TFRP (Trust Fund Recovery Penalty)

The TFRP is one of the most aggressive collection tools in the IRS arsenal, specifically designed for business tax failures. When a business fails to remit the employee-withheld portion of federal income tax, Social Security, and Medicare taxes (the 'trust fund' portion), the IRS can bypass the business entity entirely and assess a personal liability against any individual who was both 'responsible' and 'willful.' Responsibility is defined broadly: officers, directors, shareholders with check-signing authority, and even certain bookkeepers have been held liable. Willfulness requires only knowledge of the unpaid taxes and a voluntary decision to use available funds for other purposes — it does not require bad intent. The penalty equals 100% of the unpaid trust fund taxes, plus interest from the date of assessment. Unlike most business tax liabilities, the TFRP survives bankruptcy under most circumstances and cannot be discharged in a Chapter 7 filing.