IRS Letter 1153 notifies you that the IRS proposes to hold you personally liable for a business's unpaid payroll trust fund taxes through the trust fund recovery penalty. It is a proposal, not a final bill. The letter gives you a limited window, generally 60 days, to appeal before the IRS assesses the penalty against you as an individual.
If you have just opened a Letter 1153, the clock is already running. Call (415) 754-0115 to schedule your free consultation, or send us the details through our contact page.
What the Trust Fund Recovery Penalty Is
When a business withholds income tax and the employee share of Social Security and Medicare from paychecks, it holds that money in trust for the government. If the business does not pay those withheld amounts to the IRS, the trust fund recovery penalty allows the IRS to collect them from individuals personally. The penalty equals the unpaid trust fund portion, which can be substantial for a business that fell behind for several quarters.
The IRS can assess the penalty only against someone who was both a responsible person and acted willfully. Our article on the responsible person standard explains who the IRS typically targets, from owners and officers to bookkeepers with check-signing authority.
What Comes With Letter 1153 From the IRS
Letter 1153 usually arrives after a revenue officer has investigated the business's unpaid payroll taxes, often including interviews with owners and staff. Those interviews are frequently documented on IRS Form 4180, and the answers given there often shape which individuals receive the letter and what it says. The package generally includes:
- The letter itself, explaining the proposed assessment and your appeal rights.
- Form 2751, Proposed Assessment of Trust Fund Recovery Penalty, listing the tax periods and amounts.
- Instructions on how to file a protest with the IRS Independent Office of Appeals.
Be careful with Form 2751
Form 2751 includes a place to sign. Signing it means agreeing to the assessment and generally gives up your right to challenge it in Appeals before assessment. There is no requirement to sign it just because it came in the envelope, and an attorney can review the periods and amounts with you before you decide.
Your 60-Day Window to Appeal
The response deadline in Letter 1153 is generally 60 days from the date of the letter, or 75 days if it was addressed to you outside the United States. If you do nothing, the IRS can assess the penalty and begin collecting from you personally, including through liens and levies.
How a protest works
Depending on the amount involved, the IRS asks for either a formal written protest or a simpler small case request. A formal protest generally states that you want to appeal, identifies the letter and tax periods, lists the facts and law you rely on, and is signed under penalties of perjury.
Arguments commonly raised in a protest
- Not a responsible person: you lacked real authority over which bills got paid, even if you had a title or could sign checks.
- Not willful: you did not know the taxes were unpaid, or you acted promptly once you learned.
- Wrong periods or amounts: deposits were made but not credited, or the calculation includes non-trust-fund amounts.
- Timing issues: the proposed assessment falls outside the period allowed by law.
What Happens if You Miss the Deadline
Missing the 60-day window does not end every option, but it narrows them. After assessment, the IRS can pursue collection against you individually. Some taxpayers then challenge liability by paying the trust fund amount for one employee for one quarter and filing a claim for refund, which can lead to a refund suit in federal court. Others focus on collection alternatives, such as an installment agreement or other relief. These paths are more involved than a timely protest, which is why acting within the original deadline matters.
How an Attorney Helps With a Letter 1153
A trust fund penalty case turns on facts: who made payment decisions, what each person knew, and when. Through our tax law and IRS dispute resolution practice, attorney Bob Somal represents small business owners, officers and employees across Pleasanton, the Tri-Valley, and Alameda and Contra Costa Counties. An attorney can:
- Review the revenue officer's file and the Form 2751 figures for errors.
- Gather bank signature cards, corporate records and emails that show who controlled payments.
- Prepare and file a timely protest and represent you before IRS Appeals.
- Coordinate with the business's broader tax situation, including whether the company can pay the trust fund portion.
If the business is still operating and payroll taxes keep falling behind, our article on small business tax debt help covers the bigger picture.
Frequently Asked Questions
Can more than one person receive a Letter 1153 for the same taxes?
Yes. The IRS may propose the penalty against several people for the same unpaid taxes. It collects the total only once, but it can pursue any of the responsible persons until the amount is paid.
Does the business closing make the penalty go away?
No. The trust fund recovery penalty is designed for situations where the business cannot or will not pay, including after it closes. Personal liability can continue even if the company no longer exists.
Can I discharge the trust fund recovery penalty in bankruptcy?
Generally no. Trust fund penalties are treated as non-dischargeable tax debts in bankruptcy. A Chapter 13 plan may still offer a structured way to pay, so an attorney can review whether that fits your situation.
Should I speak to the revenue officer myself after Letter 1153?
Anything you say can affect the responsible person and willfulness questions. An attorney can handle communications under a power of attorney so the facts are presented clearly and consistently.
A Letter 1153 is time-sensitive, and the decisions made in the first weeks shape the outcome. Call (415) 754-0115 to schedule your free consultation with The Somal Law Firm, or reach us through the contact page. We will review the proposed assessment, explain your appeal options, and help you meet the deadline.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.