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Payroll Taxes and Trust Fund Recovery Penalties

Resolving Payroll Tax Disputes with the IRS

Disputes with the IRS over payroll taxes can be stressful and highly disruptive for business owners.  Thorn Law Group is a leading tax law firm with extensive experience helping businesses and individuals resolve problems associated with the withholding and payment of payroll taxes.  Our tax law attorneys advise and represent corporations, partnerships, sole proprietors, employees, agents and other persons facing payroll-related audits and disputes with the IRS.  We combine the inside knowledge we gained from working as former IRS trial attorneys with our extensive private tax law firm experience to solve serious tax law matters for clients in Virginia, across the United States and in countries around the world.

Trust Fund Recovery Penalties (TFRP)

Federal law requires businesses to withhold federal income taxes and Social Security and Medicare taxes (FICA taxes) on behalf of their employees.  These payroll taxes are known as “trust fund” taxes because the business holds a portion of the employee’s earnings in trust until the business pays the taxes owed to the IRS.  When a business fails to withhold, account for, and pay over the trust fund taxes owed, the IRS has the power to assess a trust fund recovery penalty (TFRP).   The TFRP has been called the “100 percent penalty” because the amount of the penalty is equal to 100% of the payroll taxes (unpaid income taxes and FICA taxes) owed to the government. 

The IRS can assess a trust fund recovery penalty against any person who is responsible for collecting or paying the required payroll taxes and who willfully fails to do so.  The IRS defines a “responsible person” as a person or group of people who have “the duty to perform and the power to direct” the collection, accounting for and payment of payroll taxes.  This is a broad definition which covers a wide range of individuals and entities, including officers, employees, shareholders, partners, sole proprietors, Payroll Service Providers (PSP), Professional Employer Organizations (PEO), and other parties with authority and control over the collection and disbursement of trust fund taxes. 

The IRS takes aggressive action against businesses with unpaid trust fund tax obligations.  When a trust fund recovery penalty is asserted, the IRS has the authority to take collection action against the personal assets of responsible parties.  Such action can include filing a federal tax lien and seizing property to satisfy the trust fund recovery penalty owed.  The IRS can also institute criminal charges against responsible persons who willfully fail to collect and pay trust fund taxes.

Contact a Virginia Tax Lawyer at Thorn Law Group

If the IRS has sent you written notice that it plans to assert a trust fund recovery penalty (TFRP) against you or has requested you to submit to an interview in connection with a TFRP dispute, the tax law attorneys at Thorn Law Group can help.  We will review your situation and identify all avenues that may be available to resolve the tax dispute.  Contact Kevin E. Thorn, Managing Partner in our Virginia satellite offices, at 703-752-3752 or email us at ket@thornlawgroup.com to discuss your case in confidence.


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