Maui life does not stop for a tax problem. Rent is due on the first. The truck still needs gas. And the mail keeps bringing notices from three separate IRS balances at once. That was the situation for one Hawaii client we will call by her situation only. She is a self-employed islander. She owed personal income tax for 2014. She also carried a trust fund recovery penalty from a business payroll problem, assessed two years running. PFGTAX resolved all three balances in a single Offer in Compromise. In August 2021 the IRS wrote off $27,457.93 that remained.

How it started

Years earlier, our client had signed on as a responsible party for a small company’s payroll. That company fell behind on withholding taxes. A revenue officer decided she controlled the money. The IRS assessed her personally under IRC 6672, the trust fund recovery penalty statute. That penalty landed in two separate years. It came to $4,405.07 for 2013 and $9,535.85 for 2014. On top of that, her own 2014 individual return had gone unfiled. The IRS sent a CP59 non-filer notice. PFGTAX got that return prepared and secured with the IRS in November 2018. Once the return posted, it showed $17,053.00 in tax due.

By the time she came to PFGTAX, she was a single wage earner near Kihei. That is the stretch of South Maui known for Kamaole Beach Park and the snorkeling crowds it draws every morning. A quiet beach town does not make an IRS balance any smaller.

Three balances, one after another

The IRS does not treat a trust fund penalty gently, and it moved on this one fast. Here is what she was carrying:

• 2013 trust fund recovery penalty: $4,405.07 assessed August 3, 2015
• 2014 trust fund recovery penalty: $9,535.85 assessed October 19, 2015
• 2014 personal income tax: $17,053.00, plus a $1,653.97 late filing penalty, a $1,653.97 late payment penalty, and $1,399.83 in interest through December 2018

The IRS sent a Notice of Intent to Levy in October 2016. It went unclaimed. By January 16, 2017, the IRS issued an actual levy against the trust fund penalty balance. In July 2018, the IRS certified her as owing seriously delinquent tax debt. That designation can block a passport renewal. Interest kept adding to all three balances every year the case sat open.

What we did

PFGTAX got her 2014 return filed and posted first. The IRS will not seriously negotiate a resolution while a return is missing. Once her filings were current, we pulled her full IRS account transcripts across all three modules. We needed to confirm exactly what each one carried and how it had been assessed. Trust fund penalties and income tax balances sit on separate transcripts with separate collection clocks, so this step mattered.

We built a Form 433-A financial statement next. It reflected her real income, a checking balance under $6,000, and a single older vehicle as her only asset of any value. From there we prepared one Offer in Compromise, filed on Form 656. It covered the personal income tax year and both trust fund penalty periods together. The IRS received the offer on March 12, 2019. Her passport certification came off the following month, once the pending offer put collection on hold. We answered the IRS’s follow up document requests while the offer sat in review.

The outcome

The IRS accepted the offer on November 14, 2019. Our client then had to stay current on filings and payments. That took about a year and a half before the IRS would close the case. She met every condition. On July 2, 2021, the IRS confirmed the offer’s terms were satisfied. One month later, on August 2, 2021, the IRS wrote off what remained across all three modules. That came to $12,058.77 on the income tax year, $4,886.93 on the 2013 penalty, and $10,512.23 on the 2014 penalty. Combined, that is $27,457.93.

Why it matters

A lot of people assume a trust fund recovery penalty is a dead end. They think that because it attaches to a person instead of a business. It is not a dead end. Under IRC 7122 and IRM 5.8, the IRS still has to weigh what someone can realistically pay. That is the same test it applies to any other tax debt. One accepted offer cleared a personal income tax balance and two separate years of penalty exposure at the same time. That happened after a levy and a passport hold had already hit.

If you are carrying a personal tax bill and a trust fund penalty at the same time, do not assume they need two separate fixes.

Carrying a personal tax bill and a trust fund recovery penalty at the same time? Call PFGTAX at 888.572.2179 and we will walk through whether an Offer in Compromise fits your situation.

Frequently asked questions

Can a trust fund recovery penalty really be settled with an Offer in Compromise?

Yes. Under IRC 7122 and IRM 5.8, the IRS can accept an Offer in Compromise for a trust fund recovery penalty the same way it does for regular income tax debt. The penalty is assessed against the individual under IRC 6672, but once assessed it is treated as a collectible tax debt like any other, and the same offer program applies to it.

Do multiple tax debts have to be settled in separate offers?

No. A single Form 656 can list more than one tax period or tax type, as long as the taxpayer includes all required financial documentation for each. Combining related debts into one offer, as PFGTAX did here, keeps the review process simpler for both the taxpayer and the IRS.

How does the IRS decide whether to accept an offer?

Under IRM 5.8, the IRS looks at reasonable collection potential, meaning what it could realistically collect from a taxpayer’s income and assets before the collection period expires. It is a calculation based on documented income, expenses, and equity, not a negotiation over what feels fair.

Can the IRS still levy or flag a passport while an Offer in Compromise is pending?

Once the IRS formally receives a complete offer, active collection generally stops, and an existing seriously delinquent tax debt certification under IRC 7345 can be reversed. Before that point, the IRS can still levy and can still certify a debt as seriously delinquent, which is why filing promptly matters.

Is Currently Not Collectible status a better option than an offer?

It depends on the numbers. Currently Not Collectible status under IRM 5.16 pauses collection without reducing the debt, while an accepted Offer in Compromise can reduce the balance permanently. PFGTAX reviews a client’s full financial picture before recommending one path over the other.

Every case is different. Outcomes depend on a taxpayer’s specific financial situation, and PFGTAX does not guarantee any particular result or reduction in tax debt.

Carrying a personal tax bill and a trust fund recovery penalty at the same time? Call PFGTAX at 888.572.2179 and we will walk through whether an Offer in Compromise fits your situation.