What is a Civil Penalty?
Internal Revenue Code Section 6672 liability is referred to as the “Trust Fund Recovery Penalty” or “Civil Penalty” and is the legal basis for the federal government to collect “trust fund” taxes. In the context of employment taxes, the term “trust fund” taxes refer only to taxes withheld from employees for the payment of federal income tax and one-half of the Federal Insurance Contributions Act (FICA) that fund Social Security and Medicare programs. Such taxes are reported on the Form 941 tax return that is filed by an entity with W-2 employees on a quarterly basis and reports the gross wages paid, the federal income tax withheld, the sum of employer’s and employees’ FICA liability, and deposits paid. After the deposits (if any) are accounted for, the taxes still owing are to be paid with the return. The unpaid balance due from these taxes may be the subject of a Section 6672 assessment..
