Employees are required to withhold federal income and social security taxes from the wages of their employees. If an employer fails to do so, the government will often assert the trust fund recovery penalty (“TFRP”) against those responsible for payroll decisions.
Generally, the bar to assert the TFRP is a low one. First, the government must merely show that the taxpayer was a “responsible person,” i.e., someone with a certain degree of decision-making authority over payroll. Although this almost always includes owners of the employer company, it also commonly ensnares others such as executives or directors of the company. Second, the government must show that the responsible person acted “willfully.” For these purposes, willful conduct generally means that the responsible person voluntarily chose to pay other creditors over the IRS with knowledge of the outstanding IRS payroll obligations.