TFRP is a penalty against any person required to collect, account for, and paver over taxes who willfully fails to perform any of these activities.  See Internal Revenue Manual (IRM)   The penalty is imposed for either wilfull failure to collect tax, or willful failure to account for and pay tax or willful attempt to evade or defeat tax or payment.  ID

            The most common situation encountered for Federal Taxes relates to withholding for employment tax returns for withheld income tax, or social security tax, of employees of a corporation.   IRM  

                        Example – Ababa Corporation withholds $100,000 from employees pay, for income and social security taxes.  The President, Joe Ababa, decides to uses the tax money to pay the general bills of Ababa Corporation.   (Note, the trust fund only applies to the money collected, and held in trust for the IRS – the portion of Social Security tax due from the employer is not part of the trust fund).

                        The idea is the following – the Ababa Corporation is withholding its employees money, for social security and employment taxes .  The tax money is really the money of the employees.  The tax money is being held by Ababa Corporation as a trust fund for payment to the Internal Revenue Service.   Joe is improperly taking the employees money, which is due to the Internal Revenue Service.   Joe is a trustee of the trust money.   

            Normally, the corporation is primarily responsible for the taxes.  However, the TFRP allows the IRS to seek collection out of other parties, typically officers and employees of the corporation, who are not primarily liable for the trust fund taxes. 

            The TFRP is assessed against a “responsible person”   in addition to the corporation.   A responsible person is one who “has the duty to perform or the power to direct the act of collecting, accounting for, and paying over the trust fund taxes.”   IRM  The most common  persons are officers of a corporations.   However, the IRS may seek to collect from someone who is not an officer – commonly one who handle the books and records, and/or controls the checkbook.  

            Even if a person is responsible, there must be “willfulness, which is “intentional, deliberate, voluntary, and knowing,” with a person who with free will or choice intentionally disregards the law or is plainly indifferent to tis requirements.”   IRM   Typically, the IRS is looking for someone who is writing checks, or has the ability to pay the corporate bills, and fails to the pay the trust fund taxes.     

            As the IRS Manual indicates, factors to consider include:

                        Whether the person had knowledge of noncompliance when delinquencies were accruing

                        Whether the person had received prior IRS notices indicating employment taxes had not been paid

                        Whether fraud or deception was used to conceal nonpayment of taxes. 

            The author has seen situations in which a person was held to be a responsible party who willfully failed to pay taxes, where the person had  responsibility for the books and records, was aware of the tax issues, and ignored the tax issues to pay other bills.   


Because of the risk associated with personal liability from the trust fund recovery penalty, anybody associated with a company which fails to pay over taxes to the IRS (or state), should resign immediately.  This is particularly important for someone who has any authority to direct or pay the corporate bills. 

Attorney Robert M. Singer

Law Offices of Robert M. Singer, LLC

2572 Whitney Avenue

Hamden, CT  06518


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