Key Takeaways Employment taxes (income tax withholding + FICA) are held "in trust" — failure to pay them over is treated as misappropriation of government funds The Trust Fund Recovery Penalty (TFRP) imposes 100% personal liability on "responsible persons" — officers, directors, and even bookkeepers IRS enforcement action for employment tax fraud can result in up to 5 years in prison per offense Worker misclassification (treating employees as independent contractors) is a major IRS enforcement target The IRS Employment Tax program has dedicated resources specifically for payroll tax fraud investigations What Is Employment Tax Fraud? Employment tax fraud encompasses any willful failure to properly collect, account for, or pay over employment taxes. These taxes include federal income tax withheld from employees' wages, the employee's share of FICA (Social Security and Medicare) taxes, and the employer's matching FICA contribution. What makes employment tax fraud uniquely serious is the "trust fund" concept. When an employer withholds income and FICA taxes from an employee's paycheck, that money belongs to the government — the employer is merely holding it in trust until the deposit due date. Using those funds for business expenses, payroll, or personal use is treated as misappropriation of government property, not simply a late payment. The Trust Fund Recovery Penalty (TFRP) The Trust Fund Recovery Penalty under IRC § 6672 is one of the IRS's most powerful collection tools. It allows the IRS to assess a penalty equal to 100% of the unpaid trust fund taxes against any "responsible person" who willfully failed to pay them. Who Is a "Responsible Person"? The IRS defines a responsible person broadly — anyone with the duty to collect, account for, or pay over trust fund taxes and the authority to direct payment of creditors. This can include: Business owners and officers (CEO, CFO, President)...