Trust Fund Penalty
Congress enacted the Trust Fund Recovery Penalty Statute
to encourage prompt payment of withheld and other collected payroll taxes
by allowing the Internal Revenue Service to assert a liability against responsible
third parties [IRC 6672]. The amount of the penalty imposed by the statute for failure
to comply with its provisions is measured by the payroll taxes required
to be collected or collected and not paid over. That is why the liability is referred
to as a "100% Penalty." The penalty is civil in nature, not criminal.
Requirements For Liability
There are two major tests to determine if someone is subject
to the provisions of IRC 6672. They are primarily questions of fact and may be stated
Whether the party against whom the penalty is proposed had the
duty to account for payroll taxes, collect payroll taxes, and turn
over trust fund payroll taxes, including:
- an officer
- an employee of a corporation,
- a member or employee of a partnership,
- a corporate director or shareholder,
- a member of a board of trustees of a nonprofit
- another person with authority and control over
funds to direct their disbursement, or
- another corporation, and
Whether he or she willful failed to perform this duty relating
to the trust fund payroll taxes.
- Must have been, or should have been, aware of
the outstanding taxes and either intentionally disregarded the law or was plainly
indifferent to its requirements (no evil intent or bad motive is required).
- Used available funds to pay other creditors when
the business was unable to pay the employment taxes is an indication of willfulness.
In general, the IRS has the right to pursue any person who, meets
the tests, even if he was not an officer or employee of the corporation which originally
collected the payroll tax problem. The penalty can be assessed against more than
one person. It is not unusual for the IRS to assess the penalty for payroll tax problem
against several responsible persons. In the event that the IRS assesses several
persons for trust fund payroll taxes, it may collect the entire liability from any
of those persons.
Defenses to assertion of the Trust Fund Penalty!
will review the most common defense to IRC 6672 liability, which is that the taxpayer
at issue does not have the Requisite Authority or Intent
to be classified as a responsible person. Where applicable,
TAXAID.us will raise the following
defenses on your behalf:
Lack of Sufficient Authority
Lack of Knowledge
Delegation of Authority
Directions From Others
Defending the Subordinate Employee
Equitable Defense Where Government's Conduct Prevents Collection
of Trust Fund Taxes
Statute of Limitations
Previous Negotiations with IRS
Alcoholism, Drug Addiction and Physical Illness
Section 3509 Relief for Employer Negates Willfulness Under §6672
Where the above-mentioned defenses do not apply and the IRS determines
that you are a responsible person, the IRS will provide you a letter stating that
it plans to assess the Trust Fund Recovery Penalty against you. You have
60 days after the date of the letter to appeal the determination by filing
a Tax Protest. Your case would then be assigned to an Appeals Officer for review.
If you do nothing or fail to timely file a Tax Protest, the IRS will assess the penalty
against you and send you a Notice and Demand for Payment. Thereafter,
the IRS can take collection action against your personal assets including filing
a federal tax lien or taking levy or seizure action.
can advise you of the best course of action to deal with the assessment of the Trust
Fund Recovery Penalty and how best to settle this liability. For many taxpayers,
this typically leads to an Offer in Compromise.
Click here to get Trust Fund help!