If the IRS has assessed a Trust Fund Recovery Penalty (TFRP) against you, prompt action is crucial. You want to make sure you preserve your right to appeal the penalty and avoid severe personal financial consequences, such as liens, levies, and wage garnishments.
A Phoenix Trust Fund Recovery Penalty lawyer can help you navigate the complex IRS procedures, protect your legal rights, and work towards a favorable resolution. Our dedicated tax controversy attorneys will meticulously review the evidence to determine if the IRS correctly assessed the penalty against you or your business, and tirelessly advocate for your rights.
What Is the Trust Fund Recovery Penalty?
The IRS can impose the Trust Fund Recovery Penalty (TFRP) when individuals responsible for a business’s finances willfully fail to collect, account for, or pay federal payroll taxes to the IRS. These taxes, considered government property held in trust by the employer, include federal income tax withholding and the employee’s portion of Social Security and Medicare taxes. The IRS must establish two conditions to impose the TFRP on an individual:
- Responsibility: The person must have had the duty or authority to direct the collection, accounting, and payment of the trust fund taxes. This can extend beyond official titles (like owner or officer) to include anyone with significant control over the company’s financial decisions, such as a bookkeeper with check-signing authority, partners, corporate directors, payroll managers, or third-party payroll providers.
- Willfulness: The responsible person must have acted willfully in failing to pay the taxes. This does not require a bad motive or specific intent to defraud the government. Willfulness is established if the person knew about the unpaid tax obligation and intentionally disregarded it, or acted with a reckless disregard as to whether the taxes were paid.
The TFRP is assessed against the individual(s) responsible for the failure to pay the taxes, not just the business entity itself. This means corporate officers, owners, or others with financial authority can be held personally liable, and their personal assets can be pursued by the IRS. The penalty is equal to 100% of the unpaid trust fund taxes.
The IRS can assess the full penalty against multiple responsible individuals. Each person is jointly and severally liable, meaning the IRS can collect the entire amount from any one of them until the debt is paid. Given the serious nature of the trust fund recovery penalty, consult with one of our Phoenix attorneys immediately if you are facing this type of action from the IRS.
How Does the TFRP Work and What Are Potential Legal Solutions?
An IRS Revenue Officer will start by investigating the business’s financial records (bank statements, payroll records, corporate documents) to identify individuals with authority over financial decisions and payroll tax payments. The Revenue Officer interviews potential responsible persons using Form 4180 to determine their role, duties, and awareness of the unpaid taxes. If the IRS determines an individual is a responsible person who acted willfully, they issue a formal notice of the proposed TFRP assessment.
Recipients have 60 days (or 75 days if outside the U.S.) to respond or formally protest the decision. If no timely appeal is filed, or the appeal is unsuccessful, the IRS formally assesses the penalty and issues a Notice and Demand for Payment. Once assessed, the IRS can pursue collection actions against the individual’s personal assets, such as filing a tax lien or seizing bank accounts. You can challenge a TFRP assessment through:
- Administrative appeal: The primary method is to file a written protest within the 60-day window to the IRS Office of Appeals, an independent unit that reviews disputes. This often involves an informal hearing with an Appeals Officer to present evidence and arguments against responsibility or willfulness.
- Collection alternatives: If the liability is not disputed but payment is difficult, you can negotiate payment options with the IRS, such as an installment agreement or an Offer in Compromise to settle the debt for a lesser amount based on financial hardship.
- Judicial review: If administrative appeals fail, you can pursue litigation. This typically involves paying a portion of the tax, filing a claim for a refund, and then suing the government in a U.S. District Court or the U.S. Court of Federal Claims.
- Collection due process (CDP) hearing: If the IRS begins collection actions (like a lien or levy) after assessment, you may request a CDP hearing to challenge the collection action and explore collection alternatives.
A Phoenix lawyer can represent you in interviews and building a strong defense against the TFRP, such as demonstrating you were not the person responsible for it (e.g., merely clerical duties with no independent judgment) or your actions were not “willful” (e.g., you were unaware of the unpaid taxes).
We can draft the formal protest letter with sound factual and legal arguments, represent you during the IRS appeals process, and, if necessary, pursue litigation in federal court. Our team can also negotiate payment plans to achieve the most favorable outcome possible and ensure all deadlines are met.
Reach Out to a Phoenix Trust Fund Recovery Penalty Attorney
Our Phoenix lawyer can serve as the primary point of contact for the IRS when discussing the trust fund recovery penalty, and protect you from direct contact or potential self-incrimination. Our legal team can negotiate with the IRS to temporarily halt aggressive collection actions and significantly mitigate the severe financial consequences associated with a TFRP assessment.
In some cases, it may be possible to argue that the IRS made procedural errors during the assessment. We can also advise you on compliance procedures and tax planning strategies to help you avoid future tax problems and ensure all tax obligations are met going forward. Contact Dayes Law Firm today to request your free and confidential case consultation.
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