The definition, precisely
Trust fund taxes are the payroll taxes a business holds in trust for the government: withheld employee income tax plus the employees' share of Social Security and Medicare. The employer's matching share is not trust fund money. When the business fails to pay them over, section 6672 lets the IRS assess any responsible person a penalty equal to 100% of the unpaid trust fund amount — the full balance, personally, on top of whatever the business still owes.
Who counts as responsible
Function, not title. Officers, owners, and shareholders are the usual targets, but bookkeepers with check-signing power, managers who chose creditors, and outside parties who controlled the money have all been assessed. The second half of the test is willfulness — which does not mean evil. It means the person knew the taxes were unpaid and paid someone else instead. Knowledge plus payment choices is the whole case, and the Form 4180 interview exists to establish both on the record.
The process, and the window
The IRS builds the case through interviews and records, then proposes the assessment in Letter 1153 — which carries a 60-day protest window to Appeals. Multiple people can each be assessed the full 100%, but the government collects the balance once, from whoever pays first. Miss the protest window and the assessment stands on the interview record. Everything about this penalty rewards early, written, represented engagement and punishes silence.
Frequently Asked Questions
- Possibly. Responsibility follows function, not title: if you decided which bills got paid knowing payroll taxes were short, the Form 4180 interview will find you. Signers with no discretion are safer; deciders are not.
- No. The penalty exists precisely for that case: it follows the responsible individuals, not the entity. Dissolution, sale, or bankruptcy of the business does not erase personal exposure.
- Yes. Letter 1153 proposes the assessment and gives 60 days to protest to Appeals. Miss the window and the assessment stands — the interview record becomes very hard to unwind later.
- Generally no — trust fund taxes are among the debts bankruptcy does not discharge in most cases, so the personal assessment typically survives. Payroll-tax debt plus bankruptcy is attorney territory.