Trust Fund Recovery Penalty Defense Attorney | Booth P.C.

Trust fund taxes are the portions of payroll taxes that employers are required to withhold from their employees’ wages. This includes federal income tax, Social Security, and Medicare taxes. Unlike other business expenses, these funds are not the property of the employer — they are held in trust for the government from the moment they are withheld. Employers have a legal obligation to remit these funds to the IRS on a timely basis.

The Government’s Perspective on Trust Fund Taxes

Because the IRS considers withheld payroll taxes as government property, failure to properly remit them is treated very seriously. Employers act as fiduciaries for these funds, and even unintentional mismanagement can trigger severe consequences. The IRS may assess the Trust Fund Recovery Penalty against responsible persons, holding them personally liable for unpaid taxes.

Penalties and Enforcement for Noncompliance

Failure to remit trust fund taxes that the IRS assesses can result in significant financial penalties, interest, and enforcement actions, including liens, levies, and seizure of personal assets. The IRS can pursue owners, officers, or managers who are deemed responsible, making this one of the most serious tax compliance issues for small businesses and corporations.

The Importance of Compliance for the Small Business Owner

Maintaining strict compliance with employment collected tax obligations is essential to avoid personal liability. Timely and accurate withholding, reporting, and payment of trust fund taxes protects both the business and the individuals responsible for its management. Consulting with a knowledgeable tax professional or trust fund recovery penalty defense lawyer can help ensure proper procedures are followed, reduce the risk of penalties, and safeguard personal and business finances.

When payroll taxes are not paid, the IRS may launch an investigation to assess responsibility and collect trust fund taxes. Key steps in the recovery process include:

• Revenue Officer Assignment: The IRS assigns a revenue officer to investigate the unpaid taxes and identify who may be personally liable.
• Financial Record Review: Officers review bank statements, accounting records, payroll reports, and other financial documents to track the flow of funds and determine whether trust fund taxes were withheld but not remitted.
• Interviews and Questioning: Responsible persons, including business owners, officers, and financial managers, may be interviewed to clarify roles, responsibilities, and decision-making authority.
• Issuing Form 4180: The IRS often uses Form 4180 (Investigation of Unpaid Federal Tax) to document findings, asking detailed questions about authority, control, and knowledge of unpaid payroll taxes.
• Assessment Process: Once the investigation is complete, the IRS may issue a Trust Fund Recovery Penalty assessment against one or more responsible persons. Penalties are calculated based on the total unpaid trust fund taxes, plus interest and additional penalties.
• Role of a Trust Recovery Penalty Defense Attorney: A qualified tax attorney for TFRP cases can prepare responses, gather supporting evidence, and challenge improper assessments, thereby helping to protect clients’ personal assets and negotiate resolution options when appropriate.

Navigating the IRS investigation and assessment process is a complex and high-stakes endeavor. Having a skilled Trust Fund Recovery Penalty defense attorney ensures that you understand your rights, comply strategically, and minimize potential personal liability.

Defending against a Trust Fund Recovery Penalty begins with identifying possible defenses. Common approaches include demonstrating a lack of responsibility — showing that the individual did not have authority or control over tax payments — or a lack of willfulness, proving that unpaid taxes were not due to intentional neglect. Taxpayers may also challenge the IRS on procedural errors, such as improper assessment or failure to follow required investigative protocols.

Importance of Documentation

Accurate and thorough financial records are critical in mounting a strong defense. Bank statements, payroll records, accounting ledgers, and correspondence with the IRS can substantiate claims that responsibility or control over funds did not lie with the taxpayer. Proper documentation strengthens credibility and increases the likelihood of a favorable outcome.

Negotiation, Appeals, and Litigation

Defense strategies often involve multiple layers. Our tax attorneys for TFRP cases may engage in negotiation with the IRS to reduce or eliminate liability, file administrative appeals, or, when necessary, pursue litigation in tax court. Each approach is tailored to the facts of the case and the client’s goals.

Tailored Client Strategies

Every TFRP case is unique. Experienced trust fund recovery penalty defense lawyers at Lewis Booth Law assess each client’s role, financial situation, and IRS history to develop a customized defense strategy. By combining meticulous record review, strategic negotiation, and legal advocacy, clients receive the best opportunity to minimize or eliminate personal liability while protecting their financial future.