Officer Trust Fund Recovery Representation

What Is an IRS Civil Penalty?

Technically, any financial penalty the IRS imposes for non-payment of taxes is considered a civil penalty (versus a criminal penalty). However, when the IRS sends you notice of a civil penalty, it almost always refers to the Trust Fund Recovery Penalty (TFRP), which is the mechanism the IRS uses to penalize businesses for nonpayment of employment taxes. Employers are responsible for collecting withheld income and employment taxes and holding them in trust until the taxes are deposited. Under the TFRP, if you are responsible for collecting these taxes and your company fails to deposit the taxes when they are due, the IRS effectively has the right to collect those unpaid taxes from you personally. The Civil Penalty is basically 100 percent of any employment taxes owed. 

As you can imagine, this penalty can cause your personal tax liability to skyrocket well beyond your ability to pay. And if you don’t pay, it can cause a cascading array of other problems for you, including tax liens, seizure of your property, freezing of your accounts, and more.

How We Can Help

The TFRP/Civil Penalty is not a penalty to be taken lightly, and if you get a notice to that effect, it will require swift action to avoid having the penalty assessed. We can help you avoid this Civil Penalty using a number of strategies, including:

• A successful protest/appeal of the assessment—that is, proving either that your company actually paid the employment taxes in dispute, or that you were not the party responsible for doing so.
• Demonstrating a lack of willfulness. The IRS assesses the TFRP because it believes you willfully failed or neglected to collect and pay the taxes owed. Proving a lack of intent can help you avoid the penalty.

Business officials and executives sometimes receive IRS Civil Penalty notices in situations where more than one person in the company may be considered responsible for collecting payroll taxes and someone failed to do their duty. If you have received one of these notices unfairly or through a misunderstanding, you must take action to ensure you aren’t held responsible for someone else’s mistakes. The Highland Tax Group can evaluate your situation and your company circumstances in order to appeal to the IRS on your behalf. Contact us using the form below to see how we can help.