{"id":4552,"date":"2022-11-11T09:58:00","date_gmt":"2022-11-11T09:58:00","guid":{"rendered":"https:\/\/www.irstaxapp.com\/?p=4552"},"modified":"2022-11-21T04:49:19","modified_gmt":"2022-11-21T04:49:19","slug":"trust-fund-recovery-penalty-calculator-with-faqs","status":"publish","type":"post","link":"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/","title":{"rendered":"Trust Fund Recovery Penalty Calculator with FAQs"},"content":{"rendered":"\n<p>The Trust Fund Recovery Penalty is a penalty imposed upon <strong><em>responsible and willful individuals <\/em><\/strong>who fail to collect and\/or pay over to the government as per <a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/6672\" target=\"_blank\" rel=\"noopener\">26 U.S. Code \u00a7 6672<\/a>, taxes they are holding in \u201ctrust\u201d for their employees. The most common application of 26 US Code 6672 is on payroll taxes. That is, taxes withheld by employers from salary or wages of employees for income tax or social security or medicare (commonly known as <a href=\"https:\/\/www.irstaxapp.com\/2021-fica-tax-calculator\/\">FICA tax<\/a> ). These withheld money or fund are known as trust fund taxes. In a way, Govt &amp; employees both had trust in the deductor that they will deposit these withheld amounts later to govt. treasury. <\/p>\n\n\n\n<p class=\"has-background\" style=\"background-color:#c3f8e3\">So, if the deductor (employer ) does not deduct or <a href=\"https:\/\/www.irstaxapp.com\/failure-to-deposit-penalty-calculator-with-faqs\/\">do not deposit collected tax to the U.S<\/a>. Treasury after deducting the amounts within the specified period, they will owe a <strong><em>trust fund <a href=\"https:\/\/www.irstaxapp.com\/failure-to-pay-file-penalty-calculator\/\">penalty<\/a><\/em><\/strong> which is known as  <strong>Trust Fund Recovery Penalty (TFRP)<\/strong>.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6629db87b32b9\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6629db87b32b9\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#Trust_Fund_Recovery_Penalty_Calculator\" title=\"Trust Fund Recovery Penalty Calculator\">Trust Fund Recovery Penalty Calculator<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#Who_are_responsible_and_willful_individuals_for_the_purpose_of_TFPR\" title=\"Who are responsible and willful individuals for the purpose of TFPR?\">Who are responsible and willful individuals for the purpose of TFPR?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#How_do_you_know_if_you_are_charged_TFRP\" title=\"How do you know if you are charged TFRP ?\">How do you know if you are charged TFRP ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#Is_Employers_Matching_Contribution_Included_for_Imposing_Tax_Refund_Penalty\" title=\"Is Employer&#8217;s Matching Contribution Included for Imposing Tax Refund Penalty?\">Is Employer&#8217;s Matching Contribution Included for Imposing Tax Refund Penalty?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#How_Much_Is_the_Trust_Fund_Recovery_Penalty_Amount\" title=\"How Much Is the Trust Fund Recovery Penalty Amount?\">How Much Is the Trust Fund Recovery Penalty Amount?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#How_does_the_IRS_Assess_a_TFRP\" title=\"How does the IRS Assess a TFRP?\">How does the IRS Assess a TFRP?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#What_Forms_Are_Involved_in_the_TFRP\" title=\"What Forms Are Involved in the TFRP?\">What Forms Are Involved in the TFRP?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#TFRP\" title=\"TFRP?\">TFRP?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#How_Can_You_Settle_the_Trust_Fund_Penalty\" title=\"How Can You Settle the Trust Fund Penalty?\">How Can You Settle the Trust Fund Penalty?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#Is_the_Trust_Fund_a_Tax_or_a_Penalty\" title=\"Is the Trust Fund a Tax or a Penalty?\">Is the Trust Fund a Tax or a Penalty?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.irstaxapp.com\/trust-fund-recovery-penalty-calculator-with-faqs\/#What_are_TFRP_Assessment_Statute_Period\" title=\"What are TFRP Assessment Statute Period?\">What are TFRP Assessment Statute Period?<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Trust_Fund_Recovery_Penalty_Calculator\"><\/span>Trust Fund Recovery Penalty Calculator<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<iframe loading=\"lazy\" width=\"100%\" height=\"1020\" layout=\"responsive\" sandbox=\"allow-scripts allow-same-origin\" src=\"https:\/\/gsheetpress.com\/calculator?id=1624683864855\">\n<\/iframe>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_are_responsible_and_willful_individuals_for_the_purpose_of_TFPR\"><\/span>Who are <strong><em>responsible and willful individuals<\/em><\/strong> for the purpose of TFPR?