A small children’s daycare business in Kansas shut its doors in 2024, and the owners assumed that was the end of it. It wasn’t. The IRS came back a year later and told them, personally, that they owed more than sixty six thousand dollars. Not the business. Them. That is how a trust fund recovery penalty works, and it catches a lot of small business owners off guard.

How it started

The daycare had fallen behind on payroll taxes, the money withheld from employee paychecks for Social Security, Medicare, and federal income tax. Businesses are supposed to hold that money and hand it over to the IRS on a set schedule. When cash gets tight, it is tempting to use that withheld money to cover payroll or rent instead, telling yourself you’ll catch up next quarter. The daycare fell into that trap across several quarters between 2019 and 2022, and by the time it closed for good in the second quarter of 2024, the unpaid payroll taxes had grown well past what the business itself could ever pay back.

The pressure from the IRS

Here is the part that surprises most owners: payroll tax debt does not disappear when a company closes. The IRS can assign what is called a trust fund recovery penalty, or TFRP, to whoever it decides was responsible for collecting and paying that money. In practice, that usually means the owners. The IRS treated the money the same way whether it came from the business or from the individuals who ran it, and it moved to collect from the owners directly once the company had nothing left to take. For the couple who ran this daycare, that meant a personal balance of roughly $66,000 tied to payroll quarters going back to 2019, attached to their own names and their own credit, years after the business itself had shut down.

What we did

Once the couple hired PFGTAX, our first move was to slow things down enough to get a full and honest picture of where they stood. That meant pulling IRS transcripts to confirm exactly which quarters were assessed and how much interest and penalties had piled on top of the original tax. It also meant building out real numbers on the couple’s current income, expenses, and assets, because the IRS will not agree to a payment plan based on guesswork. It wants documented proof of what a household can actually afford each month.

From there, our team worked directly with the revenue officer assigned to the case, faxing supporting documents and financial records as they were requested and following up to keep the case moving instead of letting it sit. That back and forth is normal and it is often the slowest part of a resolution. Revenue officers carry heavy

caseloads, and cases move at the pace of the paperwork in front of them. We kept pushing the file forward rather than waiting on it.

The goal was not to erase the debt. A trust fund recovery penalty is one of the harder IRS debts to get reduced, since it is treated as money that was already someone else’s and simply never handed over. The realistic path forward was a structured monthly payment the couple could sustain without it wrecking their household budget, and that is what we built the case toward.

The outcome

The IRS approved an installment agreement through Form 433-D, the standard document the IRS issues once it has agreed to accept a monthly payment plan rather than pursue full payment immediately or move to more aggressive collection. Once that form is in the file, the negotiation is over and the terms are set. The couple agreed to pay $675 a month, due on the 15th, with the first payment starting in March 2026. The balance stopped growing in the same uncontrolled way, and just as important, the threat of a bank levy or wage garnishment moved off the table as long as the payments keep coming on schedule.

Why it matters

This case is a reminder that closing a business does not automatically close out what you owe the IRS, especially when payroll taxes are involved. The trust fund recovery penalty exists specifically so the IRS is not stuck writing off unpaid withholding just because the company that owed it stopped operating. If you ran a business that fell behind on payroll taxes, whether it is still open or already closed, the debt likely followed you personally the day the IRS made that determination. Getting ahead of it with real financial documentation and a workable payment plan is almost always a better outcome than waiting for a levy notice to force the issue.

Results depend on each taxpayer’s specific facts and financial situation. PFGTAX does not guarantee any particular outcome or reduction in tax debt.