Trust Fund Recovery Penalty: What is it?

The Trust Fund Recovery Penalty (TFRP) is a penalty that every director, officer, manager or member of a business should be concerned about.  In various situations, an employer is required to collect and withhold taxes from an employee such as federal income tax, and the employee’s share of FICA taxes which are withheld from the employee’s wages.  When an employer withholds taxes on behalf of an employee, he does so in trust for the benefit of the United States and acts as a fiduciary.  See IRC § 7501.  Per § 6672, any person that is required to withhold taxes from an employee and pay them over to the United States, and willfully fails to do so, will be assessed with the TFRP.  The TFRP is important because it is assessed against an individual person(s) rather than the business.  A person liable for a TFRP is liable for 100% of the amount of trust funds that should have withheld and/or paid over.  Therefore, if a person should have paid over $25,000.00 on behalf of his employees, then the person will be individually liable for the full $25,000.00 to the IRS (plus other applicable interest and penalties). 

In a Short Sale, why does the bank need to sign off?

In a short sale, the seller’s bank may or may not choose to release the seller from any deficiency owed after the short sale is complete.  The seller, therefore, must come to a written agreement with the bank that after selling the house the bank will not be able to pursue the seller for the deficiency.  It is vital for a short seller to seek independent and competent counsel to verify that his interests are protected in the paperwork against the bank.  

What is a Short Sale?

In a residential situation, a “short sale,” as the term is commonly used, occurs when a seller’s bank agrees to accept less than the full amount owed on a loan, in exchange for the bank’s obligation to release the deed of trust on the home.  The seller’s incentive is to get out of a house that he can no longer afford and mitigate damage to his credit report.  The Bank’s incentive is to expedite the sale of the house and reduce the financial loss to the bank.  A short sale is typically faster and less expensive than a judicial or non-judicial foreclosure.  A homeowner considering a short sale should give careful consideration to factors such as junior liens on the property, the homeowner’s credit rating and the tax implications of a potential short sale.