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The IRS Trust Fund Recovery Penalty (TFRP), formerly known as the "100% penalty."—How will it impact you?

A corporate office, president, vice-president, secretary, or treasurer, may be held personally liable, if the quarterly Form 941 taxes are not deposited.

For employee income tax withholding, and withheld Social Security taxes, the IRS considers' these as held in 'trust' for the United States Treasury, by the responsible corporate officer(s).

This penalty used to be known as the "100% penalty" as the IRS considered the responsible corporate office 100% responsible for not paying over to the IRS the withheld taxes.

The IRS looks at two criteria, "responsible" and "willful", to determine how to assess the Trust Fund Recovery Penalty.

The IRS defines a responsible person as a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust funds.

For willfulness to exist, the responsible person: must have been, or should have been, aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements.

The IRS Trust Fund Recovery Penalty is one of the most powerful tools the IRS has to collect unpaid taxes.

I have more than 30 years experience in dealing with all of the Appeal, Collection, and Bankruptcy issues in regard to the Trust Fund Recovery Penalty.

File a personal or business tax return by the due date, EVEN if you can't pay.

The IRS penalty for failure-to-file a tax return is 5 % per month of the unpaid tax, to a maximum of 25% of the unpaid tax.

In contrast the penalty for failure to pay the tax is 1/2 of 1% per month of the unpaid tax, to a maximum of 25% of the unpaid tax.

If either an individual or business tax return is not filed, the IRS can prepare a Substitute for Return (SFR), under the Internal Revenue Code Section 6020(b).

The IRS prepares the Substitute for Return without regard to any deductions or credits which may be available.

The IRS can and does start Collection based upon the Substitute for Return. The IRS can record a Notice of Federal Tax Lien (NFTL), or issue a Notice of Levy (garnishment) based upon the Substitute for Return assessment.

The IRS has criminally prosecuted high net worth individuals or celebrities in the past for failing to file Forms 1040.

Generally, if one files a personal bankruptcy, a Substitute for Return, would not be discharged by the Bankruptcy court.

An extension of time to file is NOT an extension of time to pay the unpaid tax. ! As a retired IRS Revenue Officer with a 30-year career, and now as an Enrolled Agent, I resolve these issues for clients.

—Richard A. Perlman, Enrolled Agent, June 16, 2014