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A trust fund recovery penalty is assessed against a person who is responsible for failing to pay payroll taxes. The trust fund recovery penalty is the portion of the employee’s check that is withheld for income taxes and social security.

The IRS takes a shot gun approach to assessing this penalty and will assess anyone who is an officer or signs checks in the business. Merely signing checks is not enough, however.

The person signing the checks must have the authority to decide what is paid and what is not. If a business owner tells a secretary to pay a rent or utility bill and not the current payroll taxes, the business owner is liable for the penalty and not the secretary. It is the person or persons who have authority over who will get paid and who will not that are the responsible party.

Even a manager who signs checks is not liable for the trust fund recovery penalty if he or she is acting under the authority or direction of an owner. If the IRS attempts to assess this penalty upon you, do not be rail roaded. You have substantial appeal rights! As Dan Pilla from Tax Freedom Institute points out, in the court case Romano Murphy v Commissioner, 11th Circuit, March 2016, a taxpayer must be given a pre-assessment hearing. In Romano Murphy, the courts issued a scathing rebuke to the IRS for failing to follow statutory law allowing such a pre-assessment hearing.