Trust fund recovery penalty is for the employer’s portion of “trust fund taxes”. This is specifically the amounts the company was supposed to withhold for the government– income taxes, employee’s portion of Social Security, and FICA taxes. It specifically does not include the matching employer’s contribution for FICA, or the FUTA tax, or any payroll failure to file, pay or deposit penalties.
If failure to pay was willful, and the person was responsible. However, note that the meanings of these terms make it extremely easy for the tax to be assessed against you. http://www.thetaxadviser.com/issues/2013/apr/petra-apr2013.html.
It’s tough to get out of this pickle when you get into it. For example, the IRS has held that someone is a “responsible party” even if a payroll company embezzled the money, or even if another officer of the corporation embezzled it, or entering into settlements with other individuals did not help with the liability, or that someone else having enough money to pay it off now did not relieve the other responsible party.
Also consider bankruptcy issues – http://www.thetaxadviser.com/issues/2013/apr/petra-apr2013.html . IRM 184.108.40.206 notes that a trust fund recovery penalty is not dischargeable in bankruptcy.
The IRS is a lot more aggressive about these taxes than they are with individual issues, because they see the business’ failure to pay over the taxes as being more egregious than an individual.
Make sure the trust fund recovery penalty has been assessed against you before entering into a type of payment or tax arrangement with the IRS. Otherwise, it will cause you not only to default on your arrangement with the IRS, it will also just be another huge amount you owe.
Note that the IRS generally will assess the trust fund recovery penalty against you, even if your company already has an installment agreement with the government.
You should designate any voluntary payments you make to the IRS towards your trust fund recovery penalty. (Actually I don’t know if this is good advice or not, you would definitely designate these payments towards the employment taxes as the company).[Don’t confuse the business compromising the liability for its own taxes with the taxpayer being unable to personally compromise the trust fund recovery penalty].