Trust Fund Recovery Penalty FAQs

Generally, there is a three-year statute of limitations for trust fund recovery matters.

Unpaid payroll taxes are referred to by the IRS as “trust fund taxes.” A trust fund tax is money withheld from an employee’s wages (income tax, Social Security, and Medicare taxes) that is held by an employer in trust and then paid to the government.

IRS Code Section 6672 imposes personal liability for unpaid trust fund taxes and willfully fails to do so.

A person is liable for trust fund taxes if:
(1) the person is responsible for collecting or paying withheld income and employment taxes.
(2)willfully fails to collect or pay them.
A person is “responsible” if they have the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.

Generally, there is a three-year statute of limitations for trust fund recovery matters.

It depends on many factors. It is recommended you seek expert advice from a tax consultant or tax counsel.

• First, you must make sure you are eligible to file an Offer in Compromise. Eligibility requires previous filing of all required tax returns and previous required payments.
• Second, you submit an offer to the IRS by following all instructions in Form 656-B.
• Third, you select a payment option as either lump sum or periodic payments. The IRS will evaluate your offer and either accept or reject. If the IRS rejects your offer, you may appeal the rejection within 30 days.
Getting an OI accepted can be hard to do on your own. In order to achieve the best settlement possible, it is best to consult a tax professional.

The IRS will evaluate your offer and consider whether the offer is appropriate based on your true ability to pay. An appropriate offer accepted by the IRS will be based on your assets, income, expenses, and future earning potential.