Trust Fund Penalty

The Trust Fund Recovery Penalty (TFRP) is an assessment of unpaid withholding taxes against responsible individuals in lieu of collecting against the withholding company. These taxes include withheld income and employment taxes, including social security taxes, railroad retirement taxes, or other collected excise taxes. The penalty arises when a company fails to remit taxes withheld on behalf of its employees.

The Seattle area tax attorneys of Ortiz & Gosalia, PLLC, assist individuals and businesses in Washington State and elsewhere with TFRP interviews and assessments.

The TFRP may be assessed against any person who:

• is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and
• willfully fails to collect or pay them.

A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be

• an officer or an employee of a corporation,
• a member or employee of a partnership,
• a corporate director or shareholder,
• a member of a board of trustees of a nonprofit organization,
• another person with authority and control over funds to direct their disbursement, or
• another corporation.

For willfulness to exist, the responsible person:

• must have been, or should have been, aware of the outstanding taxes and
• either intentionally disregarded the law or was plainly indifferent to its requirements (no bad motive is required).

The IRS may also attempt to assert the TFRP against other individuals involved in the accounting aspects of the business, or who otherwise have check signing authority. These persons could include company bookkeepers and accountants; other individuals in family businesses named as officers but who have no actual authority; spouses or other relatives of principal owners; and other key company employees with no control over the financial aspects of the business.

The TFRP can often be costly and since it cannot be discharged in bankruptcy it can jeopardize personal assets including homes or other property, impact income streams and affect credit ratings. Taxpayers notified by the IRS of interviews in connection with the TFRP, should seek legal counsel to advocate on their behalf.

We welcome you to contact Ortiz & Gosalia with regard to the TFRP. Call us at (425) 633-2004, send an email to info@ortizgosalia.com, or use our online form. With Seattle area offices in Redmond, Bellevue and Kirkland, we serve clients throughout Washington State as well as those located internationally or in other U.S. states.