IRS Trust Fund Recovery Penalty

Internal Revenue Code Section 6672 (a) covers the IRS Trust Fund Recovery Penalty. This is often referred to as the 100% penalty which indicates how serious the IRS is to punish taxpayers who fail to turn over trust funds. Trust funds are withholdings that the employer holds back from employee pay checks. They would include Federal withholdings, Social Security and Medicare taxes. The term trust means that the employer is holding these funds from a position of trust and is responsible to collect and turn them over to the IRS on a regular basis.

The person or persons responsible for paying these taxes would include but are not limited to the Chief Executive Officer, and any other person authorized to pay the funds and have check signing authority. The IRS can assess this penalty against anyone who they consider financially responsible.

Many businesses that get in financial trouble and no longer can borrow from legitimate sources such as banks, issuing stock or bonds “borrow” from the IRS by not paying funds held in trust. The intent is to catch up when business gets better. With 100% penalties, it would be better to visit the local loan shark—you would get better rates.

If the IRS has determines that you are responsible for paying back trust funds, get professional help immediately. The IRS will often try to justify going after many individuals without knowing for sure who is really responsible. This shot gun approach can be devastating financially and the longer you go without contesting the position of the IRS on your responsibility, lowers your chances of being relieved of this tax debt. Trust funds and the related IRS trust fund recovery penalty cannot be discharged in a bankruptcy.

Scott Allen E. A.

Tax Debt Advisors, Inc.