Can a Former Partner be responsible for the Trust Fund Penalty?

The Trust Fund Penalty is a method the IRS uses to shift liability for non-payment of payroll taxes from a corporation or partnership to an individual.  The Trust Fund portion of the payroll taxes is that portion withheld from the employees’ paychecks and not forwarded to the IRS.   It does not include the corporation’s matching FICA.

 

 

Any person in the partnership who has any authority over the way funds are spent is probably liable for the Trust Fund penalty.  Certainly, any partner is liable for the entire Trust Fund and the IRS will try to collect the entire amount from every partner; however, once they collect the total, the partners will not have any further liability.

A partner will only be liable for the Trust Fund penalty associated with those taxes that were collected while he was a partner.  He will not be liable for taxes collected and not paid after he left the partnership.

If a former partner pays all or part of the Trust Fund penalty, he may then file an action in Circuit Court against the other partners to be reimbursed for their share of the penalty because all partners are jointly and severally liable for the Trust Fund penalty.