The Trust Fund Recovery Penalty, Part 2: the importance of notice

In the first part of this post, we began discussing a powerful hammer in the IRS’s enforcement toolkit for payroll taxes.

This hammer is the trust fund recovery penalty (TFRP). Last week, we discussed what it is and how the IRS can use it to go after individuals who willfully fail to collect or pay over certain business and employment taxes.

In order to pursue the TFRP, however, the IRS must satisfy various procedural requirements. In this part of the post, we will inform you about a recent case in which a federal court struck down the IRS’s attempt to impose the penalty because the IRS did not meet these requirements.


The requirement that the IRS did not meet was notice of its intention to impose the TFRP. The case was decided by a federal court in North Carolina and was called United States v. Appelbaum.

Under Section 6672(b) of the Internal Revenue Code, the IRS is required to give written notice before assessing the TFRP. That notice is normally provided by mailing Letter 1153, usually along with a related form and publication.

In the Applebaum case, however, there was insufficient evidence in the IRS’s files to show that the notice was actually sent. The court therefore invalidated the attempt to impose the TFRP.

But the IRS does have other tools besides the TFRP to encourage compliance with employment tax obligations. In particular, the IRS has put in place new programs to identify and reach out to small businesses that have run into difficulty with payroll tax issues.

It is also important to recognize the difference between a civil tax penalty and a potential criminal investigation for tax evasion or tax fraud. We will try to highlight that distinction in an upcoming post.

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