Trust Fund Recovery Penalty (TFRP)

Question 1

What is the Trust Fund Recovery Penalty (TFRP)?

Answer 1

The TFRP is a penalty assessed against responsible persons who fail to collect, account for, and pay over certain trust fund taxes. It is codified under IRC § 6672.*

Question 2

Who can be held liable for the TFRP?

Answer 2

Individuals who are responsible for collecting or paying the trust fund taxes and who willfully fail to do so can be held liable for the TFRP.*

Question 3

What types of taxes does the TFRP apply to?

Answer 3

The TFRP applies to federal income, Social Security, and Medicare taxes that are required to be withheld by employers.*

Question 4

What does “willfulness” mean in the context of the TFRP?

Answer 4

“Willfulness” means a voluntary, conscious, and intentional act, such as paying other creditors when the trust fund taxes are due. See United States v. Huckabee, 783 F.2d 1546 (11th Cir. 1986).*

Question 5

How is the TFRP assessed?

Answer 5

The IRS must first provide a responsible person with notice and an opportunity for a hearing. If the penalty is affirmed, the IRS will assess and collect it. Revenue Ruling 79-284 details the assessment process.*

Question 6

What are the defenses against the TFRP?

Answer 6

Common defenses include lack of responsibility, lack of willfulness, payment, statute of limitations, and improper assessment procedures. IRC § 6672 and related case law provide guidance on these defenses.*

Question 7

What is the statute of limitations for the TFRP?

Answer 7

The TFRP must be assessed within three years after the April 15th of the year following the year during which the quarterly liabilities arose, as per IRC § 6501(b)(2).*

Question 8

How can a responsible person challenge a TFRP assessment?

Answer 8

A responsible person may challenge the TFRP assessment by filing a claim for refund after payment of the penalty or by appealing within the IRS administrative process. See IRC § 6672(b) and Revenue Ruling 2002-43.*

Question 9

What are the collection options for the TFRP?

Answer 9

The IRS may use standard collection methods for the TFRP, including levies, liens, and legal proceedings, as outlined in IRC § 6672 and the Internal Revenue Manual (IRM) Part 5.*

Question 10

What is the impact of bankruptcy on the TFRP?

Answer 10

The TFRP is generally considered a priority claim in bankruptcy and may not be dischargeable. See 11 U.S.C. § 507(a)(8)(C) and § 523(a)(1)(A).*