The Trust Fund Recovery Penalty is sometimes referred to as the “responsible person penalty”: IRC § 6672 (federal), and Missouri: R.S.Mo. § 143.751 (employment withholding), and § 144.157 and § 144.241 (sales).

The assessment of personal liability is often 1 more blow after failure of the business.

The “good news” is that the personal liability is less than the employment taxes, penalty and interest owed by the employer, because it includes only of the amounts withheld from employees (the “trust fund” amount), and NOT:

  • deposit penalties;
  • late filing penalties;
  • late filing penalties;
  • interest on the above prior to assessment of the trust fund recovery penalty.

Interest accrues on the trust fund recovery penalty, but does not start until the penalty is assessed against the responsible person.

Missouri liability is generally the same amount as due from the business or employer.

Personal liability

While directors and officers of corporations, members or managers of limited liability companies, and employees of both are generally not liable for corporation or limited liability company obligations, they can be personally liable for certain employment and sales taxes.

Personal liability is imposed by Internal Revenue Code § 6672 and R.S.Mo. § 143.751 on “responsible persons” (persons with a duty to collect and pay over withholding taxes) for “willful” failure to collect and pay over trust fund taxes (the amount withheld from employees). “Willful” generally means knowing employment taxes are due and paying other creditors instead.

Missouri additionally has a second component to its statutes and imposes liability on such persons whether or not liable (“strict liability”).

Also, the Missouri Department of Revenue (“DOR”) and Missouri Division of Employment Security (“Division”) position is that members of LLCs taxed as partnerships are personally/individually liable for unpaid LLC taxes to be paid or collected by the LLC, i.e., DOR withholding and sales tax, and Division unemployment contributions, without resorting to responsible person personal liability. 6/8/12

Trust fund taxes

The trust fund amount that may be assessed against “responsible persons” includes:

  1. income;
  2. social security;, and
  3. Medicare taxes

withheld from the employee and reported on form 941, filed quarterly (“Trust Fund” taxes).

The IRS views trust fund taxes differently from tax owed by the employer itself that the employer has not paid. The IRS considers those funds to be the employee’s money (not the employer’s) that the employer holds “in trust” for payment to the IRS. Employees receive credit for these withheld taxes even if the employer does not pay these withheld taxes over to the IRS.

The amount of trust fund liability is typically substantially less than amount due from employer because the trust fund tax liability does NOT include:

  • the social security amounts matched by the employer;
  • Form 940, FUTA tax;
  • late deposit penalties;
  • late payment penalties; or
  • interest (accrued against the employer on tax and penalties before assessment of the trust fund recovery penalty).

Although the responsible person is not liable for interest charged to the employer for its failure to pay these taxes on time, they ARE LIABLE for interest that accrues on trust fund liabilities after the trust fund liability is assessed against responsible persons, starting on the date of “assessment” of the trust fund penalty against the responsible person.

Assessment” is a tax term for when the IRS can maintain a tax is due and try to collect it. Until a tax is assessed the IRS can not try to collect it (except it may make “jeopardy assessments” E.g., if the IRS believes a taxpayer is about to leave the country making collection unlikely). Your filing a return is “self-assessment” and gives your consent for the IRS to assess the tax. The IRS cannot assess or collect tax until all procedural and appeal rights have been used, lapsed, or you agree to assessment.

Collection more than once

Each “responsible person” is severally liable for the entire unpaid trust fund tax liability, including interest and penalties; however, according to Service policy, the Service collects the liability only once, whether from one or more of the business’s responsible persons, or from the business and one or more or its responsible persons. Policy Statement 5-14, IRM “The full unpaid trust fund amount will be paid only once in a particular case. … ” IRM “If, after the assertion of the TFRP, the corporation pays the delinquent tax, the TFRP assessment will be abated. IRM §, citing Policy Statement 5.14.

Although many courts have referred to the Service’s long time policy of collecting the trust fund taxes only once, including interest and penalties, few have had the occasion to determine whether the Service is “legally bound” to collect only once. Because of the Service’s policy, the issue generally is not raised. However, the Fifth Circuit’s determination in USLIFE as well as courts’ general recognition that the purpose of the TFRP is simply to ensure that the withheld employment taxes are paid indicates that courts likely would hold that the Service is precluded from collecting more than the total amount of the liability.

