What Is Form 2751 and How Should You Respond?
Understand the IRS process for assigning personal liability for unpaid business taxes and how to navigate the formal response required by Form 2751.
Receiving Form 2751, “Proposed Assessment of Trust Fund Recovery Penalty,” is a formal proposal from the IRS to hold you personally liable for a business’s unpaid payroll taxes. This document is not a final bill but indicates an IRS investigation has concluded you may be a “responsible person” who “willfully” failed to remit these taxes. The form, attached to a Letter 1153, informs you of the proposed penalty and provides a specific timeframe to either agree with the assessment or formally dispute it.
Understanding the Trust Fund Recovery Penalty
When an employer runs payroll, it withholds amounts from an employee’s wages for federal income tax, Social Security, and Medicare. These are called “trust fund taxes” because the employer holds them in trust for the U.S. government. The Trust Fund Recovery Penalty (TFRP), established under Internal Revenue Code Section 6672, is a collection tool the IRS uses when a business fails to pay these taxes. It allows the agency to assess the unpaid trust fund taxes directly against individuals.
To impose the TFRP, the IRS must determine that two conditions are met. The first is “responsibility,” which looks beyond job titles to an individual’s actual authority and control over the company’s finances. A responsible person could be a corporate officer, director, shareholder, or a bookkeeper who had the power to decide which creditors were paid. The factor is whether the person had significant, independent judgment in financial matters.
The second condition is “willfulness.” Willfulness does not require a bad motive or evil intent. It is defined as a voluntary, conscious, and intentional decision to pay other business expenses, such as rent or suppliers, while knowing the trust fund taxes were due. Acting with reckless disregard for whether the taxes would be paid can also satisfy the willfulness standard.
Information Required to Respond to Form 2751
If you disagree with the proposed penalty, you must challenge the IRS’s findings by gathering evidence to support your position. This evidence should demonstrate that you either lacked the authority to direct payments or did not intentionally disregard the tax obligation. Key documents to collect include:
- Corporate bylaws or operating agreements that define roles and responsibilities
- Bank signature cards showing who had check-signing authority
- Canceled checks
- Board meeting minutes that record financial decisions
- Payroll records
- Relevant correspondence with other business partners or financial advisors
Testimony from other employees or partners clarifying your specific duties can also strengthen your case.
The Formal Response Process
If you agree with the proposed assessment, you must sign and date Form 2751 and mail it to the IRS address on the notice. By signing, you consent to the assessment and collection of the penalty against you personally. Once the IRS processes the form, the penalty will be officially assessed, and collection activities can begin.
To appeal the penalty, you must mail a formal written protest to the IRS office listed on the Letter 1153 within 60 days of the letter’s date. This protest is not a specific form but a detailed letter explaining your disagreement. You must include copies of all the supporting documents you gathered to challenge the findings of responsibility and willfulness.
After the IRS receives your timely appeal, it will send an acknowledgment letter. The case will then be transferred to the IRS Independent Office of Appeals for a hearing.
Consequences of the Penalty Assessment
If you agree to the penalty, lose your appeal, or fail to respond within the 60-day window, the proposed TFRP becomes an official assessment and a legally enforceable personal debt. This liability is generally not dischargeable in bankruptcy, meaning it will follow you regardless of the business’s fate.
Once assessed, the IRS can file a Notice of Federal Tax Lien, which is a public claim against all your current and future property. This lien can damage your credit and ability to obtain financing.
The IRS can also issue levies to seize your assets, such as freezing funds in your personal bank accounts. The agency can also garnish your wages, requiring your employer to send a portion of your pay directly to the government.