Cryptocurrency businesses — exchanges, mining operations, DeFi companies, NFT platforms — that employ workers must withhold and remit payroll taxes. When they fail to do so, the Trust Fund Recovery Penalty under §6672 makes responsible individuals personally liable for 100% of the unpaid employee withholding. This is not a corporate liability — it follows you personally.

What Is the Trust Fund

The "trust fund" refers to money withheld from employee paychecks — federal income tax withholding and the employee's share of FICA (Social Security and Medicare). This money belongs to the government from the moment it is withheld. Failing to remit it is treated as a form of conversion — using someone else's money for your own purposes.

Responsible Person

The IRS applies the TFRP to any "responsible person" — someone with the authority to decide which creditors get paid. This includes owners, officers, directors, and sometimes bookkeepers or CFOs. If you had the authority to direct payment of corporate bills and chose to pay vendors instead of payroll taxes, you are a responsible person. Multiple individuals can be assessed for the same liability.

Crypto-Specific Risk

Crypto businesses face heightened payroll tax risk because: (1) revenue is volatile and tied to market conditions, (2) the temptation to use payroll tax funds to cover operating expenses during market downturns is acute, (3) many crypto businesses operated informally in their early stages without proper payroll infrastructure, and (4) compensation paid in tokens may not have been properly processed through payroll.

The Investigation

The IRS investigates TFRP cases through Revenue Officer interviews using Form 4180. They interview everyone connected to the business to determine who was responsible and who was willful. Anything you say during a 4180 interview can be used against you. Attorney representation during this interview is critical.

Resolution

Trust fund penalties can be resolved through installment agreements, OIC, or CNC status — but they cannot be discharged in bankruptcy. Attorney Darrin T. Mish has handled trust fund cases for 32 years. Free consultation.