The trust fund recovery penalty (TFRP) is equal to 100% of any unpaid trust fund taxes. You may become personally responsible for this penalty if the IRS determines that you are a responsible person at the business who willfully failed to send the payroll tax money to the IRS.
The TFRP is a severe penalty, and you should consult a tax attorney if you are being investigated for a possible TFRP assessment.
Negotiating The TFRP
First, you have the option to request mediation before the IRS assess the TFRP. This involves a neutral mediator who will attempt to reach a settlement between you and the IRS.
The good thing about mediation is that it isn’t binding on either party. If you don’t like the deal, the IRS can move forward with the penalty assessment and you can use your formal appeal rights.
The IRS will send Letter 1153 to notify you of a proposed TFRP assessment. You have 60 days to appeal this proposed penalty assessment.
If the proposed penalty is less than $25,000, you can file a small case request. Otherwise, you will need to send a formal written protest that must contain specific information and meet the requirements set by the IRS. Your tax attorney can include the legal basis for disputing the TFRP assessment.
Your case will be assigned to an IRS Appeals Officer and a hearing will be scheduled. You’ll have the chance to present your arguments and offer a settlement. The Appeals Officer will make a determination and you’ll have the chance to either accept or reject.
Appeals After Assessment
After the final TFRP assessment, you still have the right to appeal the amount of the penalty. You can do so by either requesting penalty abatement or paying the TFRP and requesting a refund. If the IRS doesn’t respond to your refund request within six months, it will be effectively denied and you can file a lawsuit to seek your refund.
Have a question? Contact Venar Ayar.