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Last Modified on Feb 26, 2026
A trust fund recovery penalty for specific unpaid payroll taxes can impact your business and personal finances for the entirety of the debt owed to the Internal Revenue Service (IRS), and can have serious consequences on your life. It’s important to understand what trust fund recovery penalty targets need to know about penalty abatement. If you have received a notice of a trust fund recovery penalty (TFRP), you need to act quickly.
The Basics of a Trust Fund Recovery Penalty
Trust fund taxes are federal income taxes and Federal Insurance Contributions Act (FICA) taxes that are withheld from employee paychecks. When a business withholds these taxes, they are acting as the trustee for the federal government. If those taxes are not paid to the IRS or are not collected in the first place, any party who should have been responsible for paying them can be held liable through a TFRP.
The most effective way to avoid the consequences of a TFRP is to make certain that all payroll taxes are properly withheld and paid. No matter your job title, you could be liable for the TFRP if you meet the right qualifications, so it is essential that you make certain that your business is compliant.
How Can You Abate the Trust Fund Recovery Penalty?
If you have already been assessed a TFRP, there may be options to challenge and abate it, but these are limited.
In 2024, the IRS assessed $84 billion in civil penalties and abated $75 billion. There are options to abate certain penalties with the IRS through first-time abatement or abatement because of reasonable cause. However, these options for abatement do not apply to a TFRP. They apply to specific penalties like failure to file or information returns.
To abate a TFRP, you have to prove one of the following:
- You are not a responsible party: Any person in a business with control and authority over funds and accounts, and the distribution of those funds, can be considered a responsible party, and therefore be held liable for a TFRP. In order to challenge a TFRP, you may need to prove that your role in the business was more limited, and you did not have the abilities or duty to collect and pay the tax or manage finances.
- You did not willfully fail to collect or pay the tax: If you are a responsible person in the business, you can only be held liable if you willfully failed to withhold the taxes or pay them to the IRS. The TFRP could be abated if you can prove you acted in good faith and took reasonable efforts to collect or pay the tax.You are considered to have acted willfully if you were aware of or should have been aware of the taxes owed, and you either purposely ignored the law or were indifferent to your obligations. Malice is not a required element of willfulness.
- The statute of limitations on the tax expired. The IRS must assess a tax liability within three years of your filing a return for the tax, and collect the tax within 10 years of assessing it. There are several ways that these deadlines might be extended or suspended. However, if the statute of limitations has passed, then the IRS cannot collect the debt.
The IRS can take collection actions like bank levies, wage garnishments, and liens on your property. In 2024, the agency filed nearly 197,000 federal tax liens. To avoid financial consequences that can affect your home, your income, and much more, you need to address a TFRP.
Hire a Trust Fund Recovery Penalty Attorney at TaxSmith, LLC
An appeal or challenge to a TFRP has to be made within 60 days, so you have to act quickly. When you hire a trust fund recovery penalty attorney, they can help you assess your options. At TaxSmith, LLC, we have more than a decade of tax law experience. Contact our firm today.