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Unlike many other penalties, the trust fund recovery penalty is imposed on certain individuals working or related to a corporation or business entity who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. IRS has given some clear cut guidance about such responsible person :<\/p>\n\n\n\n<ul><li>An officer or an employee of a corporation,<\/li><li>A member or employee of a partnership,<\/li><li>A corporate director or shareholder,<\/li><li>A member of a board of trustees of a nonprofit organization,<\/li><li>Another person with authority and control over funds to direct their disbursement,<\/li><li>Another corporation or third party payer,<\/li><li>Payroll Service Providers (PSP) or responsible parties within a PSP<\/li><li>Professional Employer Organizations (PEO) or responsible parties within a PEO, or<\/li><li>Responsible parties within the common law employer (client of PSP\/PEO).<\/li><\/ul>\n\n\n\n<p>To establish responsibility, the IRS has to prove two things. First, that the individual in question was responsible for remitting the taxes and secondly he\/she was knowing that the taxes were due and purposefully or willfully ignored the law.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_do_you_know_if_you_are_charged_TFRP\"><\/span>How do you know if you are charged TFRP ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"has-white-color has-black-background-color has-text-color has-background\">The trust fund recovery penalty or TFRP appears as notations for Civil Penalty, CIV-PEN, or 6672 Penalty in any tax bill or tax transcripts that IRS sends you<strong>. <\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Is_Employers_Matching_Contribution_Included_for_Imposing_Tax_Refund_Penalty\"><\/span>Is Employer&#8217;s Matching Contribution Included for Imposing Tax Refund Penalty?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The trust fund recovery penalty does not include the employer&#8217;s matching portion of the <strong>Social Security and Medicare tax<\/strong>. It also does not include the penalties and interest that have been assessed to the business as part of the total employment tax liability. The IRS typically only holds a business responsible for non-trust fund taxes if they aren\u2019t paid to the government. It does not hold individuals responsible.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_Much_Is_the_Trust_Fund_Recovery_Penalty_Amount\"><\/span>How Much Is the Trust Fund Recovery Penalty Amount?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Tax Fund Recovery Penalty is equal to 100% of the aggregate of the following taxes<\/p>\n\n\n\n<ol><li>amount of &nbsp;unpaid income taxes withheld, <\/li><li>employee&#8217;s portion of the withheld FICA taxes <\/li><li>any excise tax collected but not paid<\/li><\/ol>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_does_the_IRS_Assess_a_TFRP\"><\/span>How does the IRS Assess a TFRP?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When IRS decides to assess the TFRP against you, they will send you a notice\/letter stating clearly that they are going to pass an assessment order for TFRP. The notice will provide a time limit of 60 days (75 days if this letter is addressed to you outside the United States) from the date of notice\/letter to appeal their proposal to assess TFPR.  They will also want to conduct an interview known as a 4180 interview (which is based on&nbsp;<a href=\"https:\/\/fileoldtaxreturns.com\/wp-content\/uploads\/2019\/06\/IRS-Form-4180.pdf\" target=\"_blank\" rel=\"noopener\">IRS-Form-4180<\/a>). Once the IRS identifies who was responsible and willful, they will assess the penalty.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Forms_Are_Involved_in_the_TFRP\"><\/span>What Forms Are Involved in the TFRP?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following forms are involved in the process of assessment for trust fund recovery penalty.<\/p>\n\n\n\n<ol><li> Letter 1153 -this is the notice the IRS sends when the business has refused to pay the payroll taxes, and the IRS has decided to hold an individual personally responsible for the debt. Accompanying this letter is <\/li><li>Form 2751. This form accompanies first letter no 1153. Once you sign From 2751, it is an admission that a person is responsible for the unpaid payroll tax. <\/li><\/ol>\n\n\n\n<p>Therefore if a person doesn\u2019t agree with the letter 1153, then he\/she should not sign  Form 2751 and immediately find a <strong><em>tax attorney<\/em><\/strong> to prepare for grounds of appeal for which IRS notice provides 60 days.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"TFRP\"><\/span>TFRP?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If the IRS assesses a penalty, it has up to 10 years to collect it. During that time, if you have not made arrangements to settle\/pay the penalties, then you can be subject to \u201cenforced collections\u201d (i.e. the IRS attempting to seize assets, garnish wages, offset refunds, etc.).<\/p>\n\n\n\n<p>However, the IRS only has 3 years to assess the penalty. This clock starts ticking on April 15 after the year the trust fund taxes were due to be filed. For instance, let\u2019s say a company was supposed to pay some trust fund taxes in October 2019. The IRS has three years from April 15, 2020 to assess the penalty. If the IRS doesn\u2019t do anything by April 14, 2023, it can\u2019t do anything after that date.