Payroll tax
Washington, DC trust fund recovery penalty attorney for payroll tax.
Mr. Powell answers the Revenue Officer, prepares the Form 4180 interview, and requests review by the IRS Independent Office of Appeals. 26 U.S.C. section 6672 lets the IRS assess a penalty equal to the unpaid trust fund taxes, the income tax and the employee share of Social Security and Medicare withheld from wages, personally against a responsible person who willfully failed to pay them over. The penalty equals the full trust fund amount, it is joint and several, and Letter 1153 states the window to take the matter to Appeals. The date printed on the notice controls; do not use this page to calculate it.
The same conduct can also carry criminal exposure under 26 U.S.C. section 7202, a felony for a willful failure to collect, account for, and pay over the tax. A payroll tax matter is triaged for that exposure before anything is said to the IRS.
The firm has an office at 1629 K Street NW, Suite 300 in Washington, DC and represents responsible persons and closely held businesses in trust fund recovery penalty matters nationwide.
Each matter begins with the assessment or the Letter 1153, the tax periods, the trust fund amount, and any interview or appeal date shown on the letter.
The trust fund recovery penalty rules described on this page were checked on irs.gov and uscode.house.gov on September 14, 2026. The responsible person and willfulness standards and the criminal provision were checked against 26 U.S.C. sections 6672, 7501, and 7202. The notice in hand controls over this summary.
What is the trust fund recovery penalty?
When a business pays wages, it withholds income tax and the employee share of Social Security and Medicare. Those withheld amounts are trust fund taxes, held in trust for the United States under 26 U.S.C. section 7501. When the business does not pay them over, 26 U.S.C. section 6672 lets the IRS collect a penalty equal to the full unpaid trust fund amount, and it collects that amount personally from the people behind the business.
Payroll liability has two parts. The trust fund part is the money withheld from employees. The other part is the employer share of Social Security and Medicare. The penalty reaches the trust fund part, the withheld employee money, not the employer share. That is why the figure the IRS proposes is usually smaller than the full payroll balance of the business.
The penalty is personal and it is joint and several, so the IRS can pursue an owner, an officer, and a bookkeeper for the same amount at the same time. Assessment generally runs within three years after April 15 of the year following the year the wages were paid, under 26 U.S.C. section 6501(b)(2), and collection generally runs for 10 years after assessment under 26 U.S.C. section 6502. The assessment date on the account fixes when those periods began; this page does not compute them.
Official source: Trust Fund Recovery Penalty
Official source: Employment taxes
Official source: 26 U.S.C. 6672, failure to collect and pay over tax
Official source: 26 U.S.C. 7501, liability for taxes withheld or collected
Official source: 26 U.S.C. 7202, willful failure to collect or pay over tax
The work
Read the assessment.
Read the assessment
Identify the tax periods, the trust fund amount, whether the letter is a Letter 1153 with Form 2751, and the response date printed on it.
Reconstruct responsibility
Map who had authority over the payroll, the bank accounts, and which creditors were paid, because the penalty reaches a person with the duty and the control to pay the tax over.
Weigh willfulness
Review what the person knew, when the funds were available, and where they went, because a voluntary choice to pay other creditors first is what the statute treats as willful.
Protect the appeal right
A Letter 1153 offers a hearing before the IRS Independent Office of Appeals. Calendar the date printed on the letter and follow the request instructions in that notice.
Responsibility, willfulness, and the appeal.
Two questions decide a trust fund case. The first is responsibility, which turns on who had the authority and the duty to collect, account for, and pay over the tax. The second is willfulness, which turns on whether the person knew the tax was due and chose to pay other creditors instead. Both are questions of fact, and the record of the accounts, the signatures, and the timing is where they are answered.
A Revenue Officer often uses a Form 4180 interview to develop both questions, so the interview is prepared rather than improvised. When the IRS proposes the penalty, it issues Letter 1153 with Form 2751, and that letter states the window to request a hearing before the IRS Independent Office of Appeals. The date and instructions on the notice control. Do not use this page to calculate that deadline.
The same failure to pay over withheld tax can also be charged criminally under 26 U.S.C. section 7202, a felony that carries up to five years in prison and a fine. That is a statement of the law, and it is the reason a payroll matter is triaged for criminal exposure before a position is taken with the IRS.
Official source: Trust Fund Recovery Penalty
Official source: Collection Due Process FAQs
Official source: Requesting an appeal
Official source: IRS Publication 594
Questions
Common questions.
What is the trust fund recovery penalty?
