Trust Fund RecoveryPenalty (TFRP)
The one payroll-tax problem that reaches past your company and into your own assets. We prepare you for the Form 4180 interview and fight the assessment.
Short answer
- The trust fund recovery penalty makes you personally liable for 100% of the payroll taxes your business withheld from employees and did not pay the IRS.
- It pierces the LLC or corporation, applies to anyone the IRS calls a "responsible person" who "willfully" failed to pay, and survives bankruptcy.
- The Form 4180 interview largely decides the outcome. Alexander Accountants prepare you for it and fight the assessment.
The trust fund recovery penalty turns payroll taxes your business withheld from employees into your personal debt. It is the one payroll-tax problem that reaches past the company and into your own assets.
Under Internal Revenue Code section 6672, the IRS can assess a penalty equal to 100% of the trust fund taxes your business failed to pay, plus interest. The “trust fund” portion is the money withheld from employees — federal income tax and the employee share of Social Security and Medicare. The employer's own share is not part of it.
How the IRS builds a TFRP case
What the TFRP is
A penalty equal to 100% of the withheld "trust fund" taxes — federal income tax plus the employee share of Social Security and Medicare.
Who is a "responsible person"
Judged by status, duty, and authority — not job title. Anyone who signs checks, controls finances, or decides which creditors get paid can qualify, and more than one person can be liable for the same quarter.
What "willful" means
You knew the taxes were due and paid someone else first — a supplier, rent, payroll. No intent to cheat the IRS is required.
What is excluded
The employer's own share of payroll tax is not part of the penalty — only the amounts withheld from employees.
The Form 4180 process
- 1
Form 4180 interview
The IRS establishes who was responsible and whether the failure was willful. This is usually where the case is won or lost.
- 2
Letter 1153 + Form 2751
The IRS proposes the assessment against you personally.
- 3
60 days to appeal
You have 60 days from the date on Letter 1153 to appeal — 75 days if you are outside the US.
What a TFRP defense costs
Cost depends on where the case stands — whether the Form 4180 interview is still ahead of you or an assessment has already been proposed — and how many quarters and people are involved. We scope it up front.
Why the stakes are so high
of withheld taxes can become your personal debt
The trust fund recovery penalty survives both your business and your personal bankruptcy.
It's personal
The penalty reaches your personal assets — not just the company's.
It survives bankruptcy
Neither business nor personal bankruptcy discharges it.
The interview decides it
Walking into a Form 4180 interview unprepared often hands the IRS the proof it needs.
Talk to us now if…
- You have received a Letter 1153 or Form 2751.
- You have been asked to sit for a Form 4180 interview.
- You sign checks or control finances for a business that's behind on payroll taxes.
- You are an owner, officer, or bookkeeper worried about personal liability.
The trust fund recovery penalty survives both your business and your personal bankruptcy. The earlier representation comes in, the more room there is to limit or defeat it.
Defend against a TFRP
If you have received a Letter 1153 or been asked to sit for a Form 4180 interview, tell us where things stand and we'll tell you your options before you respond.
Too many business owners walk into a Form 4180 interview thinking they can simply explain away a bad cash-flow quarter. Without realizing it, they often hand the IRS the exact details needed to prove they were a 'responsible person' who 'willfully' paid other bills before the government. Having representation before that interview is the single most critical step in defending your personal assets.
This page is general information, not legal or tax advice. TFRP outcomes depend on your specific facts.
Reviewed by
Founder, Alexander Accountants, CPAs
David Alexander, CPA founded Alexander Accountants, CPAs in 1995 and represents business owners in IRS payroll tax and trust fund recovery penalty matters from Harvard, MA.