The Trust Fund Recovery Penalty (TFRP) penalizes any person who willfully fails to pay the Internal Revenue Service (IRS) payroll taxes when that person is responsible for doing so.
The TFRP is articulated in Section 6672(a) of the United States Code. The penalty is designed to facilitate the timely payment of income and employment taxes.
The IRS pushed for the implementation of the Trust Fund Recovery Penalty in response to a common corporate practice where corporations spend withheld wages used for their employees’ Medicare, Social Security and income taxes.
Corporations suffering from lost profits and poor growth often tap into withheld wages as a temporary fix. Many times, corporations that do this end up being unable to pay creditors like the IRS. So, the TFRP encourages corporations to pay their taxes first.