The trust fund recovery penalty is a personal penalty under 26 U.S.C. section 6672. When a business withholds income tax and the employee share of Social Security and Medicare from wages, those amounts are held in trust for the United States under 26 U.S.C. section 7501. If the business does not pay them over, the IRS can assess a penalty equal to the full unpaid trust fund amount against a responsible person who willfully failed to pay it over. The penalty reaches the withheld employee taxes, not the employer share.
Who can the IRS hold responsible for it?
A responsible person is someone with the duty and the authority to collect, account for, and pay over the trust fund taxes. The question turns on facts such as check signing authority, control of the bank accounts and the payroll, the power to decide which creditors are paid, and authority to sign the employment tax returns. An owner, an officer, a director, a bookkeeper, or an outside party can qualify. More than one person can be responsible, and the liability is joint and several.
What does willful mean for this penalty?
Willful here means a voluntary, conscious, and intentional choice to pay other creditors when the person knew the trust fund taxes were due, or a reckless disregard of an obvious risk that they were not being paid. It does not require an intent to defraud or any bad motive. Paying employees, suppliers, or rent ahead of the withheld taxes can meet the standard. Reasonable cause is a narrow defense that the facts of the account and the timing have to support.
What are the Form 4180 interview and Letter 1153?
A Revenue Officer develops a trust fund case and often conducts a Form 4180 interview to weigh responsibility and willfulness, so the answers on that form matter. The IRS then issues Letter 1153 with Form 2751 to propose the penalty against the individual. Letter 1153 provides a window to request a hearing before the IRS Independent Office of Appeals, and the date and instructions printed on the letter control. Do not use this page to calculate that deadline.
Can unpaid payroll taxes lead to criminal charges?
They can. The same conduct can be charged criminally under 26 U.S.C. section 7202, which makes a willful failure to collect, account for, and pay over the tax a felony carrying up to five years in prison and a fine. The criminal standard is proof beyond a reasonable doubt of a voluntary and intentional violation of a known legal duty, a higher bar than the civil penalty. A payroll tax matter is triaged for that exposure before anything is said to the IRS.
Is the trust fund recovery penalty dischargeable in bankruptcy?
Generally no. Trust fund taxes are treated as a priority tax, and courts treat the section 6672 penalty as a tax rather than a dischargeable penalty, so it usually survives a bankruptcy discharge. Because the liability is personal and joint and several, the assessment can be collected from the individual by lien or levy against personal assets. A person who pays more than a fair share may seek contribution from other responsible persons under 26 U.S.C. section 6672(d).
What may follow a Letter 1153.
Once the penalty is assessed it becomes a personal balance, so the next step is the collection track. Read IRS collections for liens, levies, and payment options, IRS levy when a levy is the issue, and offer in compromise when settlement is the question. A timely response to Letter 1153 goes to the IRS Independent Office of Appeals.
If the employment tax returns are not filed, start with unfiled returns, because most relief depends on filing first. Use the IRS Letter Check for a supported notice code.
Related pages
Related payroll and collection resources.
- IRS collectionsThe hub for liens, levies, and payment options once a balance is assessed.
- Letter 1153The notice that proposes the trust fund recovery penalty and states the window to appeal to the IRS Independent Office of Appeals.
- IRS levyRead how the firm approaches wage levies, bank levies, and notices of intent to levy.
- IRS AppealsRead how the firm approaches review by the IRS Independent Office of Appeals, including collection hearing rights.
- Offer in compromiseRead how the firm approaches an IRS offer to settle a tax debt for less than the full amount.
- Penalty reliefRead how the firm approaches IRS penalty disputes and requests for relief.
- Unfiled returnsRead how the firm approaches unfiled employment and income tax returns before the balance is fixed.
- Washington, DC tax attorneyIRS examinations, appeals, collections, penalties, and U.S. Tax Court from the Washington, DC office.
- How do I respond to an IRS collection notice?Read the paper notice first. Identify the letter code, the assessed balance, and any date printed on it.
- IRS Letter CheckLook up the code printed on a supported IRS letter.
- Tax attorney vs CPAWhat each credential can do at exam, collections, and Appeals, compared.
Send the letter code and the date printed on it.
Tell me what the Letter 1153 or Form 4180 says, the tax periods, and the interview or appeal date printed on it. Send only a high-level summary.
Schedule an initial consultationRequesting a consultation does not make Mr. Powell your lawyer, provide legal advice, or protect a deadline.
Law Office of Alexander Powell, PLLC. 1629 K Street NW, Suite 300, Washington, DC 20006.