Trust Fund Recovery Penalty Calculator IRC § 6672

The Trust Fund Recovery Penalty (TFRP) under IRC § 6672 is a 100% penalty assessed against "responsible persons" who willfully fail to collect, truthfully account for, or pay over trust fund taxes. Trust fund taxes are taxes withheld from employee paychecks - federal income tax withholding and the employee portion of FICA (Social Security and Medicare). The penalty equals 100% of the unpaid trust fund taxes.

Trust fund taxes are taxes held "in trust" for the government from employee paychecks: federal income tax withholding, employee Social Security (6.2%), and employee Medicare (1.45%). Non-trust fund taxes are the employer's matching contributions: employer Social Security (6.2%), employer Medicare (1.45%), and FUTA unemployment tax. Only trust fund taxes are subject to the TFRP.

A responsible person is anyone with the authority to decide which creditors to pay. This includes: officers and directors with check-signing authority, shareholders with financial control, employees who determine payment priorities, bookkeepers who can direct disbursements, third-party payroll providers, and even lenders who control company funds. Having a title alone is not enough - actual authority and control matter.

Willfulness for TFRP purposes means a voluntary, conscious, and intentional decision not to pay trust fund taxes. It does not require evil intent or bad motive. Reckless disregard of a known risk also qualifies. Key indicators include: knowing taxes were due but using funds for other purposes, paying suppliers or landlords before the IRS, continuing operations knowing taxes were unpaid, and ignoring IRS notices.

Form 4180 is the "Report of Interview to Determine Liability" that the IRS uses to gather information about responsible persons and willfulness. During the interview, the IRS asks detailed questions about your role, authority, and decisions regarding company finances. Your answers can be used against you. Consider having a tax attorney present, and never admit to "willfully" failing to pay - use factual descriptions instead.

Letter 1153 is the "Notice of Proposed Assessment" of the TFRP. It notifies you that the IRS intends to assess the penalty against you personally. You have 60 days from the date of the letter to request an Appeals conference. This is a critical deadline - missing it means the penalty will be assessed without appeal. After assessment, your options become much more limited.

Yes, the IRS can and often does assess the TFRP against multiple responsible persons for the same unpaid taxes. Each person is jointly and severally liable for 100% of the penalty. This means the IRS can collect the full amount from any one person. In practice, they will pursue whoever has the most assets. Responsible persons can sue each other for contribution.

Common defenses include: (1) Lack of responsibility - you did not have actual authority over finances; (2) Lack of willfulness - you reasonably relied on a CPA or payroll service, were unaware of non-payment, or circumstances were beyond your control; (3) Employee theft or embezzlement; (4) All available funds were directed to trust fund taxes. Documentation is crucial for any defense.

The IRS generally has 3 years from the date the Form 941 was filed (or should have been filed) to assess the TFRP. However, if the return was fraudulent or no return was filed, there is no statute of limitations. Once assessed, the IRS has 10 years to collect the penalty. Various actions can suspend or extend these periods.

Yes, you have the right to a pre-assessment appeal through IRS Appeals. After receiving Letter 1153, you have 60 days to request an Appeals conference. During Appeals, you can present your case, provide evidence of defenses, and negotiate. Appeals officers have authority to settle cases. If unsuccessful, you can pay a partial amount and file for refund in court.