Define: Trust Fund Recovery Penalty

Trust Fund Recovery Penalty
Trust Fund Recovery Penalty
Quick Summary of Trust Fund Recovery Penalty

The Trust Fund Recovery Penalty (TFRP) is a significant fine imposed by the IRS on employers who knowingly or intentionally withhold taxes owed by their employees and fail to remit them to the IRS. Employers are required to hold these taxes in trust and make regular payments to the IRS. If an employer misuses these funds, they will be penalized an amount equal to the taxes withheld. For instance, if an employer misappropriates $10,000 in withheld taxes, they would be required to repay the $10,000 plus a $10,000 penalty. The IRS conducts investigations into businesses and individuals suspected of wrongdoing and holds them accountable for their actions.

Full Definition Of Trust Fund Recovery Penalty

The Trust Fund Recovery Penalty (TFRP) is a penalty imposed by the IRS on employers who knowingly or willfully withhold employee FICA and income taxes owed to the IRS. Employers are required to set aside and submit these taxes to the IRS on a regular basis, typically quarterly. If a corporation or individual uses this money for purposes other than paying the IRS, they will be subject to a trust fund recovery penalty equal to the amount of taxes withheld. For instance, if XYZ Co. withholds $10,000 in taxes from their employees’ paychecks but diverts that money for other uses instead of remitting it to the IRS, the company would be required to repay the $10,000 plus an additional $10,000 penalty. This can become a significant financial burden for organisations with numerous employees. The IRS will conduct investigations into businesses and individuals suspected of wrongdoing, holding the responsible party accountable, whether it is an administrator or an employee. Ultimately, the TFRP serves as a serious penalty that discourages employers from misusing funds that rightfully belong to their employees and the government.

Trust Fund Recovery Penalty FAQ'S

The Trust Fund Recovery Penalty (TFRP) is a penalty imposed by the Internal Revenue Service (IRS) on individuals who are responsible for collecting and paying withheld income and employment taxes, but willfully fail to do so.

Any person who is responsible for collecting, accounting for, and paying withheld income and employment taxes can be held liable for the TFRP. This includes business owners, officers, directors, and employees with control over financial affairs.

The TFRP is generally equal to the amount of unpaid withheld income and employment taxes, plus any interest and penalties that have accrued. The penalty is calculated separately for each tax period in which the failure to pay occurred.

Yes, the TFRP can be imposed on multiple individuals within a business if they are found to be responsible for the failure to pay withheld taxes. Each individual’s liability is determined based on their level of control and responsibility.

Yes, shareholders of a corporation can be held personally liable for the TFRP if they are found to be responsible for the failure to pay withheld taxes. This is known as the “responsible person” rule.

The TFRP specifically targets individuals who are responsible for collecting and paying withheld taxes, while the civil penalty for unpaid taxes applies to any taxpayer who fails to pay their tax liability. The TFRP is generally more severe and can result in personal liability.

Yes, the TFRP can be abated or reduced if the responsible person can demonstrate that they were not willful in their failure to pay withheld taxes or if they can show reasonable cause for their actions. However, the burden of proof is on the taxpayer.

In most cases, the TFRP cannot be discharged in bankruptcy. However, there are certain circumstances where it may be eligible for discharge, such as if the responsible person can prove that they did not willfully fail to pay the taxes.

Yes, the TFRP can be appealed through the IRS appeals process. It is recommended to consult with a tax attorney or professional to navigate the appeals process effectively.

Failure to pay the TFRP can result in serious consequences, including the IRS seizing personal assets, placing liens on property, and pursuing legal action. It is crucial to address TFRP liabilities promptly to avoid further penalties and legal complications.

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This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 17th April 2024.

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