Trust fund recovery penalty (TFRP) is an enforcement penalty imposed by the Internal Revenue Service (IRS) when someone willfully fails to pay withholding taxes on behalf of a business. The penalties can be incredibly costly and should be avoided; by understanding the basics of TFRP, business owners and operators can take steps to ensure full compliance with IRS regulations.
What Is a TFRP Penalty?
A trust fund recovery penalty is a tax retaliation imposed by the IRS when taxes due from an employer have not been remitted to the IRS. This penalty applies to anyone the IRS determines to be a “responsible person” who acted willfully in failing to pay the taxes. Generally, responsible persons include those who have the ability to manage and influence the business’s finances, typically corporate officers or members of a limited liability company, general partners in a partnership, and officers responsible for payroll.
How Does the IRS Impose TFRP?
When the IRS wants to collect unpaid taxes, it can subject the responsible person to the trust fund recovery penaltyy. This penalty applies to the taxes that should be withheld from employees in the form of FICA and federal income tax, and that should be paid to the IRS. Those responsible may be liable for the full tax debt of the company, including any penalties or interest charges that have accrued. The responsible person must pay not only the penalty, as determined by the IRS, but also any additional taxes, penalties, and interest due.
How Can You Avoid a TFRP Penalty?
The best way to avoid a trust fund recovery penalty is to ensure that taxes are paid on time and that proper withholding is being done. If the taxes have not been paid on time, the responsible person should contact the IRS immediately to ensure that the unpaid taxes, interest, and penalties are accounted for. Additionally, responsible persons should have in place policies and procedures to ensure that proper payments will never be missed.
No one wants to be responsible for back taxes and expensive Ttrust fund recovery penalties. By understanding the basics of TFRP, business owners and operators can ensure full compliance with IRS regulations and avoid costly mistakes.