Everything You Need to Know About the Trust Fund Recovery Penalty (IRS Form 941)

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It’s no secret that, as an employer, you’re supposed to file IRS Form 941 on time — and pass on withheld employment taxes to the IRS. If you fail to pay these taxes on time, you may be subject to the Trust Fund Recovery Penalty (TFRP). Designed by Congress to encourage prompt payment, the TFRP can be sizable. Read on to learn more about the penalty and how you can avoid it:

Who Is Responsible for the TFRP?

Two conditions must be met for TFRP to be assessed against an individual: responsibility for collecting taxes and willful failure to actually do so. Responsible parties may be business partners, corporate directors, the board of trustees members, or third-party payers.

Willful failure to pay occurs when the responsible party is aware of the outstanding debt but disregards it. Ill intent is not required for TFRP assessment.

Determining the identity of the responsible individual can be tricky. Often, extensive finger-pointing occurs when a business is accused of not paying trust fund taxes. The IRS may conduct interviews to determine each individual’s full scope of duties, and whether he or she can be deemed responsible.

How Much Is TFRP?

Penalties range based on the extent of unpaid taxes. Typically, the responsible party must provide both the unpaid taxes in full and a penalty equal to those taxes.

How Is TFRP Assessed?

If the IRS determines that you are responsible for your company’s unpaid trust fund taxes, you will receive a letter of intent to assess TFRP. The IRS grants a 60-day window for appealing this proposal. If you fail to respond, you’ll receive a Notice and Demand for Payment.

The last thing you need right now are accusations of unpaid trust fund taxes. If you’ve received notification of TFRP action, call the Highland Tax Group at 720-398-6088. We can help you appeal your case and avoid paying a penalty.