What are trust fund recovery penalties for business owners?

The Trust Fund Recovery Penalty (TFRP), also called the '100% penalty,' is one of the most severe IRS penalties. It applies to business owners and responsible persons who fail to collect, account for, or pay over employment taxes (the employee portion of Social Security, Medicare, and withheld income taxes). The penalty equals 100% of the unpaid trust fund taxes. Unlike other tax debts, the TFRP is assessed personally against responsible individuals, not just the business. This means the IRS can pursue your personal assets, bank accounts, and wages even if the business is closed or bankrupt. 'Responsible persons' can include: business owners, officers, partners, directors, employees with authority over financial decisions, and even bookkeepers in some cases. The IRS determines responsibility using Form 4180 interviews. TFRP cannot be discharged in bankruptcy and has a 10-year collection statute. If you're facing a TFRP assessment, professional representation is essential. You can appeal the assessment and challenge who qualifies as a 'responsible person.'