How does the IRS determine who owes the Trust Fund Penalty?

The Trust Fund Penalty (TFP) is not really a penalty but is instead a portion of the payroll taxes a company is required to collect from employees and pay to the IRS.  The employer withholds federal, social security and Medicare taxes from the employee and has to match the social security and Medicare taxes from company funds. This is all then sent to the IRS. The TFP is the total amount the employer withholds from the employee, but not the matching funds owed by the company. When the company does not pay its payroll taxes, the IRS looks for individuals from which it can collect.  Thus, the TFP is imposed on a responsibleparty who is in charge of collecting payroll tax and forwarding it to the IRS.  The term “responsible” is not defined but the Fifth Circuit Court of Appeals looks for certain factors: whether the person (1) is an officer or on the Board of Directors, (2) is a substantial owner of the company, (3) manages the operation, (4) has authority to hire and fire employees, (5) can decide which creditors to pay, and (6) can sign checks.  The more of these you match, the more likely you are to be held responsible.