Trust Fund Recovery Penalty Attorney in South Carolina

The trust fund recovery penalty lets the IRS collect a business’s unpaid payroll taxes personally from the owners, officers, and employees it considers responsible. The penalty equals the full amount of the income tax withheld from employees’ wages and the employees’ share of Social Security and Medicare taxes that the business did not pay over. South Carolina Tax Law Firm PA represents business owners, officers, bookkeepers, and others across South Carolina in trust fund recovery penalty investigations, appeals, and refund suits.

Call (803) 753-7376 or request a consultation. If you received Letter 1153, have it in front of you. The appeal deadline runs from the date on the letter.

What the trust fund recovery penalty covers

When a business pays wages, it withholds federal income tax and the employees’ share of Social Security and Medicare taxes. Those amounts are held in trust for the United States, which is why they are called trust fund taxes. If the business does not pay them over, the IRS can assess a penalty equal to 100 percent of the unpaid trust fund taxes against each responsible person (IRC 6672). The penalty does not include the employer’s own share of Social Security and Medicare taxes, or the penalties and interest owed by the business.

The IRS can assess the penalty against more than one person, but it collects the total only once. Payments by the business or by any responsible person reduce what the others owe.

Who the IRS considers responsible

The IRS must show two things for each person: responsibility and willfulness.

• Responsibility. A person who had the duty and the authority to collect, account for, and pay the taxes. The IRS looks at who owned the business, held an officer title, signed checks, controlled the bank accounts, hired and fired employees, and decided which bills got paid. A title alone is not enough, and more than one person can be responsible.
• Willfulness. The person knew, or recklessly disregarded, that the taxes were not being paid and allowed other creditors, such as rent, suppliers, or payroll itself, to be paid instead. Willfulness does not require bad intent.

Owners and officers are the most common targets, but the IRS also investigates bookkeepers, controllers, and others with check-signing authority. A person who was following orders and had no real authority to decide which bills were paid often has a strong defense.

How the IRS investigates

1. A Revenue Officer is assigned. Unpaid payroll tax cases usually go to a Revenue Officer, who works to collect from the business and identifies potentially responsible people.
2. The interview. The Revenue Officer interviews owners, officers, and employees, usually using Form 4180, and requests bank records, signature cards, and canceled checks. What you say in this interview often decides the case.
3. The proposed assessment. If the IRS decides you are responsible, it sends Letter 1153 with Form 2751, which shows the proposed penalty by quarter.
4. Your appeal right. You have 60 days from the date of Letter 1153 (75 days if it is addressed to you outside the United States) to file a written protest with the IRS Independent Office of Appeals before the penalty is assessed.
5. Assessment and collection. If you do not appeal, or the appeal does not resolve the case, the penalty is assessed against you personally and collected like any other IRS debt, including liens and levies.

We recommend getting advice before the Form 4180 interview, not after Letter 1153 arrives. You can have an attorney present, and the interview can often be handled in a way that presents the facts accurately and completely.

Defenses to the trust fund recovery penalty

• Not a responsible person. You lacked real authority over which bills were paid, even if you had a title or could sign checks.
• Not willful. You did not know the taxes were unpaid, for example because a payroll company or another officer hid it, and you acted promptly once you found out.
• Wrong amount. The calculation includes non-trust fund amounts, ignores payments, or covers quarters when you were not involved.
• Payments were applied incorrectly. Voluntary payments by the business can be designated to the trust fund portion of the debt, which reduces the penalty. Payments that were designated but misapplied can be corrected.
• Procedural problems. The IRS must send Letter 1153 before assessing the penalty and must act within the assessment period, which is generally three years from when the payroll returns were filed or treated as filed.

Challenging a penalty that has already been assessed

The trust fund recovery penalty does not go to the U.S. Tax Court the way an audit deficiency does. Once it is assessed, the usual route is to pay the penalty for one employee for one quarter, file a claim for refund on Form 843, and if the IRS denies it, sue for a refund in the U.S. District Court for the District of South Carolina or the U.S. Court of Federal Claims. The IRS typically counterclaims for the rest of the penalty, so the whole liability is decided in that case. If you never received Letter 1153 or had no other chance to dispute the penalty, you may also be able to raise it in a Collection Due Process hearing.

Resolving the penalty and the business’s payroll tax debt

The business and the responsible people often need to be dealt with together. Options can include an installment agreement for the business that keeps current deposits up to date, designating payments to the trust fund portion, an offer in compromise for an individual who cannot pay the penalty, and penalty abatement for the business’s late-deposit penalties. The trust fund recovery penalty generally cannot be discharged in bankruptcy, so early planning matters.

