Proposed Trust Fund Recovery Penalty (Letter 1153)

When a business withholds income tax and the employee share of Social Security and Medicare from paychecks, those dollars are held in trust for the government. If they are not paid over, the IRS can collect the trust fund portion from the individuals who were responsible, by assessing a penalty "equal to the unpaid balance of the trust fund tax." It is not extra punishment on top of the company's debt so much as a transfer of that debt onto personal balance sheets, where it survives the company itself: corporate dissolution and even the business's bankruptcy do not erase a TFRP assessed against you. The full mechanics are in our trust fund recovery penalty guide.

Before proposing the penalty, the IRS investigates who qualifies as a responsible person, usually through the Form 4180 interview conducted by a revenue officer. Responsibility turns on status, duty, and authority: officers, partners, directors and shareholders, employees who control disbursements, and even third-party payroll providers can qualify. Signing checks, controlling which bills got paid, and hiring and firing authority all weigh in. Willfulness then asks whether you knew or should have known and let it happen anyway; no evil motive is required.

This is why founder facts matter so much. A passive investor with no check authority has a genuine defense. A CEO who told the bookkeeper to prioritize rent and vendors during a crunch usually does not, even though every founder in a cash crisis has felt that exact temptation. Our payroll tax debt guide explains how to keep a 941 problem from ever reaching this letter.

Treat the letter as a litigation deadline, because functionally it is one:

1. Decide whether to contest responsibility or willfulness. Gather the corporate records that show who actually controlled finances: bank signature cards, board minutes, payroll runs, emails directing payments. The IRS built its case from documents and the 4180 interviews; your protest needs to answer with documents.
2. File a written protest with Appeals before the deadline, laying out the facts, the law, and why you were not a responsible or willful person for the periods proposed. Appeals can reduce or eliminate the proposed assessment.
3. If you agree you are exposed, use the window to shape the outcome: confirm the trust fund calculation is right, ensure company payments were applied to trust fund portions where possible, and plan for resolution of any assessed balance through an installment agreement or, in genuine inability-to-pay cases, an offer in compromise.

Multiple people are often proposed for the same trust fund debt, and the IRS can collect the full amount from any of them, sorting contribution out later. If you are one of several officers who received this letter, separate advice is not optional. A free consultation with a resolution specialist on our team will give you a candid read on your exposure before the window closes.