions
- In some cases, bookkeepers or controllers with significant financial authority

The IRS investigation process: Revenue Officers conduct interviews (Form 4180) with anyone who might be a responsible person, then issue a proposed assessment. You have the right to appeal a proposed TFRP assessment before it becomes final — this is often the best opportunity to challenge an incorrect responsible-person determination.

Defending against TFRP:

• Challenging the responsible-person determination itself — many assessments are made against people who didn't actually have the authority the IRS assumes
• Appealing within the administrative process before assessment becomes final
• Negotiating an installment agreement or Offer in Compromise on the assessed penalty once it's final
• In limited cases, challenging in court after paying a divisible portion of the assessment

Multiple responsible persons: The IRS can assess TFRP against more than one person for the same unpaid taxes, though it can only collect the total amount once. If you're one of several people the IRS is investigating, how the case is handled affects your individual exposure.