Understanding Payroll Tax Liability
When businesses fail to deposit payroll taxes, the IRS separates the debt into two parts: the trust fund (employee withholding for income tax and FICA) and the employer portion (matching FICA). The trust fund carries personal liability under IRC 6672, meaning the IRS can pursue individual owners even after business closure.
Who the IRS Pursues
The IRS identifies 'responsible persons' — anyone with authority to direct payment of bills. This includes: business owners, corporate officers, bookkeepers with check-signing authority, and sometimes even outside accountants. Multiple people can be jointly and severally liable for the same debt.
Defense and Resolution
TFRP defense requires demonstrating either: lack of responsibility (no authority to pay), lack of willfulness (reasonable belief taxes were being paid), or procedural errors in assessment. Even if defense fails, payment plans can prevent levy action, and Offer in Compromise may be available.
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