Payroll Trust and Recovery Funds Implications

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Payroll Trust & Recovery Fund

Many employers across the country are responsible for withholding certain taxes from employee compensation and sending those funds to the IRS. The IRS has the authority to issue liens, impose penalties, and even levy property, if you have not turned over the funds entrusted to you. If you have received a notice from the IRS that it intends to assess a Trust Fund Recovery Penalty against you, you must speak with a tax attorney/CPA. Contact the experienced tax attorney/CPA/EA at Harmon Tax Resolution, LLC, to learn about your rights and how to avoid harsh penalties.


The Trust Fund Recovery Penalty allows the IRS to penalize anyone responsible for withholding, accounting, depositing, or paying specific payroll and employment taxes if they fail to turn those funds over to the agency. Specifically, the IRS can penalize any responsible party who willfully fails to execute their duties. The penalty exists because employers are essentially entrusted to collect and hold an employee's taxes on behalf of the IRS. Congress empowered the IRS to take this action to deter employees from using these reserved funds.


The IRS can assess a penalty against anyone responsible for the entrusted withholdings. Penalty's range has been construed rather broadly and can apply to just about anyone with the duty and power to direct the funds somehow. Individuals who may be considered responsible parties and therefore subject to the Trust Fund Recovery Penalty include:

  • Officers and employees of corporations and partnerships;

  • Sole proprietors (Independent Contractors).

  • Board of Trustees members; and

  • Certain third-party agents.

If you have the (1) duty and (2) power to direct withholdings that have been entrusted to you or your organization, you will be considered to be a responsible party.

What Does Willfully Failing to Direct Funds Mean?

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The IRS can only assess a Trust Fund Recovery Penalty if you have willfully failed to send them the withholdings. You will be considered to act willfully if:

  • You knew about the outstanding taxes due to the IRS and

  • intentionally disregarded your obligation to disperse the funds to the agency, or

  • You should have been aware of the outstanding taxes due to the agency and were indifferent to your responsibilities.

Willful conduct can exist when you act intentionally or extremely negligently. You are not required to act with an illicit motive or bad intent. As long as you knew, or should have known, about the outstanding debt to the IRS and failed to act, you will be considered to have acted willfully.


When the IRS determines that you have failed to turn over the taxes you have been entrusted with, it will send you a notice of its intent to impose the penalty. The penalty will generally equal the amount of the withholding plus interest. IRC 6672 applies to the employee's portion of employment tax, the withheld income tax, and the employee's share of FICA. If you disagree with the agency's decision to impose the penalty, you have 60 days to appeal their decision. The agency will send you a Notice and Demand for Payment if you do nothing. Currently, the IRS has the authority to issue tax liens and levies to enforce the collection of payments. We can help you avoid this.



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If you have received notice of an impending Trust Fund Recovery Penalty, it is essential to act quickly. You have 60 days to file an appeal in which you contest the agency's findings and propose an alternative resolution. Hiring an experienced tax attorney-CPA intimately familiar with the Trust Fund Recovery Penalty process will increase the chances of securing a positive outcome.

Get the Trusted Representation You Deserve!

Let Harmon Tax Resolution, LLC help you resolve your Trust Fund Recovery Penalty issue before further IRS escalation occurs. Call Today at 772-418-0949 or complete our online form to request a free consultation with a Trust Fund Recovery Penalty Lawyer -William Harmon, Attny-CPA-EA. Take action Today so that you can sleep well tonight.

Take the First Step to put this behind you so you can move on with your life!

Harmon Tax Resolution, LLC's Payroll Trust and Recovery Fund Lawyer services Port Saint Lucie, Fort Pierce, and Stuart. 

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