To encourage the prompt payment of withheld income and employment taxes, Congress passed a law that provides for the Trust Fund Recovery Penalty. The IRS may assess this penalty against anyone who is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and who willfully fails to collect or pay them. For willfulness to exist, the responsible person must have known about the unpaid taxes and have used the funds to keep the business going or allowed available funds to be paid to other creditors.

This penalty may be applied whether or not the business is out of business. Once this penalty is assessed against the responsible person or persons, the IRS will proceed with collection efforts against each individual held responsible.