IRS Penalty Guide
Trust Fund Recovery Penalty (TFRP)
IRC §6672
This guide explains the Trust Fund Recovery Penalty (TFRP), how the IRS calculates it, and what relief options are available — including First Time Abate and reasonable cause.
Penalty Rate
100% of the unpaid trust fund tax (employee withholding portion)
Maximum: Equal to the full amount of unpaid trust fund taxes — no cap
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Relief Options for This Penalty
Challenge "responsible person" status (IRM 5.7.3)
Challenge "willfulness" determination
Appeal via Form 9423 or formal protest
Pay a divisible amount and file suit in district court or Court of Federal Claims
How This Penalty Is Calculated
Example Calculation
A business withheld $50,000 in income tax and $15,000 in employee FICA from paychecks but did not remit to the IRS. The TFRP assessed against a responsible person is $65,000 (100% of the trust fund portion).
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Frequently Asked Questions
Who is a "responsible person" under IRC 6672?
A responsible person is anyone with the duty and authority to collect, account for, and pay over trust fund taxes. This typically includes corporate officers, directors, shareholders with authority, partners, or employees with financial control (such as signing authority on bank accounts).
What does "willful" mean in the context of TFRP?
Willful means a voluntary, conscious, and intentional act — not merely accidental. It includes recklessly disregarding an obvious risk that the trust fund taxes would not be paid, such as paying other creditors while knowing payroll taxes are due.
Is the TFRP eligible for First Time Abate?
No. The TFRP is a separate assessment under IRC 6672 and is not eligible for FTA, reasonable cause, or other standard penalty relief. Defenses focus on challenging responsible person status or willfulness.
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Can multiple people be assessed the TFRP?
Yes. The IRS can assess the TFRP against all individuals it determines are responsible persons. However, the government can only collect the trust fund tax once — collecting from one person reduces the liability of others.
What are trust fund taxes?
Trust fund taxes are the portion of employment taxes withheld from employees' wages: federal income tax withholding and the employee's share of Social Security and Medicare taxes (FICA). The employer's share of FICA is not a trust fund tax.
How do I appeal a TFRP assessment?
Before assessment, you can request an appeal with the IRS Independent Office of Appeals. After assessment, you can pay a divisible amount (one employee's trust fund tax for one quarter), file a claim for refund, and then sue in federal district court or the Court of Federal Claims.
Can a bookkeeper or payroll clerk be a responsible person?
Potentially. Courts look at whether the individual had significant control over financial decisions, including the authority to determine which creditors to pay. A bookkeeper with check-signing authority and the ability to direct payments may qualify.
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