Did you get IRS Letter 1153 in the mail? This document is the Proposed Assessment of Trust Fund Recovery Penalty, indicating that you are responsible for unpaid payroll taxes and must pay a penalty.
Letter 1153 comes after a business misses payroll tax payments and the IRS determines the individual responsible for that mistake. The Trust Fund Recovery Penalty (TFRP) is then assessed against the responsible party. This is a hefty penalty, so always talk to a tax expert about your options.
At this point, the IRS is not taking serious action against you, like liens or levies, but the problem still requires prompt attention to avoid further penalties and interest and prevent asset seizure in the future.
This guide walks through everything you need to know about the TFRP and how to respond to IRS Letter 1153.
Key Takeaways:
- The Trust Fund Recovery Penalty (TFRP) applies when a business fails to remit withheld payroll taxes to the IRS. The penalty is equal to the unpaid taxes.
- IRS Letter 1153 notifies an individual — not the business — that they’re personally responsible for the TFRP.
- You generally have 60 days to appeal the proposed penalty.
- If you don’t respond, the IRS will automatically assess the penalty.
- To contest the assessment, you must file an appeal proving that you are not responsible for the unpaid payroll taxes.
What Is the TFRP?
Every employer is required to withhold payroll taxes from employee paychecks and remit these withholdings to the IRS on a regular basis. When this doesn’t happen, the IRS takes notice and investigates who is responsible for the missed payments. Then, it issues the TFRP against that responsible person, not the business itself.
The withheld taxes include Social Security and Medicare taxes (aka FICA taxes) as well as federal income taxes. These taxes are often called “trust fund” taxes because they are held in trust until they are deposited to the IRS. You can get hit with this IRS penalty if you fail to send those withholdings to the IRS on time.
The TFRP is equal to the unpaid withholding taxes. It is not based on the employer’s matching portion of Social Security or Medicare payments. To explain, imagine that you withhold $6200 in Social Security, $1450 in Medicare tax, and $3000 in federal income tax from your employees’ paychecks. When you deposit your payroll tax payment, you should deposit the withheld amounts plus an additional matching amount of $6200 and $1450 for the employer’s portion of FICA taxes.
If you don’t deposit these taxes, the business will incur failure-to-deposit penalties, and eventually, the IRS may assess the TFRP against individuals who were responsible for the issued payments. In this case, the TFRP will be $11,650 – that’s 100% of the taxes withheld from the employees’ paychecks.
How Does the IRS Determine TFRP Liability?
Instead of just sending the business a notice in the mail, the IRS first determines the individual responsible for the unpaid taxes. The process considers two primary concerns:
- Who is responsible for withholding and paying payroll taxes?
- Who willfully did not pay the taxes?
Responsible parties are people who have control over financial decision-making and may be any of the following:
- An employee or officer
- A partnership member
- A shareholder or director
- A Board of Trustees member
- Someone with control and authority over disbursements
- A third party, such as a bookkeeper or payroll service provider
- A professional employer organization (PEO)
Whoever is held responsible must also be found to have willfully avoided payment, meaning that were aware, or should have been aware, of the unpaid taxes, or they intentionally disregarded tax law or were indifferent to it.
For example, if a responsible person withheld the required payroll taxes, but instead of paying the IRS used those funds to cover a different business expense, this shows they willfully failed to comply with tax requirements.
Whoever the IRS finds responsible will have to contend with the TFRP. The IRS may assess this penalty against multiple people related to the same company.
How the IRS Letter 1153 Assessment Works
What does it mean if you receive IRS Letter 1153? First, the IRS has found you liable for unpaid payroll taxes. Letter 1153 proposes a tax assessment based on its findings of missed tax payments. Even though it involves your business or the business you work for, you are personally responsible for the TFRP outlined in the letter.
The letter includes:
- The purpose of the letter — i.e., that the business has not paid its full payroll tax payments for a tax period and that the IRS is assessing a penalty against “you as a person,” as you have been found liable for those unpaid taxes.
- An explanation of the TFRP.
- Your rights to an appeal.
Before you ever receive IRS Letter 1153, the IRS investigates the unpaid taxes and conducts a Form 4180 interview, which leads IRS agents to the responsible party. Then comes the proposed penalty in Letter 1153. You usually have 60 days to appeal if you don’t agree.
How to Respond to IRS Letter 1153
You never want to miss anything on Letter 1153. Pay close attention to the IRS’s reasoning, the penalty amount, and the instructions on the form. If you’re unsure about any of the details, or you’re worried about it, talk to a tax expert who can assist you in responding.
The letter should also include deadlines for your response. Typically, you have 60 days to appeal the proposed assessment before the IRS will automatically assess the proposed penalty. If you agree with the proposal, make sure you pay the penalty and the original amount of owed taxes right away to avoid further collection actions, like additional penalties or even asset seizure.