How we handle a trust fund recovery penalty case, step by step

1. Review the payroll tax account. We file a power of attorney (Form 2848) and pull the business’s transcripts to see which quarters are unpaid and how payments were applied.
2. Assess your exposure. We review your role, authority, and knowledge for each quarter, and the records the IRS is likely to rely on.
3. Prepare for and attend the interview. We prepare you for the Form 4180 interview and attend it with you, or provide the information in writing.
4. Protest a proposed assessment. If Letter 1153 arrives, we file a written protest with IRS Appeals within the 60-day deadline and present the defenses.
5. Resolve the business side. We work with the business on current deposits, payment designations, and a payment plan to reduce what can be assessed against individuals.
6. Litigate if needed. When an assessed penalty should be challenged, we file the refund claim and refund suit.

South Carolina withholding and sales tax

South Carolina has its own version of this problem. When a business does not pay over state withholding or sales tax it collected, the South Carolina Department of Revenue can pursue responsible owners and officers personally. A business with unpaid federal payroll taxes often has unpaid state withholding too. We handle both, and our SCDOR collections page explains the state side.

Attorney experience

The firm is led by attorney Daniel P. Knudsen, who has represented taxpayers in tax controversies for more than 10 years, including litigation before the U.S. Tax Court. Before entering private practice, Daniel represented taxpayers before the IRS at a Low Income Taxpayer Clinic funded through the IRS Taxpayer Advocate Service grant program, and worked in the Executive Division of a state department of revenue.

Daniel holds an LL.M. in Taxation and certificates in International Taxation and State and Local Taxation from Georgetown University Law Center, and completed the Tax Litigation Training Program, a professional certificate program, at Villanova University Charles Widger School of Law. Every trust fund recovery penalty case is handled by an attorney from the first contact with the Revenue Officer through final resolution.

Payroll tax help throughout South Carolina

Our office is in Spartanburg, and we represent business owners and officers facing the trust fund recovery penalty throughout South Carolina, including Greenville, Columbia, Charleston, North Charleston, Mount Pleasant, and Rock Hill. Revenue Officer interviews can usually be arranged near you, and much of the work is handled by phone, mail, and secure video.

Trust fund recovery penalty questions

Can the IRS come after me personally if my business is a corporation or LLC?

Yes. The trust fund recovery penalty is an exception to the usual protection of a corporation or LLC. If you are a responsible person who acted willfully, the IRS can assess the trust fund portion against you personally.

Should I talk to the Revenue Officer myself?

It is usually better to get advice first. The Form 4180 interview asks detailed questions about your role and knowledge, and your answers are often the main evidence in the case. You have the right to have an attorney represent you.

What if our payroll company failed to pay the taxes?

The business generally remains liable for the taxes even when a payroll company took the money. Whether you are personally liable depends on whether you knew or should have known the taxes were unpaid and what you did once you found out.

If the business pays the taxes, does the penalty go away?

The IRS collects the trust fund amount only once. If the business pays the trust fund taxes, the penalty against responsible people is reduced or eliminated, although the business still owes the remaining employer taxes, penalties, and interest.

Can other responsible people be made to share the penalty?

Federal law allows a person who paid the penalty to sue other responsible people for their share (IRC 6672(d)). The IRS itself can collect from any responsible person it chooses.

Related tax controversy services

• IRS collections, levies, and liens
• IRS appeals, including trust fund recovery penalty protests
• Offer in compromise
• IRS penalty abatement
• SCDOR collections, liens, and wage garnishment

Talk to a South Carolina trust fund recovery penalty attorney

If a Revenue Officer has contacted you about unpaid payroll taxes, asked you for an interview, or sent Letter 1153, call (803) 753-7376 or request a consultation. Tell us the business name, the quarters involved, and the date on any letter. Please don’t include confidential details in the contact form. Submitting it does not create an attorney-client relationship.

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South Carolina Tax Law Firm PA is a private law firm and is not affiliated with the IRS, the South Carolina Department of Revenue, or any government agency. Attorney responsible for this content: Daniel P. Knudsen, 405 S. Pine St., Suite F, Spartanburg, SC 29302. This page provides general information, not legal advice. Every case depends on its own facts, and no particular outcome can be promised.

Reviewed by Daniel P. Knudsen, attorney, October 2026.