Comprehensive Review of the 941 Trust Fund Recovery Penalty

If your business—or a business over which you have substantial authority—owes 941 employment taxes to the Internal Revenue Service, you may be personally assessed the 941 Trust Fund Recovery Penalty. This article provides an overview of the Trust Fund Recovery Penalty and related issues for taxpayers in Columbus, Ohio (OH).

What Is the 941 Trust Fund Recovery Penalty?

The 941 Trust Fund Recovery Penalty is the portion of unpaid 941 employment taxes for which an individual may be held personally responsible by the IRS.

When 941 taxes are owed and not paid by a corporation or LLC, the IRS may personally assess one or more individuals within the business and collect the trust fund portion of the tax directly from those individuals.

How Is the Trust Fund Recovery Penalty Calculated?

The trust fund portion of 941 taxes consists of amounts withheld from employee paychecks, including:

• Federal income tax withheld
• Social Security tax withheld
• Medicare tax withheld

In practical terms, the trust fund amount is calculated by taking:

• 50% of the Social Security and Medicare taxes, and
• 100% of the federal income tax withheld

For example, if a quarterly Form 941 reflects:

• $1,530 in total Social Security and Medicare taxes, and
• $2,500 in total federal income tax withheld

The trust fund portion would be $3,265 ($1,530 × 50% + $2,500).

What Is the Basis for Being Assessed the Trust Fund Recovery Penalty?

The IRS proposes the Trust Fund Recovery Penalty against individuals it determines are both willful and responsible.

In this context:

• Willful means the individual knew or should have known that the 941 taxes were due and unpaid
• Responsible means the individual had authority within the business to ensure the taxes were paid

Generally, if an individual was an owner, had signatory authority over business bank accounts, and knew or should have known that 941 taxes were not being paid, the IRS may determine that individual is a willful and responsible party and propose a personal assessment.

What Is the Process for Being Personally Assessed the Trust Fund Recovery Penalty?

When a business owes 941 employment taxes, the IRS Revenue Officer will request documents such as:

• Business bank statements
• Cancelled checks
• Bank signature cards
• A completed business financial statement listing owners

These documents help identify who controlled business finances and decision-making.

Based on this information, the Revenue Officer conducts the 4180 Interview with individuals believed to be potential willful and responsible parties. The interview focuses on:

• Authority within the business
• Financial decision-making responsibilities
• Knowledge of unpaid 941 taxes

After reviewing the documents and interview responses, the IRS may propose the personal assessment of the Trust Fund Recovery Penalty.

Can an Individual Appeal a Proposed Trust Fund Recovery Penalty?

Yes. An individual has 60 days from the date of the proposed assessment to appeal.

Once appealed, the matter is transferred to the IRS Appeals Office, where an Appeals Officer conducts an independent review. The Appeals Officer will either:

• Sustain the proposed assessment, or
• Reject the assessment and determine the individual should not be held personally responsible

What Collection Actions Can the IRS Take After Assessment?

If an individual is assessed the Trust Fund Recovery Penalty, the IRS may pursue collection in the same manner as other individual tax debts.

This may include:

• Issuing payment notices
• Requesting payment or an agreement
• Issuing a Final Notice of Intent to Levy
• Seizing personal assets if the debt is not resolved

Can Multiple Individuals Be Assessed the Trust Fund Recovery Penalty?

Yes. The IRS may assess the Trust Fund Recovery Penalty against multiple individuals it deems willful and responsible.

The liability is joint and several, meaning:

• The IRS can collect the entire trust fund amount from any assessed individual
• The debt is not divided among individuals

Speak With a Columbus, Ohio Tax Attorney About 941 Trust Fund Issues

If your business owes 941 taxes or you may be personally responsible for a business’s trust fund liabilities, it is strongly recommended that you speak with a tax attorney or qualified tax advisor.

941 tax matters can be complex, and because the IRS may collect from both the business and individuals, these liabilities can have significant financial consequences.

You can contact The McGuire Law Firm to speak with a Columbus tax attorney who assists clients throughout Ohio with Trust Fund Recovery Penalty matters.