Can the IRS Force You to Use Personal Assets to Pay Off TFRP For Your Business?

If you’ve been assessed the trust fund recovery penalty (TFRP), you’re likely worried about how the IRS will proceed and whether your assets might be at risk. Multiple approaches are available for retrieving the value of unpaid employment taxes, but asset seizure is among the most alarming.

As you determine the best strategy for handling the TFRP, keep the following considerations in mind:

How the IRS Typically Collects Penalties

The collection process begins with the IRS issuing a Proposed Assessment of Trust Fund Recovery Penalty. Those deemed responsible for the nonpayment of employment taxes may be able to appeal at this point.

If the responsible party’s appeal proves unsuccessful, the IRS may move forward with collection in the interest of covering the cost of delinquent taxes. Payments may be obtained via business assets involving the non-trust fund portion of the liability. An installment plan can be created to cover remaining taxes over time. Unfortunately, these taxes are not dischargeable through bankruptcy.

Limits on Collection Activity For TFRP

If there is a silver lining to TFRP collection, it’s that some limits are imposed on the process. For example, the IRS explicitly states, “The full unpaid trust fund amount will be collected only once in a particular case.” This collection effort could involve the employer, the collecting agent, another individual deemed responsible, or a combination of all three.

Ultimately, collection involving personal assets is possible, but often avoidable. A proactive approach can minimize the likelihood of suffering such action from the IRS, so it’s imperative that you take steps to protect yourself as soon as you discover that you could potentially be deemed responsible for employment tax nonpayment.

If you suspect that you might be slapped with the trust fund recovery penalty, it’s important to seek support as soon as possible. The Highland Tax Group can advocate on your behalf, so don’t hesitate to get in touch.