Taxman Associates Logo

Payroll Taxes

Congress enacted the Trust Fund Recovery Penalty Statute to incentivize prompt payment of withheld and other collected payroll taxes. This statute allows the IRS to assert a liability against responsible third parties [IRC 6672]. The penalty imposed by the statute for failure to comply with its provisions is measured by the payroll taxes required to be collected or collected and not paid over. This personal assessment of taxes is referred to as the "Trust Fund Penalty," which is civil in nature, not criminal.

Congress explicitly limited the provisions of IRC 6672 to "Trust Fund" taxes as defined in IRC 7501. In other words, the penalty only applies to collected or withheld payroll taxes that are imposed on individuals other than the party who collects, accounts for, and pays over such payroll taxes.

Requirements For Liability

Two major tests determine if someone is subject to the provisions of IRC 6672. These tests are primarily questions of fact and can be stated as follows:

  1. Whether the party against whom the penalty is proposed had the duty to account for payroll taxes, collect payroll taxes, and turn over trust fund payroll taxes; and
  2. Whether he or she willfully failed to perform this duty relating to the trust fund payroll taxes.

In general, the IRS has the right to pursue any person who meets the tests, even if he was not an officer or employee of the corporation that originally collected the payroll taxes.

The penalty can be assessed against more than one person. It is not unusual for the IRS to assess the penalty for payroll taxes against several responsible persons. In the event that the IRS assesses several persons for trust fund payroll taxes, it may collect the entire liability from any of those persons.

Got an IRS Problem?
I Got a Solution.
Taxman Associates Logo
Matt Browne, EA
IRS Resolution Expert
Contact Matt


"Estimated tax payments for business owners are like planting seeds for a thriving financial future. Each payment is a small step towards stability and success, ensuring your business grows strong and steady and avoids any tax surprises."

Carey Homan, CPA
Meet the Taxman Team

Responsibility & Willfulness

When a corporation fails to pay payroll taxes, the IRS may proceed against the persons responsible for the nonpayment of such payroll taxes. IRC 6672 provides statutory authority for imposing a Trust Fund Recovery Penalty on "any person required to collect payroll taxes, truthfully account for payroll taxes, and pay over collected payroll taxes" who willfully fails to collect such payroll taxes or willfully attempts in any manner to evade or defeat such payroll taxes or payment thereof.


The key to liability for payroll taxes under Section 6672 is control of finances within the employer corporation: the power to control the decision-making process by which the employer corporation allocates funds to other creditors in preference to its withholding payroll taxes obligations. Liability attaches to those with power and responsibility within the corporate structure for seeing that the taxes withheld from various sources are remitted to the Government. This duty is generally found in high corporate officials charged with general control over corporate business affairs who participate in decisions concerning payment of creditors and disbursement of funds.


The IRS must prove and establish a second element for liability under the Trust Fund Recovery Penalty for payroll taxes. That element is “willfulness.” A responsible person need not have failed to pay the payroll taxes with a fraudulent or evil purpose. That person must merely be shown to have knowingly and intentionally disregarded the duty to pay trust fund payroll taxes to the IRS. “Willfulness” can be defined as “‘an act is willful if it is voluntary, conscious, and intentional. A responsible person acted willfully if he ‘knowingly’ used available funds to prefer other creditors to the IRS.”