The Trust Fund Recovery Penalty and Encumbered Funds: No Easy Way Out

By Henry Stow Lovejoy
CPA Journal
April 2016 Edition

The “trust fund recovery penalty” can impose sizeable liabilities on officers and other employees of financially struggling or failed companies that fail to pay withholding or employment taxes. Individuals facing this penalty will often claim that they had no choice, that there were no funds not already spoken for or controlled by others. To their chagrin, these employees learn that the trust fund recovery penalty imposes a strict obligation on any person with knowledge of unpaid employment taxes, with only a narrow exception for encumbered funds.