Letter 1153: The Trust Fund Penalty and Your 60 Days

Your business fell behind on payroll taxes. A revenue officer started asking questions, maybe sat down with you for an interview, and now you have Letter 1153 in your hand. It says the IRS proposes to assess a penalty against you personally, and it gives you a deadline to appeal.

That letter is the Trust Fund Recovery Penalty, and it is one of the most serious things the IRS can do to a business owner, officer or bookkeeper. The penalty follows you even if the business closes. But Letter 1153 also opens a window to fight it, and that window is short. Here is what I would do.

What the penalty is

When a business pays wages, it withholds income tax and the employees' share of Social Security and Medicare tax. That money is held "in trust" for the government. If the business does not pay it over, IRC 6672 lets the IRS assess a penalty equal to the unpaid trust fund amount against any person who was:

• Responsible, meaning required to collect, account for and pay over the tax, and
• Willful, meaning the person willfully failed to do so.

The penalty covers the trust fund portion, not the employer's own share of payroll taxes. More than one person can be held liable for the same penalty, and IRC 6672(d) gives a person who pays more than a proportionate share the right to recover from the others in a separate proceeding.

There is a narrow statutory exception in IRC 6672(e) for unpaid, volunteer board members of tax-exempt organizations who serve in an honorary capacity, do not take part in day-to-day or financial operations, and do not have actual knowledge of the failure. The exception does not apply if it would leave no one liable for the penalty.

How you got here: the Form 4180 interview

Before issuing Letter 1153, the revenue officer typically tries to interview each potentially responsible person using Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. The questions go to who signed checks, who decided which bills got paid, who handled the payroll returns, and when you knew the taxes were not being paid.

If you have not been interviewed yet, do not do it without representation. Your answers on Form 4180 are often the core evidence of responsibility and willfulness. The officer may also use bank signature cards and canceled checks, sometimes obtained by summons. See what an IRS summons requires.

What Letter 1153 does

IRC 6672(b) says the penalty cannot be imposed unless the IRS first notifies you in writing, by mail or in person, that you will be subject to it. That notice must precede any notice and demand for payment by at least 60 days. Letter 1153 is that notice. It comes with Form 2751, Proposed Assessment of Trust Fund Recovery Penalty, which lists the periods and amounts.

Under IRM 5.7.6.4, to preserve your appeal rights you must send a written appeal within 60 days of the mailing or personal delivery of Letter 1153, or 75 days if the letter is addressed to you outside the United States. The letter also tells you that you may contact the revenue officer within ten days if you disagree, have more information, or want to resolve the matter informally. An informal conversation does not replace the written appeal.

Your 60 days, step by step

1. Write down the delivery date. The clock runs from when the letter was mailed or handed to you. Find the envelope. Count 60 days and mark it.
2. Do not sign Form 2751 unless you agree. Signing it agrees to the assessment. IRS procedures treat a signed Form 2751 as final only after the 60-day period passes, so a change of mind is possible, but do not count on that. If you believe you were not responsible or not willful, or the numbers are wrong, do not sign.
3. Figure out which type of appeal you need. IRM 5.7.6.4 sets the rule by dollar amount, as shown below.
4. Gather your evidence. Corporate records showing who had authority, bank signature cards, emails showing who made payment decisions, and proof of payments that may not have been credited.
5. File the written appeal on time, by a method that proves the date. Use certified mail and keep the receipt.

Proposed amount	Type of appeal
$25,000 or less for the period	Small Case Request
More than $25,000 (one period or the total of all periods)	Formal Written Protest

Under IRM 5.7.6.6, a Formal Written Protest should include your name, address and Social Security number, a copy of Letter 1153 or its date and number, a statement that you want a conference, the tax periods involved from Form 2751, the issues you disagree with and why, any law you rely on, and a penalties-of-perjury declaration. If a representative signs it, a different declaration applies. A Small Case Request is simpler, but it still needs a statement that you want an Appeals conference and a list of the issues you dispute.

Form 12153 is not the right form here

People often grab Form 12153, Request for a Collection Due Process or Equivalent Hearing, because it is the best-known IRS appeal form. That form is for collection due process rights after a lien filing or a levy notice. The response to Letter 1153 is the written protest or small case request described in the letter. Worse, the IRM notes that someone who received Letter 1153 may not get another opportunity to contest the penalty's correctness or amount later in a collection due process hearing. If you skip the Letter 1153 appeal, you may lose your best chance to argue the merits before the penalty is assessed.

Fast Track Mediation

Trust fund penalty cases are eligible for Fast Track Mediation - Collection, described in Publication 3605. Both you and the revenue officer must agree to it. The IRM is clear that choosing mediation does not stop the 60-day clock. File your protest on time anyway.

What happens after you protest

A timely protest sends the case toward the IRS Independent Office of Appeals. Under IRC 6672(b)(3), when a protest is timely, the assessment period does not expire before the later of 90 days after the letter was mailed or delivered, or 30 days after the final administrative determination on the protest.

If the penalty is assessed, you are not out of options. IRC 6672(c) provides a path to stop levy while you contest the penalty in court: within 30 days after notice and demand, pay at least the minimum amount needed to start a court case, file a refund claim, and post a bond equal to one and a half times the remaining penalty. That is a technical route with its own deadlines, and it needs a lawyer.

What not to do

• Do not let the 60 days pass while you wait to hear back from the revenue officer.
• Do not sign Form 2751 to "make it go away" unless you have decided you are liable.
• Do not keep paying other creditors ahead of current payroll taxes. Paying other bills while trust fund taxes go unpaid is the kind of fact the IRS uses to show willfulness.
• Do not file Form 12153 as your response to Letter 1153.
• Do not assume closing the business ends it. The penalty is personal.

Get help while the window is open

Responsibility and willfulness are fact-heavy questions, and the 60-day window is the time to frame those facts. If a revenue officer is still active on the business account, read what to do when a revenue officer is at your door, and keep the IRS deadlines you cannot miss close by.

Our office represents business owners and officers in trust fund penalty investigations and appeals. Learn more at GetIRSHelp.com or call (813) 229-7100. Have Letter 1153, Form 2751 and the envelope with you when you call.