Trust Fund Recovery Penalty (TFRP)

If you're a business owner or someone involved in handling payroll taxes, the Trust Fund Recovery Penalty (TFRP) may be one of the most serious tax liabilities you'll ever face. The IRS takes payroll tax compliance extremely seriously. When businesses fail to deposit withheld employment taxes—such as income tax, Social Security, and Medicare—from employee wages, the IRS considers that a major offense. These are known as “trust fund taxes” because the employer is holding them in trust for the federal government. Failure to remit them is seen as stealing from both the IRS and the employee.

The TFRP isn’t limited to business owners. The IRS can personally assess this penalty against any individual who is responsible for collecting, accounting for, and paying these taxes—and who willfully fails to do so. This includes business owners, corporate officers, partners, bookkeepers, and even payroll staff. Responsibility is determined not by job title but by control over financial decisions. The IRS conducts a formal investigation, typically involving Form 4180 interviews, to establish who had both the authority and awareness necessary to prevent the non-payment.

What makes the Trust Fund Recovery Penalty particularly severe is that it pierces the corporate veil. In other words, even if the taxes were owed by the business, the IRS can come after your personal finances. This means they can garnish your wages, seize your assets, or place liens against your property. Worse, this debt is not dischargeable in bankruptcy. The government uses this tool aggressively to enforce payroll tax compliance, and it can impact your financial life long after the business is closed.

“Willfulness,” as defined by the IRS, doesn’t necessarily mean malicious intent. If you knew that the taxes weren’t being paid—and you either did nothing or chose to pay other creditors instead—that’s enough to meet the IRS’s standard. This is why many business owners are shocked to find themselves personally liable, even if they thought they were doing the best they could to keep the business afloat.

At Trifecta Tax Relief, we work with business owners and key personnel who are facing—or trying to avoid—a TFRP assessment. If the IRS has contacted you about payroll tax issues or requested a Form 4180 interview, we can help you prepare for the investigation, gather mitigating evidence, and potentially avoid a personal assessment. If the IRS has already assessed the penalty, we can assist with appealing the decision or negotiating a resolution through an Offer in Compromise or Installment Agreement. In cases where liability is unavoidable, we fight to ensure the outcome is fair and manageable.

The key to surviving a TFRP case is early intervention. The sooner you contact a qualified tax professional, the more options you have.