Trust Fund Taxes are monies withheld from employee’s paycheck (income tax, social security, and Medicare). They are also called Payroll Taxes, Third Party Taxes, or Collected Taxes. Trust Fund Taxes are funds taken from payroll and payable to the IRS, usually with an IRS Form 941. They are not to be confused with fiduciary obligations to non-governmental entities, charitable trusts, or most other types of trust funds.
The IRS is very aggressive about collecting Trust Fund Taxes. Intimidation, harassment, and other abusive tactics are quite common. In the process of “investigating,” IRS agents often interview citizens’ business associates and families. Although they are not supposed to reveal a person’s private financial affairs (which sometimes happens anyway), even the mere presence of IRS agents alone often blemishes someone’s good reputation and name.
The Trust Fund Recovery Penalty (or TFRP) is a penalty for non-payment of the Trust Fund Taxes. After IRS sends a TFRP letter, there is a very limited period of time to appeal. Then, the IRS can collect against the business and your personal assets through aggressive methods such as tax liens, levies, or seizure actions.
Often good people and good businesses believe that they are paying the right amount of taxes. Others are victims of the bad economy and fall behind in their taxes while struggling to keep their business open and provide for their families. If handled quickly enough, this can often be resolved through payment agreements such as an Offer-in-Compromise (OIC), an appeal if the OIC was rejected by the IRS, or an Installment Agreement. If not handled quickly enough, the IRS may seek criminal tax prosecution.
Anyone (including officers, directors, members, shareholders, boards, etc.) in a company or business that is responsible for collecting or payment Trust Fund Taxes are at risk for criminal prosecution. These are some of the more common charges: