Trust Fund Recovery Penalty

Most employers must withhold Social Security, Medicare and federal income taxes from their employees’ wages. Businesses generally must collect and remit excise taxes from their customers. These withholdings are often referred to as “trust fund taxes” because the employers or businesses, as the case may be, hold them in trust for the United States until they pay them to the Treasury, pursuant to § 7501(a) of the Internal Revenue Code (IRC).1

If and when employers or businesses fail to pay their trust fund taxes on time, IRC § 667222 permits the government to impose the “Trust Fund Recovery Penalty” (“TFRP”) on persons (usually individuals) other than those employers or businesses. The amount of the TFRP is 100% of the delinquent trust fund taxes. It is distinct from and in addition to the original tax liability; and it is a personal liability, not limited by any corporate liability of the original employer or business.


1 § 7501(a) states: “Whenever any person is required to collect or withhold any internal revenue tax from any other person and to pay over such tax to the United States, the amount of tax so collected or withheld shall be held to be a special fund in trust for the United States…”

2 § 6672(a) states: “Any person required to collect, truthfully account for, and pay over any tax imposed by this title [such as payroll withholdings or excise taxes] who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over…”

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