Chief Counsel Advice, CCA 200838027, Code Sec(s). 6672, 09/19/2008 9/22/08

“Responsible” persons

Responsible persons are those who are “in charge of and have the authority to decide which creditors to pay” including the IRS. Possible targets are those who sign the SS-4 to obtain an employer tax identification number (“EIN”), sign returns, can sign checks, do sign checks, or direct such actions, including:

  • Directors
  • Officers
  • LLC members
  • LLC managers (or administrators)
  • Signed the application for a tax ID or tax registration
  • Signed tax returns
  • Can sign checks (named on the bank signature card)
  • Did sign checks
  • Direct others to do any of the above

Persons with nominal authority but without actual authority (i.e., they do not have the authority to decide who gets paid) may “escape” liability. An example is the bookkeeper who prepares and signs checks, but does not have authority to send the checks out without prior approval of a responsible person. The bookkeeper may present the checks to the real “responsible person” who decides which to pay and which not to pay. This can even be the case where someone has limited authority to pay bills, e.g., up to $100 for such items such as soda delivery or other minor items.

Willful failure to pay over trust fund taxes

Before a responsible person is assessed personally they must have acted “willfully”. Generally this involves the responsible person: 1) knowing that the taxes are due and owing and 2) choosing to pay other creditors instead of the IRS, such as employees or suppliers.

NOTE that Missouri has a second statutory provision that imposes strict liability for sales and withholding taxes without requiring “willfulness”, meaning that failing to file a return or pay the tax is sufficient.

Payroll deposits are generally required to be made every 2 weeks or semi-weekly (approximately 3 days after the payroll) depending on the amount of tax due. The failure to make deposits often occurs because suppliers will cease deliveries if not paid, and the IRS takes a while to “ask” for their money if not paid, and consequently, employers treat the IRS as an automatically “pre-approved” lender. This is a mistake because in addition to interest, the IRS charges steep (up to 20%) penalties for late deposits (and interest on penalties), making the failure to pay or make deposits a very expensive “loan”.


The IRS makes a list of possible targets against who it may assess the trust fund recovery penalty and investigates to determine if the it believes assessment against them is appropriate. You can try to convince the investigating revenue officer the penalty is not appropriate.


An IRS employee will conduct an interview and file out an interview form. The questions include a description of your and other persons’ job duties, particularly in regard to payment of taxes and other creditors and knowledge that the taxes were owed and not paid. The IRS employee will review documents to check your authority and actions, including: bank signature cards, canceled checks, payroll tax returns, and entity documents such as corporate by-laws (describing officer duties, responsibilities and powers), actions and minutes (e.g., designating officers and directors), and annual reports filed with the Secretary of State which list the officers and directors each year, and limited liability company operating agreement, to determine your position, office or position and authority.

Based on the interview and document review, the IRS employee recommends whether to assess the trust fund penalty or not, which recommendation must be approved by the employee’s supervisor.

Protesting the assessment

If unsuccessful in avoiding assessment at the interview stage, you can protest the proposed assessment and have an IRS appeals conferee (still an IRS employee) who has not been involved review the assessment.

Appeal to court

Alternatively to filing a protest, or if unsuccessful with the IRS appeals conferee, you can pay the tax for 1 employee for 1 quarter, request a refund from the IRS, and if the refund is not granted, go to court to seek a refund and determination of the total trust fund recovery liability.

Missouri personal liability for sales or employment taxes

Missouri imposes personal tax liability on responsible persons similar to the federal treatment, R.S.Mo. § 143.751.4, but Missouri can additionally impose liability on “responsible persons” regardless of “willfulness” (“strict liability”) if the return is not filed and or the tax not paid over, employment tax, § 143.241.2, and sales tax, § 144.157).

The Missouri assessment process is similar in to the IRS process. There is typically an initial letter indicating possible liability, a notice of intent to assess with a right to protest to the Department of Revenue, with further appeal to the Administrative Hearing Commission and courts.

Unemployment taxes (FUTA or SUTA)

There is no personal liability for employment security taxes (unemployment contributions, either federal, form 940, or Missouri), however, the Division of Employment Security asserts members of limited liability companies are liable for LLC / employer obligations.

No bankruptcy discharge

Sales and employment (including IRC § 6672 trust fund recovery penalty) tax liability is NOT dischargeable in bankruptcy.

Once the tax is assessed

IRS collection proceeds as with other tax liabilities. See the following topics on collection options for additional information:

  1. What if I cannot pay;
  2. IRS collection standards;
  3. Uncollectible;
  4. Installment payments;
  5. Bankruptcy;
  6. Expiration of the Statute of limitations; and
  7. Offer in compromise.