In general, the IRS imposes a penalty against any person who has the obligation to either collect, or pay over employment taxes that are withheld from an employee’s salary, when those monies are not paid to the IRS. Often this happens, when a business is having financial difficulties and uses the payroll withholding to pay other expenses.
The Trust Fund Penalty is not a true penalty. It is the amount of monies that should have been paid to the IRS, that were taken from the employees wages (federal withholding taxes, and social security). Therefore, it is actually a portion of the the wages which were not paid, and not a true “penalty”. Therefore, this penalty does not include interest and penalties charged against the employer for the failure to pay in the taxes owed. However, once the assessment is made against the person, interest will begin to accrue.
The IRS can collect from an officer, member, partner or other owner or operator of the business. It sometimes comes as a shock to a person that they are liable for the unpaid taxes since they may have been an owner of the business but not in charge of the financial affairs of the business. In addition, the penalty can be assessed against more than one person, but once it collects it from any other party your liability will also be reduced.