Blog · 14 October 2026

Trust Fund Recovery Penalty After Amodio: Willfulness, Corporate OICs and §6672 — What US CPA Firms Should Tell Clients

By Keshav Bansal, CA

Trust fund recovery penalty risk is personal, not just corporate. When a business fails to deposit withheld income tax and the employee share of Social Security and Medicare tax, IRC §6672 can put a 100% penalty on any “responsible person” who willfully failed to collect or pay those amounts. In Amodio v. Commissioner, T.C. Memo. 2026-96 (September 28, 2026), the Tax Court held that a New York construction-company owner who learned payroll taxes were unpaid and then preferred wages, union benefits and suppliers over the IRS still acted willfully—but that collection of his §6672 penalty could not exceed the corporation’s employment-tax liability as reduced by its offer in compromise. For US CPA firms advising closely held businesses, that split holding is the checklist item this season.

What the trust fund recovery penalty covers

Per the IRS employment taxes and TFRP page, trust fund taxes are amounts the employer holds in trust until deposit: withheld income tax and the employee portion of FICA (and, where applicable, certain collected excise taxes). The TFRP equals the unpaid balance of those trust fund taxes. It does not include the employer’s own share of FICA or FUTA.

Two elements must both be present:

• Responsible person. Someone with the duty and power to direct collecting, accounting for and paying trust fund taxes—often an officer, shareholder, partner, LLC member, director or anyone with authority over disbursements. The IRS also lists payroll service providers (PSPs), professional employer organizations (PEOs) and responsible parties inside those firms, plus responsible parties at the common-law employer client.
• Willfulness. The person was, or should have been, aware of the unpaid taxes and either intentionally disregarded the law or was plainly indifferent. No evil motive is required. Using available funds to pay other creditors when the business cannot pay employment taxes is an indication of willfulness.

Assessment typically follows a Form 4180 interview. If the IRS proposes the penalty, the letter gives 60 days to appeal (75 days if addressed outside the United States). Once assessed, collection can reach personal assets through lien or levy.

What Amodio held on willfulness

Thomas Amodio organized Creative Solutions, Inc., a New York construction firm (retail display and millwork) operating as a union shop. During 2015 and 2016, cash-flow problems led to unpaid Form 941 trust fund taxes. Per T.C. Memo. 2026-96 (docket 9959-22L), an office manager and a third-party payroll firm first decided not to pay, without Amodio’s knowledge. After he learned of the delinquencies, he directed available funds to net wages, union benefits and key suppliers so unions would not pull workers.

The IRS assessed TFRPs for quarters ended December 31, 2015, June 30, 2016, September 30, 2016 and December 31, 2016. After Amodio paid some intermediate periods, the dispute focused on the December 31, 2015 and December 31, 2016 quarters. In a Collection Due Process case under §6330(d), Special Trial Judge Carluzzo reviewed liability de novo.

Amodio conceded he was a “person” under §6671(b) but argued he was not willful because he did not start the nonpayment and because paying wages and union benefits was commercially necessary. The court rejected that defense. Citing Second Circuit cases including Hochstein and Rem, it held that willfulness is shown when, after becoming aware of unpaid employment taxes, a responsible person uses unencumbered corporate funds for other purposes. For §6672, an employee owed wages is simply another creditor; keeping the business open does not create a tax-law priority over the United States.

The OIC cap: collection limited to the compromised corporate balance

On July 28, 2020, Creative entered an Offer in Compromise under §7122 that satisfied, in whole or in part, its employment tax for periods including the disputed quarters. The Commissioner argued that Internal Revenue Manual guidance lets the IRS collect the full uncompromised TFRP from the individual even after a corporate OIC.

The Tax Court disagreed on the record before it. It treated §6672 penalties as derivative and joint and several with the employer’s employment-tax liability, and reiterated that the Commissioner can collect a joint and several tax liability only once. Absent a specific reason to collect more, the court held that the IRS could proceed under the Notice of Determination only in amounts that do not exceed Creative’s employment-tax liability for each disputed period as adjusted by the OIC. Exact remaining balances were left for Tax Court Rule 155 computations.

When you negotiate a corporate OIC while officers still face TFRPs, coordinate terms with personal exposure and document remaining trust fund tax by quarter. For payment plans, OICs and Automatic Exemption from Penalty, see our IRS collection alternatives guide.

What to tell closely held business clients

• Payroll first. Withheld employee tax is not working capital. Preferring suppliers, landlords or even net wages after you know deposits are short is the classic willfulness fact pattern Amodio confirms.
• Delegation is not a shield. Office managers and payroll vendors can start the problem; once a responsible officer knows, later preferences still count.
• Multiple people can be responsible. Title alone does not decide it—control over who gets paid does. PSP/PEO arrangements can expand the circle.
• Respond to the proposal letter. Use the 60-day (or 75-day) window and Publication 5 appeals rights before assessment locks in personal collection.
• Corporate relief and personal liability move together. An OIC for the Form 941 debt does not automatically erase every officer’s §6672 assessment; Amodio shows collection from the individual may still be capped by the compromised corporate balance when the record supports that result.

Household-employer clients face a different track (Schedule H and Form W-2), covered in our nanny tax 2026 post. When worker status is disputed at year-end, see the Form 1099-NEC $2,000 threshold guide.

A short firm checklist

• Flag any client with late or missing Form 941 deposits or IRS payroll notices.
• Identify who signs checks, approves payroll and talks to the payroll vendor—before a Form 4180 interview.
• If cash is short, advise that paying net wages or unions after knowledge of unpaid trust fund tax is evidence of willfulness under Amodio and longstanding circuit precedent.
• When negotiating a corporate OIC that covers trust fund periods, document the remaining employment-tax balance by quarter and how it interacts with any assessed TFRP.
• Point officers to IRS Notice 784 and the IRS TFRP page for plain-language warnings about personal liability and third-party payroll arrangements.

Where this fits for Tax Brew readers

TFRP work sits at the intersection of payroll compliance and controversy. If your firm needs capacity on employment-tax reconciliations or notice response while signing professionals own the judgment calls, outsourced tax prep and bookkeeping support for US CPA firms can help. Email info@taxbrewglobal.com.

Check current guidance: this article summarizes IRC §6672, the IRS TFRP page, and Amodio v. Commissioner, T.C. Memo. 2026-96 (September 28, 2026, Docket No. 9959-22L). Confirm the full opinion and any Rule 155 computations before advising. This is general information, not tax or legal advice. Sources as of 14 October 2026.