Trust Fund Recovery Penalty Defense for Businesses & Individuals

When payroll taxes go unpaid, the IRS doesn’t stop at your business; they can hold you personally responsible.

If you’re a business owner, corporate officer, payroll manager, bookkeeper, or even an individual who signed the checks, the IRS can hold you personally responsible for the full amount of unpaid trust fund taxes, plus steep penalties.

Get experienced legal defense from Anthony N. Verni, a licensed tax attorney, CPA, and MBA with 25+ years of experience, to protect your business and personal assets from IRS penalties.

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What Is the Trust Fund Recovery Penalty (TFRP)?

The IRS Trust Fund Recovery Penalty (TFRP) is a serious enforcement used when a business fails to deposit employment taxes withheld from employees’ paychecks.

These funds, including social security, medicare, and income tax taken out of paychecks, are called “trust fund” taxes because the business collects them from employees and keeps them safe for the government until it’s time to send them in.

When the IRS doesn’t receive these funds, they pursue not just the business, but individuals involved in collecting, accounting for, and paying over the taxes.

Who Is Liable for the TFRP?

The IRS doesn’t just pursue businesses for unpaid trust fund taxes; it holds people responsible.

Suppose payroll taxes were withheld from employees’ paychecks but not deposited with the IRS. In that case, the agency will look beyond the business entity to find who was personally responsible for handling those funds. This person is known as the “responsible party,” and they can be held liable under the Trust Fund Recovery Penalty (TFRP).

You May Be Liable If You Had Control

The IRS defines a “responsible person” not by job title but by control over financial decisions. You may be held personally liable if you:

Had the authority to sign or direct payments from business accounts
Controlled payroll operations or tax filings
Determined which creditors got paid when funds were limited
Knew taxes were due, but allowed other bills to be paid instead

This means owners, partners, CFOs, controllers, payroll managers, in-house bookkeepers, and even outside accountants may all be at risk, especially if their names appear on bank signature cards or tax filings.

Personal Liability Isn’t Always Obvious

Many individuals are surprised to learn the IRS is pursuing them personally for their company’s unpaid trust fund taxes. You might have:

Stepped into a temporary leadership role during a financial crisis
Helped run payroll without realizing deposits were missing
Resigned or sold your shares but didn’t formalize the exit properly

Even if you weren’t the final decision-maker, the IRS may still try to assign liability if you were involved in the process. They often assess multiple individuals in the same case, leaving it up to each one to prove they weren’t responsible.

Don’t Assume You’re Safe; Get Legal Clarity

If you’ve received Letter 1153, been asked to attend a Form 4180 interview, or simply worked in a financial role at a business with payroll tax issues, you need to act fast. Once assessed, the penalty becomes your personal debt independent of the business’s fate.

We help individuals and business leaders understand where they stand, challenge improper liability, and build a defense before the IRS locks in their decision.

Request a Confidential Case Review

How Is the Penalty Calculated?

The Trust Fund Recovery Penalty is calculated at 100% of the unpaid trust fund taxes that’s the portion of payroll taxes withheld from employees’ wages but never deposited with the IRS.

This includes:

Federal income tax withheld
The employee share of Social Security and Medicare

It does not include the employer’s matching portion.

To determine the exact penalty, the IRS uses a dedicated system known as the Automated Trust Fund Recovery (ATFR) tool. This system is used by IRS revenue officers to:

Calculate the penalty amount
Document the investigation findings
Prepare the official assessment for managerial review and approval

Once the TFRP is assessed, the amount becomes a personal civil liability, no different from owing back taxes directly.

Understand Your Exposure Before the IRS Makes It Final

The Trust Fund Recovery Penalty isn’t estimated; it’s calculated. We’ll help you determine the full scope of your liability based on IRS methodology, timelines, and documentation standards before the IRS finalizes its assessment.

Request A Confidential Case Review Today

Risks & Consequences of the TFRP

When the IRS enforces the Trust Fund Recovery Penalty, the consequences can be severe for both the business and any individuals deemed responsible.

For Individuals

Personal Liability: You may be held personally responsible for 100% of the unpaid trust fund taxes.
Wage Garnishments: The IRS can garnish your paycheck or retirement income.
Bank Levies: Your personal bank accounts may be frozen or emptied.
Tax Liens in Your Name: Public liens may appear on your credit reports.
Asset Seizures: Real estate, vehicles, and investment accounts are all at risk.

For Businesses

Frozen Business Accounts: Levies can halt operations overnight.
Loss of Credit Access: Federal tax liens can damage business credit ratings.
Contract Disqualification: Government contracts may be denied due to unresolved payroll liabilities.
Operational Disruption: Revenue officers may appear on-site, demanding immediate compliance.
Forced Closure: In extreme cases, the IRS may seize assets or shut the business down.

Our Trust Fund Recovery Penalty Defense Services

Trust fund recovery cases demand more than routine tax help; they require legal precision, strategic planning, and a deep understanding of how the IRS assigns personal liability. Here are the services we provide:

IRS Interview Representation

We represent you during IRS interviews, especially the critical Form 4180 interview, where what you say can determine whether the IRS holds you personally liable.

