Definition of a Responsible Person as defined by the Internal Revenue Service
1.
A “responsible person” is one who has the duty to perform or the power to direct the act of collecting, accounting for, or paying over trust fund taxes. When evaluating responsibility, consider the Supreme Court decision in Slodov v. United States, 436 U.S. 238, 78-1, USTC 9447 (1978).
2.
Most trust fund recovery penalty cases involve officers of corporations. However, a responsible person may be one or more of the following:
1.
an officer or employee of a corporation
2.
a member or employee of a partnership
3.
a corporate director or shareholder
4.
a related controlling corporation
5.
a lender, a surety, or any other person with sufficient control over funds to direct disbursement of the funds, or
6.
in some cases, a person assuming control after accrual of the liability.
3.
In each situation, determine who had a duty to see that taxes were withheld, collected, or paid over to the government at the specific time the failure occurred. There can be more than one responsible person.
Definition of Willfulness by the Internal Revenue Service
1.
The trust fund recovery penalty is a civil penalty; so the degree of willfulness in failing to collect or pay over any tax leading to liability for this penalty is not as great as that necessary for criminal proceedings. “Willful” is defined as intentional, deliberate, voluntary, and knowing, as distinguished from accidental. “Willfulness” is the attitude of a responsible person who with free will or choice either intentionally disregards the law or is plainly indifferent to its requirements.
2.
Internal Revenue Service Appeals employees must determine if the actions of a responsible person who permits funds withheld as tax to be used to pay operating expenses of the business are willful. Were the person’s explicit or implicit directions willful to a degree sufficient to make the person liable for the trust fund recovery penalty. There is no need to show that a responsible person had any evil intent or desire to defraud the Government of the withheld taxes. When determining willfulness, Appeals officers must research the large body of Court decisions on this topic.
3. All facts and interviews of third parties are taken into consideration.
Mediation and Arbitration of the Internal Revenue Service
1.
Post-Appeals Mediation takes place while the Trust fund Recovery Penalty is under the IRS Appeals’ jurisdiction, which means the written request for mediation must be made before the case is closed by Appeals.. Arbitration procedures are found in Rev. Proc. 2006-44. Appeals is presently addressing both post-Appeals mediation and arbitration requests on a case-by case basis.
2.
Trust fund Recovery Penalty cases are eligible for Fast Track Mediation . Fast Track Mediation takes place while the Trust fund Recovery Penalty is still under the Internal Revenue Service Collection’s jurisdiction. This program is designed to expedite case resolution. Collection Division provides the taxpayer with Publication 3605, Fast Track Mediation, a Process for Prompt Resolution of Issues. FTM mediation has no impact on the statue, , Fast Track Mediation does not extend the statue. Both the Collection Division and the taxpayer must agree to mediate the case. If Collection and the taxpayer agree to mediate, the Revenue Officer will complete Form 13369 an “Agreement to Mediate” and a “Summary of Issues” . The Revenue Officer will send the forms to Appeals within 3 days of securing the signed Agreement from the taxpayer. Mediators (Appeals employees) will conduct the session, however, they will not have settlement authority. Both parties (Collection Division agent and the taxpayer) must agree in order to reach a resolution.
3.
Jurisdiction and statute of limitation responsibility remains with Collection Division, therefore, the case file is not forwarded to Appeals Division. Local Appeals and Internal Revenue Service Collection Offices will work their own procedures for prompt transmittal of cases to the local Appeals office. Collection will send a copy of the Agreement to Mediate to the taxpayer and/or representative.
1.
The mediator will attempt to schedule the mediation session with the taxpayer and/or taxpayer’s representative and collection within 5 business days after the case is assigned to Appeals
2.
The mediation begins with an initial joint discussion where all parties are present
3.
Both the taxpayer and Collection will be given time to present their position
4.
After the initial joint discussions, the mediator may hold individual discussions with the party
5.
At any time, either party may withdraw from the process prior to reaching a resolution by notifying the other party and the mediator in writing.
4.
The entire process should take 30 – 45 days to complete. If the mediation cannot be held within a reasonable amount of time, the mediator may return the case. The mediator will attempt to bring the parties to a mutual resolution of the issues during the mediation session. If, after a reasonable time, it is apparent that the parties will not reach resolution, the mediator will terminate the mediation session and return the case to Collection Division.
5.
Tax Professional should be consulted for these procedures.
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