Trust Fund Recovery Penalty: Who the IRS Holds Liable

The trust fund recovery penalty lets the IRS collect a company's unpaid withheld payroll taxes from the people who ran the company, as a personal debt. It reaches any responsible person who willfully let the money go elsewhere: owners, officers, bookkeepers with check authority, and in some cases the payroll company.

The IRS updated its trust fund recovery penalty page on October 11, 2026. A Tax Court decision filed September 28, 2026 shows how the willfulness test plays out when an owner pays wages and suppliers first. This article explains what the rule says, who it reaches, and what the 60-day letter means. It does not tell you what to do; that depends on facts only you and your adviser hold.

Can the IRS come after me personally for unpaid payroll taxes?

Yes, if you were a responsible person who willfully failed to pay. Under 26 U.S.C. 6672, the IRS can assess a penalty equal to the unpaid trust fund taxes against you individually, then lien or levy your personal assets. The corporation or LLC does not shield you from this one.

Trust fund taxes are the amounts an employer withholds from paychecks: federal income tax and the employee share of Social Security and Medicare. The IRS calls them trust fund taxes because the employer holds them for the government and never owned them. According to the IRS page, the penalty is based on the withheld income tax and the employee's portion of FICA, not on the employer's own share. The basics of Form 941, deposit schedules and federal unemployment tax are covered in our Form 941 and 940 guide. This article is about what happens to the people when those deposits stop.

What the trust fund recovery penalty covers

Section 6672(a) of the Internal Revenue Code sets the penalty at the total amount of the tax "not collected, or not accounted for and paid over." As an example, if a company withheld $80,000 from paychecks over four quarters and deposited none of it, the penalty proposed against each responsible person is $80,000. The IRS page says the same thing in its own words: the penalty equals the unpaid balance of the trust fund tax.

It is called a penalty, but it works like a second collection route for the same tax. The IRS can assess it against more than one person for the same quarters. Section 6672(d) lets a person who pays more than their share recover the excess from the others, but only in a separate lawsuit.

Who is a responsible person for the IRS?

The list is wider than most owners expect. According to the IRS TFRP page, a responsible person is anyone with the duty to collect or pay the tax and the authority to decide what gets paid. The page names these groups:

Two limits sit next to that list. The IRS page says an employee whose only job was to pay bills as a superior directed is not a responsible person. Section 6672(e) adds a narrow exception for an unpaid volunteer board member of a tax-exempt organization. It applies only if the member serves in an honorary capacity, takes no part in day-to-day or financial operations, and had no actual knowledge of the failure. That exception does not apply if it would leave nobody liable.

Title alone does not settle it. What the IRS looks at is who could sign checks, who decided which bills got paid, and who knew the deposits were behind. Those are the questions the Form 4180 interview, covered below, is built around.

What willfulness means, and what the Amodio decision adds

Willful does not mean dishonest. The IRS page says the person must have been, or should have been, aware of the unpaid taxes. On top of that, the person must have intentionally disregarded the law or been plainly indifferent to it, and "no evil intent or bad motive is required." The page then names a fact pattern: using available funds to pay other creditors while employment taxes sit unpaid is an indication of willfulness.

The Tax Court applied that test in Amodio v. Commissioner, T.C. Memo. 2026-96 (docket 9959-22L), filed September 28, 2026. An analysis by Current Federal Tax Developments, dated the same day, reports the owner learned of the shortfall late, then paid wages, union benefits and suppliers first. The analysis says the court held that was willful. It also held, the analysis says, that the IRS may collect from him only up to the company's liability as adjusted by its accepted offer in compromise.

The pattern in that case is the ordinary one. Cash gets tight, payroll goes out, suppliers get paid, and the deposit waits for the next receivable. The IRS page treats that choice as evidence of willfulness, whoever made the first decision to skip a deposit.

Letter 1153: the 60-day letter and the appeal clock

The penalty does not arrive as a surprise bill. The statute and the Internal Revenue Manual lay out a sequence, and the appeal window sits in the middle of it.

How far back can the penalty reach? Section 6501(a) gives the IRS three years after a return is filed to assess tax. Section 6501(b)(2) treats an employment tax return filed early as filed on April 15 of the year after the period it covers. Section 6672(b)(3) then keeps the period open until 90 days after Letter 1153 is mailed, or 30 days after the final decision on a timely protest. Read together, a 2024 Form 941 filed on time is treated as filed April 15, 2025, so the three years run to April 15, 2028.

What this means for owners, bookkeepers and payroll providers

Three groups read this article for different reasons, and the rule treats them differently.

For an owner, the point is that the entity does not hold. An LLC or corporation keeps most vendors from reaching your house; section 6672 reaches past it by design. The penalty is personal and attaches to each responsible person for the full amount. The appeal clock starts on the date printed on the letter, not the day you open it.

For an office manager or bookkeeper with signing authority, the IRS list includes anyone with authority and control over funds. The only carve-out on the page is for someone whose sole job was paying bills as directed. The gap between those two descriptions is what the Form 4180 interview is about: who could decide, and who only executed.

For a payroll service provider or professional employer organization, the IRS page names the provider, its responsible parties, and the responsible parties at the client. Outsourcing payroll moves the work; according to the IRS, it does not move the duty.

If a Letter 1153 has already arrived, the 60 days are what matter. IRS representation during the protest and the Appeals conference is the work our IRS defense team does. Once the penalty is assessed, the options are collection options: installment agreement, offer in compromise or currently not collectible status, covered on our tax debt resolution page. The first-time abatement and reasonable cause relief in our IRS penalties guide cover failure-to-file, failure-to-pay and failure-to-deposit penalties. The trust fund recovery penalty is a separate statute with the appeal route described above.

This article explains what the statute, the IRS and one Tax Court decision say; it is not advice about your own facts. Before you respond to an IRS letter or decide which bills to pay, confirm your position with your CPA or with counsel.

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