Review of IRS Evidence

We audit the IRS case file, challenge inaccuracies, and flag procedural flaws that can be used to dispute or reduce the penalty.

Determining Responsibility

We break down your actual role within the business to demonstrate you are not a “responsible person” under IRS criteria, an essential defense.

Challenging Willfulness

We develop legal arguments and gather documentation to prove that any willful failure to pay taxes is due to a lack of control, knowledge, or decisions made under pressure.

Legal Briefs & Written Responses

From formal protests to appeals and legal letters, we prepare all necessary written responses with the clarity and authority the IRS takes seriously.

Administrative Appeals

We file official appeals and represent you during an IRS Appeals Office proceeding to challenge assessments before they become final.

Federal Court Litigation

If needed, we represent you in U.S. Tax Court or Federal District Court, with the full backing of our litigation experience.

Strategic Negotiation & Relief

Whether you need a payment plan, IRS penalty abatement, currently not collectible status, or an offer in compromise, we negotiate the solution that fits your financial position.

Asset Protection

We act swiftly to prevent or release levies, liens, and garnishments, preserving both your personal finances and business continuity.

Full IRS Correspondence Management

From start to finish, we manage all communication with the IRS, shielding you from missteps and keeping you fully informed throughout the process.

Why Choose Verni Tax Law?

Defending against the Trust Fund Recovery Penalty takes more than just tax knowledge; it requires a precise mix of legal strategy, forensic insight, and authority in front of the IRS. That’s where Verni Tax Law stands apart.

Dual credentials that matter in TFRP cases

Anthony N. Verni isn’t just a tax attorney; he’s also a CPA and holds an MBA. This unique combination means your case is approached from both a legal and financial lens, with every angle accounted for.

Focused experience in IRS penalty defense

With 25+ years of experience, we’ve represented clients facing complex TFRP assessments, including multi-party investigations, six-figure penalties, and high-risk audits. We understand how the IRS builds its case and how to dismantle it.

Personal involvement from start to finish

Verni Tax Law doesn’t pass your case down a chain of staff. Anthony personally reviews every file, engages directly with IRS agents, and leads your defense from day one.

Transparent fees and communication

From day one, you’ll know exactly what to expect—no hidden charges, no vague billing terms. We offer upfront clarity on scope, pricing, and progress updates throughout your case.

Resolution that protects the bigger picture

Whether you’re safeguarding your business, your personal assets, or both, we develop strategies that consider long-term risks, not just short-term relief.

Frequently Asked Questions

How long does the IRS have to assess the trust fund recovery penalty?

The IRS typically has three years from the date a payroll tax return is filed to assess the IRS Trust Fund Recovery Penalty. However, if no return was filed or fraud is suspected, this time limit may not apply.

Can the trust fund recovery penalty be appealed?

Yes. You can appeal the proposed penalty before it’s assessed. This is usually done after receiving IRS Letter 1153, which outlines your right to file a protest and request an Appeals hearing.

What is IRS Form 4180 and why is it important?

Form 4180 is used during interviews to gather facts about your role in the business. It helps the IRS determine whether you’re a “responsible person” and if your actions were “willful.” What you say on this form can directly impact your liability.

Can multiple people be held liable for the same penalty?

Yes. The IRS can assess the same TFRP amount against multiple individuals. Each person is jointly and severally liable, meaning the IRS can collect the full amount from any one of them.

What if I can’t afford to pay the trust fund recovery penalty?

Even if you’re found liable, the IRS may consider your financial situation. You could qualify for a payment plan, offer in compromise, or be placed in currently not collectible status, depending on your ability to pay.

How do I know if I am a “responsible person”?

The IRS considers several factors, like whether you had authority over finances, signed checks, made payroll decisions, or withheld taxes. You don’t have to be an owner, bookkeepers and managers can also be held liable.

What happens after the penalty is assessed?

Once assessed, the TFRP becomes a personal debt. The IRS can file a Notice of Federal Tax Lien, issue levies, and garnish wages or accounts until the balance is resolved.

Can the penalty be discharged in bankruptcy?

In most cases, the TFRP cannot be discharged in bankruptcy. It’s considered a priority tax debt, especially if it stems from trust fund taxes like withheld payroll taxes.

What are common defenses against the TFRP?

Common defenses include proving you’re not a responsible person, your actions were not willful, or the IRS has made procedural errors. Having proper representation can help surface and present strong defenses.

How can I avoid the trust fund recovery penalty in the future?

Stay current with payroll tax filings and deposits, review who handles your tax responsibilities, and maintain strong internal controls. If you’re unsure, consulting a tax attorney or CPA before issues arise can protect you.

Hear from relieved
Taxpayers who trusted Verni Tax Law

Anthony was creative in helping me resolve some past issues in a way that they never became a problem so that is greatly appreciated and I feel confident I can now enjoy my retirement with peace of mind. Thanks for that.

Ken B.

Cebu City, Philippines

Douglas R.

Osaka, Japan

Phil Y

President, Swift & Secure Systems Inc., Boynton Beach, FL

Yassin and Eva, B.