What Is Letter 1153?

Letter 1153 is a formal notice issued by the Internal Revenue Service (IRS) to individuals or businesses proposing the assessment of a Trust Fund Recovery Penalty (TFRP). The letter is a critical component of the enforcement process under Internal Revenue Code (IRC) §6672(a), which holds certain individuals personally liable for unpaid payroll taxes. These taxes include amounts withheld from employee wages for income tax, Social Security, and Medicare—commonly referred to as trust fund taxes.

The IRS uses Letter 1153 to notify a potentially responsible party that it believes they willfully failed to collect, account for, or remit trust fund taxes. It also offers the recipient the opportunity to appeal the proposed penalty before the assessment becomes final. This letter is not a final bill, but a significant step in the administrative process with strict response deadlines and serious legal implications.

Purpose and Legal Basis

Under IRC §6672, when a business fails to pay withheld employment taxes, the IRS can pursue individuals who were responsible for collecting and paying those taxes and who willfully failed to do so. These individuals are commonly officers, partners, or employees with financial decision-making authority. The government refers to this assessment as the Trust Fund Recovery Penalty, though it is not technically a penalty in the traditional sense—it is a collection mechanism for the tax that should have been remitted.

Letter 1153 is issued after the IRS has completed its investigation and determined that the recipient meets the criteria of a "responsible person" who acted willfully. The letter represents the IRS’s intention to assess the TFRP unless the recipient disputes the determination through either a formal appeal or other acceptable resolution.

Contents of the Letter

Letter 1153 typically includes the following key components:

• A clear statement that the IRS proposes to assess a TFRP.
• Identification of the specific tax periods and amounts involved.
• An explanation of the recipient’s rights to appeal.
• Instructions on how to submit a written protest or request a conference with the IRS Office of Appeals.

Enclosed with the letter is Form 2751, Proposed Assessment of Trust Fund Recovery Penalty, which the recipient is asked to sign if they agree with the IRS’s findings. Signing and returning the form waives the right to appeal and allows the IRS to proceed with the assessment.

Appeal Rights and Deadlines

The recipient of Letter 1153 has a limited time—60 days from the date of the letter (or 75 days if mailed to an address outside the U.S.)—to respond if they want to appeal the proposed assessment. The response must be a written protest outlining specific disagreements with the IRS's findings, including factual and legal arguments. This protest is submitted to the IRS Office of Appeals, which operates independently from the exam and collection divisions.

Failing to respond within the allowed time results in the proposed penalty becoming final. At that point, the IRS can take collection actions such as levies or liens to recover the unpaid taxes from the individual personally.

Implications of the TFRP

If assessed, the Trust Fund Recovery Penalty becomes a personal liability. This means the IRS can pursue the responsible person’s personal assets—including bank accounts, wages, or other property—to collect the amount owed. The penalty is equal to the total amount of trust fund taxes not paid to the government, not a percentage or flat fee.

The TFRP does not discharge in bankruptcy in many cases and can have long-term financial and legal consequences. Moreover, multiple individuals can be found jointly and severally liable, meaning the IRS can collect the full amount from any one responsible party.

Responding to Letter 1153

Recipients should not ignore Letter 1153. Even if they believe they are not responsible, the burden is on them to respond and present their case. Common defenses include:

• Lack of authority over payroll and tax payments.
• Lack of willfulness, meaning the failure to pay was not intentional or was due to reasonable cause.
• Reliance on another party (e.g., a payroll company or another officer) who was primarily responsible.

Consulting with a tax attorney or advisor experienced in TFRP matters is highly recommended to evaluate the situation and determine the best course of action. Providing clear documentation and records can significantly influence the outcome of an appeal.

The Bottom Line

Letter 1153 is the IRS’s formal notification that it intends to hold an individual personally liable for a company’s unpaid trust fund taxes. It opens the door to an appeal but also sets in motion a process that can result in serious financial consequences if ignored. Responding within the allotted timeframe is crucial, whether through agreement or challenge. Anyone receiving this letter should take it seriously and consider seeking professional help to protect their interests.