Got IRS Letter 1153? What the Trust Fund Recovery Penalty Means

When a business withholds income tax and the employee share of Social Security and Medicare from paychecks, that money is held in trust for the government. If it is not paid over, the IRS can assess the Trust Fund Recovery Penalty against the people responsible, personally. Letter 1153 is the letter that proposes that penalty to you, usually with Form 2751 enclosed showing the proposed amount by quarter.

It is a proposal, not yet an assessment. The letter is how the IRS gives you the chance to disagree before it assesses.

1. Find the date on the letter. The IRS gives 60 days to appeal the proposed penalty, or 75 days if the letter is addressed to you outside the United States
2. Read Form 2751 and check which quarters and amounts are listed
3. Gather the payroll records for those quarters: Forms 941, deposit records, payroll registers and bank statements
4. Write down who in the business signed checks, chose which bills were paid, and handled payroll, and what you knew at the time
5. Get professional advice before you sign Form 2751 agreeing to the penalty
6. Stop the problem growing: make current payroll deposits on time from here on

Our part is the records. We rebuild the payroll history for the quarters on Form 2751, reconcile the Forms 941 to what was actually deposited, and prepare any missing or corrected payroll returns. Deposits that were made but applied to the wrong period show up in that work more often than people expect. Behind on payroll taxes explains the cleanup.

Appealing the penalty, and arguing who was responsible and whether it was willful, is representation. That goes to the independent licensed CPA we work with, with our office coordinating the records. Going forward, we can run payroll and deposits for you through our payroll services so the gap does not reopen.