How to File an Appeal for IRS Letter 1153
Your Letter 1153 will include detailed instructions on how to appeal the proposed assessment if you don’t agree. You’ll need to file a protest or appeal. Your response needs to include all additional documentation and information that supports your case for the IRS to consider.
The letter states that you have 10 days to contact the IRS agent on your letter to “resolve the matter informally.” To initiate an appeal, follow these steps:
- Send your appeal to the IRS using the agent’s name and address on your Letter 1153.
- If your penalty is $25,000 or less, you’ll send an appeal letter that includes a copy of your letter, your personal information, a statement requesting a conference, and an explanation of why you disagree with the penalty and what your responsibilities are related to collecting and paying payroll taxes.
- If your penalty is over $25,000, your response needs to be a bit more formal as a written protest. This document includes additional details for your IRS appeals officer, including the applicable tax period, a statement that you want a conference, a list of the items you don’t agree with, a statement of fact under the penalties of perjury that supports why you disagree, and an explanation of your responsibilities related to paying the taxes.
You can represent yourself with the IRS, but working with a tax expert can help your chances of obtaining your desired outcome. A professional can negotiate on your behalf and explain tax law so you don’t miss anything important when pursuing a TFRP appeal.
Remember to act quickly with your appeal since you have limited time to start your dispute before the IRS will move forward with the proposed TFRP assessment.
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Estamos comprometidos a encontrar solucionesLearn MoreTips for Preventing TFRP Assessments
Fortunately, you can take steps to avoid future tax penalties related to your business. Follow these tips to stay in good standing with the IRS:
Be Proactive with Tax Planning
Tax planning should be a top priority for the business. Instead of scrambling at the last minute to file tax returns and pay taxes, make taxes a daily focus. Make sure that all employees involved in taxes and payroll understand their roles and responsibilities to avoid confusion and mistakes. Being proactive will help you ensure you never miss a deadline.
Use Automated Tools
Another way to avoid missed deadlines is to rely on automated tools, whether it’s setting calendar reminders and notifications or setting up automated tax deposits. A lot of payroll software will withdraw taxes from your account on the day you pay your employees, and then, the software will remit the taxes when they’re due. This way, your processes move smoothly, and you lower your risk of being late.
Conduct Regular Internal Audits
Internal audits can help you identify areas of your tax processes that need more resources. Look for gaps in workflows that are getting in the way of compliance, and ensure you’re using the best tools possible for withholding taxes from paychecks and sending them to the IRS.
Prioritize Payroll Tax Deposits
Within the business, there are a lot of expenses to manage. Taxes are just one of them. However, many other expenses may not come with significant consequences, like penalties from the IRS and further legal action, like asset seizure. This means you should prioritize paying taxes on time, even when your cash flow is tight.
Never Ignore IRS Notices
It can be tempting to ignore IRS notices, hoping they go away or don’t really apply to you. But ignoring notices will only lead to more issues with the IRS. Even if you disagree with the information on Letter 1153, you still need to respond and take steps to resolve the matter. Avoid further escalations by acting quickly.
Get Professional Help
Many businesses may rely solely on internal employees for payroll and taxes. However, when you don’t have a dedicated expert focusing on these tasks, it’s easier to make costly errors and not give taxes the attention they need. Work with an outside tax professional for guidance.
FAQs About IRS Letter 1153
Why Did I Receive Letter 1153?
Anyone involved in a business and its financial management may receive IRS Letter 1153 if the IRS finds them responsible for missing a payroll tax payment deadline. This letter proposes a Trust Fund Recovery Penalty amount based on the taxes the business owed but didn’t pay.
How Long After Sending Letter 1153 Does the IRS Have to Assess the Penalty?
The IRS will assess the proposed penalty if you don’t move forward with a protest or appeal within 60 days of the letter’s date. After that time, you will be assessed that penalty amount and still be required to pay the unpaid tax amount.
What Records Do I Need to Send for a TFRP Appeal?
You’ll need to provide any documentation that helps you explain why the TFRP is wrong or show that you were not responsible for the tax withholding and payment.
What If I Can’t Pay an Assessed TFRP?
You can usually set up a payment plan with the IRS if your business can’t afford its tax bill or if you can’t afford to pay the TFRP in full. Talk to a tax professional when you’re not sure what to do after receiving IRS Letter 1153. In limited cases, you may be able to get an offer in compromise on a TFRP assessment.
Get Help Responding to Letter 1153 with 20/20 Tax Resolution
Dealing with the Trust Fund Recovery Penalty isn’t easy. This is a very high penalty, and the IRS goes through a rigorous process to determine who is responsible for paying payroll taxes within the business to then propose the TFRP.
Whether you can’t pay the penalty right now or you disagree with the proposed assessment in Letter 1153, the team at 20/20 Tax Resolution is here to help. We’ll help you respond with an appeal request or understand your options for paying off the penalty and tax debt. Our team of tax experts personalizes our approach for your business’s unique tax situation.
Get help with payroll tax issues now to prevent future TFRPs and other penalties. Contactar con 20/20 Tax Resolution to get started.
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