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_Can_You_Settle_the_Trust_Fund_Penalty\"><\/span>How Can You Settle the Trust Fund Penalty?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Like other types of tax debt, there are options to pay this penalty. If you don\u2019t have the full payment, you can apply for a payment plan (a.k.a installment agreement). Alternatively, you can try to settle the debt for less than you owe through the offer in a compromise program or through a partial payment installment agreement.<\/p>\n\n\n\n<p>The important thing to note is that you should contact the IRS and set up an arrangement before the IRS tries to garnish your wages or seize your assets. It is also important to note that these penalties can not be discharged in bankruptcy.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Is_the_Trust_Fund_a_Tax_or_a_Penalty\"><\/span>Is the Trust Fund a Tax or a Penalty?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Trust Fund portion of an employment tax debt can be confusing for a taxpayer experiencing it for the first time. Trust Fund is what people commonly call the&nbsp;Trust Fund Recovery Penalty (TFRP). It is a penalty assessed to an individual in the amount of a specific segment of a business payroll tax liability. It is referred to as the Trust Fund while it is still a business tax liability. Once it is assessed to the individual, it is referred to as a Civil Penalty on letters, notices, and other IRS documents.<\/p>\n\n\n\n<p>Since the individual(s) didn&#8217;t actually accrue the tax debt, it cannot be assessed as true tax liability and is therefore assessed as a Civil Penalty in the same amount of the business Trust Fund tax. It is&nbsp;<strong>not<\/strong>&nbsp;added on to the business debt or collected twice from the individual(s) and business. The Trust Fund may be collected only once but from more than one source.<\/p>\n\n\n\n<p>This means that if the total Trust Fund is $50,000 and the assessed individual pays $25,000 toward the Civil Penalty (TFRP \/ Trust Fund), both the individual Civil Penalty and the total business tax debt will be reduced by the $25,000 payment.<\/p>\n\n\n\n<p>The Trust Fund Recovery Penalty is a portion of the business employment tax and therefore the business is not eligible to request abatement or removal of it.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_TFRP_Assessment_Statute_Period\"><\/span>What are TFRP Assessment Statute Period?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Assessment Statute Dates (ASEDs) for completing the assessment are as under :<\/p>\n\n\n\n<p>If it pertains to <strong>FICA, then t<\/strong>hree years from the succeeding April 15th <strong>or <\/strong>three years from the date return was filed; whichever is later.<br>Example 1: 3rd QTR 2018 941 filed timely. ASED begins 4\/15\/2019<br>Example 2: 3rd QTR 2018 941 filed 5\/30\/2019. ASED begins 5\/30\/2019<br>Example 3: 3rd QTR 2018 941 filed 11\/30\/2018. ASED begins 4\/15\/19<br><\/p>\n\n\n\n<p><strong>An excise or Railroad Retirement Act:<\/strong> Three years from the due date of return,<br>without regard to any extension; or three years from the date return was filed;<br>whichever is later.<\/p>\n\n\n\n<p>There are no Trust Fund ASEDs for SFRs, unfiled returns, willful attempts to<br>evade tax, or false \/ fraudulent returns.<\/p>\n\n\n<div id=\"rank-math-faq\" class=\"rank-math-block\">\n<div class=\"rank-math-list \">\n<div id=\"faq-question-1669005974070\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What are Trust Fund Taxes?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Trust fund taxes are taxes that an employer withhold from their employees&#8217; share of the social security and Medicare tax they owe. The employer must pay their employees&#8217; trust fund taxes along with employer&#8217;s matching share of social security and Medicare tax to the Treasury through the Federal Tax Deposit System<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>The Trust Fund Recovery Penalty is a penalty imposed upon responsible and willful individuals who fail to collect and\/or pay over to the government as per 26 U.S. Code \u00a7 6672, taxes they are holding in \u201ctrust\u201d for their employees. The most common application of 26 US Code 6672 is on payroll taxes. That is, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":4557,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3],"tags":[],"amp_enabled":false,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/4552"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=4552"}],"version-history":[{"count":2,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/4552\/revisions"}],"predecessor-version":[{"id":6060,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/4552\/revisions\/6060"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media\/4557"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=4552"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/categories?post=4552"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/tags?post=4552"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}