The IRS issues trust fund recovery penalties (TFRPs) to hold individuals personally responsible for unpaid payroll taxes. Employers must withhold income and payroll taxes from employees’ wages and remit them to the IRS. If a business fails to do so, the IRS can assess TFRPs against responsible individuals, including business owners, officers, or employees who manage financial decisions.

Determining responsibility and willfulness

To impose a TFRP, the IRS must establish that the individual was responsible for collecting, accounting for, or paying employment taxes. The IRS also needs to prove that the responsible person acted willfully in failing to remit the taxes. Willfulness does not require fraudulent intent; a voluntary, conscious decision to pay other obligations before tax liabilities is enough to meet this standard.

Requesting an appeal

Taxpayers can challenge a TFRP assessment through an IRS appeal. After receiving a proposed assessment, the taxpayer can submit a written protest within 60 days (75 days for cases outside the U.S.). The protest should provide evidence and arguments explaining why the assessment is incorrect. This process allows taxpayers to present their case before an independent IRS appeals officer.

Contesting liability in tax court

If an appeal does not resolve the issue, taxpayers can challenge the assessment in the U.S. Tax Court, the Court of Federal Claims, or a U.S. District Court. To proceed in district court or the Court of Federal Claims, the taxpayer must first pay a portion of the penalty and file a refund claim with the IRS. If the IRS denies the claim or does not respond within six months, the taxpayer can file a lawsuit.

Providing evidence to support the case

Strong documentation is essential for disputing TFRPs. Evidence such as emails, financial records, and witness testimony can demonstrate that the individual lacked responsibility or did not act willfully. Legal counsel can help present a well-supported case to the IRS or the courts.

Taxpayers facing TFRP assessments should seek guidance from professionals who are knowledgeable in tax matters. These individuals can analyze the case, gather evidence, and navigate the appeals process. Proper preparation and a strong defense increase the chances of a favorable outcome and minimize financial liability.