After a Trust Fund Recovery Penalty is assessed: pay, settle or challenge

After assessment, you'll receive individual balance-due notices for the penalty. It's collected like any personal federal tax: the IRS can file a federal tax lien, levy wages and bank accounts after a final notice with 30 days to request a Collection Due Process hearing, and offset your refunds. Interest accrues at 7% a year from assessment. The 10-year collection statute starts at assessment.

• Installment agreement — individual plans are available; the Simple Payment Plan limit for individuals is $50,000.
• Offer in Compromise — based on your reasonable collection potential; a doubt-as-to-liability offer is also possible if you dispute responsibility.
• Currently Not Collectible — if you can't cover basic living expenses.

Payments by the business or other responsible people reduce the shared trust fund total, so track them.

Generally you must pay a tax in full before suing for a refund. The TFRP is treated as divisible — it's a separate liability for each employee for each quarter — so you can pay the trust fund amount attributable to one employee for one quarter, then file Form 843 claiming a refund. If the IRS denies the claim or doesn't act within six months, you can sue in U.S. District Court or the Court of Federal Claims. The government typically counterclaims for the rest of the penalty, so the whole liability gets decided.

Missing the 60-day Letter 1153 window doesn't end your options. You may be able to raise liability in a Collection Due Process hearing if you didn't have a prior opportunity to dispute it, file an Offer in Compromise based on doubt as to liability, or use the refund route above.

TFRP assessments are generally priority tax claims that aren't discharged in personal bankruptcy, though a Chapter 13 plan can spread payment. Talk with a bankruptcy attorney experienced in tax claims. For a broader view, see the TFRP overview or run the business assessment and select "personal liability assessment".