If you’ve received a notice like IRS Letter 1153 or a Form 4180 interview request, you’re already under investigation for the Trust Fund Recovery Penalty (TFRP) — one of the most serious enforcement actions the IRS can take.
The TFRP lets the IRS hold individuals personally responsible for unpaid payroll taxes, even when those taxes were owed by a corporation or LLC. Understanding the TFRP process and timeline can mean the difference between resolving the issue early or facing years of collection and personal liability.
What Triggers a TFRP Case?
The process usually begins after the IRS identifies unpaid payroll taxes that were withheld from employees’ wages. These are referred to as “trust fund taxes” because the employer is legally holding the employees’ money in trust for the government until it is remitted. This can happen if the company closes down or is unable to pay its back taxes.
Understanding the Trust Fund Recovery Penalty Process
1. IRS Determines “Responsible Person”
The IRS must be able to identify one or more “responsible persons” who had the authority and control over the business’s finances to pay the trust fund taxes but did not. Anyone with decision-making authority or payment control may be considered “responsible.” When there are more than one responsible persons, each can be assessed the full penalty.
The following individuals could be considered “responsible persons”:
- Board members or trustees of nonprofits
- Business owners
- Corporate officers or directors
- Partners
- Employees with financial authority
- Bookkeepers or accountants
- Payroll managers
- Third-party payroll service providers
2. Willful Failure to Pay
For a TFRP to be assessed, the IRS must prove the failure to pay was “willful”. A failure to pay is considered “willful” if it is voluntary, conscious, and intentional, and does not require a malicious or bad motive. Willfulness is established if the responsible person knew about the unpaid taxes and:
- Paid other creditors instead of the IRS. Using available funds to pay other business expenses or creditors while knowing that payroll taxes were due is a classic example of willful behavior.
- Continued paying net wages to employees. If funds were not sufficient to cover both wages and withholding taxes, a willful failure can occur if net wages were paid without properly funding the trust fund taxes.
3. IRS Form 4180 Interview
The IRS uses Form 4180 — Report of Interview to determine who had authority over finances, payroll, and tax payments. Questions focus on, to name a few:
- Who decided which creditors to pay
- Your title and job duties
- Signature authority over checks
- Awareness of unpaid payroll taxes
The IRS may interview anyone involved in the company’s financial operations to determine their level of responsibility and awareness.
📘 Reference: About Form 4180 — IRS
4. IRS Investigation
Once the IRS becomes aware of a business’s unpaid trust fund taxes, a revenue officer will begin an investigation.
5. Letter 1153 — Proposed Assessment
Once the investigation is complete, the IRS issues Letter 1153 and Form 2751 (Proposed Assessment of TFRP). The letter proposes to assess the penalty against the responsible individuals.
💡 Pro Tip: If you do not respond to Letter 1153 within the timeframe window, the penalty becomes final and fully collectible.
📘 Reference: IRM 5.7.4 — Letter 1153 Procedures
5. Filing an Appeal
You can appeal by sending a written Protest Letter to the IRS Independent Office of Appeals. Your protest should include, to name a few:
- Statement of disagreement
- Detailed explanation (e.g., not responsible, not willful)
- Supporting documents (job descriptions, emails, etc.)
- Signature and contact information
💡 Insight: A tax attorney can file the protest correctly to preserve your rights and negotiate early resolution without a final assessment.
6. Final Assessment and Collection
If the appeal fails — or if no protest is filed — the IRS assesses the TFRP. You’ll then receive a Notice and Demand for Payment, officially making you personally liable.
At this point, the IRS can:
- File a Notice of Federal Tax Lien
- Issue levies against wages or bank accounts
- Offset future refunds
- Begin asset seizure proceedings (rare, but possible)
💡 Pro Tip: The earlier you engage counsel — ideally before or immediately after Letter 1153 — the greater your defense options and negotiation leverage.
Why Legal Representation Matters During a TFRP Case?
A tax attorney can:
- Communicate directly with the Revenue Officer (via Form 2848)
- Prepare your defense and evidence package
- File a valid appeal within the deadline
- Negotiate an installment plan or abatement post-assessment
- Protect personal assets from liens and levies
💡 Attorney Advantage: Once your attorney is recognized by the IRS, they become your point of contact — preventing further IRS phone calls or visits.
📘 Reference: IRS Form 2848 — Power of Attorney
Need help with a similar issue? Contact our firm today for a consultation.
The TFRP process moves fast — and once the appeal window closes, the IRS can legally collect the debt from your personal income and assets. If you’ve received Letter 1153, Form 4180, or a call from a Revenue Officer, it’s time to act — not react.
Contact Pelham PLLC today to have an experienced tax attorney defend your case, stop IRS enforcement, and protect your assets from personal liability.
FAQs
What is the Trust Fund Recovery Penalty?
A civil penalty equal to 100% of unpaid employee withholdings (income tax, Social Security, Medicare).
Can multiple people be assessed?
Yes — each responsible person can be assessed for the full amount, though the IRS will only collect once.
What happens if I ignore Letter 1153?
The IRS will finalize the assessment and begin collection actions, including liens and levies.
