Received IRS Letter 3585? Defending Your Personal Assets in Trust Fund Recovery Investigations

For a business owner or corporate officer, few pieces of mail are more alarming than an inquiry from the IRS regarding “unpaid Form 941 payroll tax periods.” If you have recently received IRS Letter 3585, or if a Revenue Officer has contacted you requesting a meeting, the stakes have shifted dramatically.

The IRS is no longer just looking at your business; they are looking at you.

Letter 3585 is a notification that you may be held personally liable for the Trust Fund Recovery Penalty (TFRP). This allows the government to pierce the corporate veil and seize your personal bank accounts, home, and retirement savings to satisfy a business debt.

At Kugelman Law, we specialize in this high-stakes area of tax controversy. We represent clients in trust fund recovery investigations and successfully appealed adverse determinations. If you are in the crosshairs of a TFRP investigation, you need immediate legal counsel to navigate the specific legal tests of “responsibility” and “willfulness.”

Understanding the “Trust Fund” Trap (Form 941)

To understand the danger, you must understand the debt. When an employer pays wages, they withhold Income Tax, Social Security, and Medicare from employee paychecks. These withheld amounts are referred to as “Trust Fund Taxes” because the employer holds them in trust for the U.S. government.

If a business fails to file Form 941 or fails to remit these taxes – perhaps using the funds to pay rent, vendors, or utilities to keep the business afloat – the IRS views this as theft. Unlike general business debts, which might be discharged in bankruptcy or limited to the corporation, Trust Fund taxes stick to the individuals responsible for the decision not to pay.

The Investigation Phase: The Form 4180 Interview

The IRS investigation typically begins with Letter 3585, inviting you to a conference. The Revenue Officer’s goal during this phase is to gather evidence to prove you are a “Responsible Person.” They do this primarily through the Form 4180 Interview (Report of Interview with Individual Relative to Trust Fund Recovery Penalty).

This is a trap for the unwary.

During this interview, the officer will ask seemingly innocent questions:

• “Did you have the authority to sign checks?”
• “Did you know the taxes weren’t being paid?”
• “Did you authorize payments to other creditors (like a landlord or supplier) while the taxes were due?”

Answering “yes” to these questions without proper context can seal your fate. The IRS is building a case for Willfulness – which, in tax law, doesn’t mean you had evil intent. It simply means you knew the taxes were due but paid someone else instead.

Who Should Contact Us?

You should contact Kugelman Law immediately if:

• You have received Letter 3585 or Letter 1153.
• A Revenue Officer has requested a “compliance interview” or asked you to complete Form 4180.
• You are a minority shareholder, bookkeeper, or volunteer board member being accused of tax liability.
• Your business is closed, but the IRS is still pursuing you for old payroll taxes.

How We Defend You: The Kugelman Law Approach

We intervene to prevent the IRS from steamrolling you. Our representation focuses on two distinct phases: the investigation and the appeal.

1. Representation in Trust Fund Recovery Investigations

The best time to win a TFRP case is before the penalty is assessed. We act as a buffer between you and the Revenue Officer. When we represent you during the investigation, we:

• Control the Narrative: We ensure you do not make self-incriminating statements during the interview.
• Challenge “Responsibility”: Just because you had check-signing authority doesn’t mean you were the decision-maker. We distinguish between administrative function (signing checks as directed) and financial control (deciding who gets paid).
• Redirect Liability: If you are being targeted simply because you are the “last man standing,” we help direct the IRS toward the actual decision-makers who controlled the funds.

2. Successfully Appealing Adverse Determinations

If the investigation concludes that you are liable, the IRS will issue Letter 1153 (Proposed Trust Fund Recovery Penalty). You generally have 60 days to file a formal protest.

This is a critical window. We represent clients in trust fund recovery investigations and successfully appealed adverse determinations by taking the case to the IRS Independent Office of Appeals. At Appeals, we can argue the “hazards of litigation” – showing the IRS that their evidence is too weak to stand up in federal court.

We have successfully appealed cases where:

• The client was a “check signer” but had no authority to determine which creditors were paid.
• The client was deceived by a partner or superior regarding the status of tax payments.
• The statute of limitations for assessment had expired.

Don’t Face the IRS Alone

The Trust Fund Recovery Penalty is a 100% penalty – meaning if the business owes $100,000 in trust fund taxes, the IRS can collect the full $100,000 from you personally. It is one of the most aggressive collection tools in the federal arsenal.

If you have received an inquiry involving Letter 3585 and Form 941 payroll tax periods, time is your most valuable asset. Contact Kugelman Law today to protect your future from your business’s past.