The trust fund penalty is an absolute killer. It is important you absolutely know how to defend it so you do not become the target of IRS collection enforcement. A Revenue Officer like I once was, will administer the Trust Fund Penalty.

As a former IRS agent and teaching instructor I worked, accessed and collected trust fund taxes from officers and employees of corporations that were liable under IRC 6672.

As corporations, companies struggle for funds to keep there businesses afloat, many times they decide that they can’t pay payroll taxes and they use those funds to cover their bills.

As they stop making tax deposits the liabilities it just snowballs.It gets out of control fast.

When this happens, the IRS has the right to assert the trust fund penalty after those responsible while the company is in business or out of business. As the IRS goes after these so called responsible persons they do so a what IRS sometimes calls, protective assessments.



What is the trust fund penalty under 6672.

Basically, if you do not pay your 941 taxes i.e. withholding and Social Security, the federal government has the right to impose those taxes you held in trust against you personally or any responsible persons of your corporate or entity responsible for the tax and thus collect the money from you on an individual basis.

Most Trust fund cases involve officers of corporations.

However, a responsible person may be one or more of the following:

A. an officer or employee of a corporation
,
B. a member or employee of a partnership
,
C. a corporate director or shareholder,

D. a related controlling corporation,

E. employee of a sole proprietorship
,
F. limited liability company (LLC) member, manager or employee
,
G. a Payroll Service Provider (PSP)H. a responsible party within a PSP
,
I. a Professional Employer Organization (PEO)
,
J. a responsible party within a PEO,

K. a responsible party within the common law employer (client of PSP/PEO)

L. a lender, a surety, or any other person with sufficient control over funds to direct disbursement of the funds, or
,
M. in some cases, a person assuming control after accrual of the liability.


How does one become responsible? 



What is the Definition of Willfulness?

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.

This is a civil proceeding and not criminal.

Willfulness in the context of the TFRP 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.

Some factors to consider when determining willfulness are:

a. Whether the responsible person had knowledge of a pattern of non-compliance at the time the delinquencies were accruing,

b. Whether the responsible person had received prior IRS notices indicating that employment tax returns have not been filed, or are inaccurate, or that employment taxes have not been paid,


c. The actions the responsible party has taken to ensure its Federal employment tax obligations have been met after becoming aware of the tax delinquencies.




How does IRS make there decision and who make them???

A Revenue Officer like me back in the day will do that.

If the company does not provide IRS with bank signature cards and corporate resolutions, IRS simply issues at 2039 form SUMMONS for information from the banks or financial institution.

Each trust fund recovery penalty before goes to the system must have sufficient documentation and there’s a checklist that must be attached is the case moves forward.

There is a internal form 4183, that the IRS uses to make sure the revenue officer did their due diligence to support their decision on who are responsible officer was under 6672 of the IRC code.

It is not very difficult to find out who is responsible, like I said before just follow the money and that’s it!

The use of the IRS form 4180 is very critical investigation who determine business financial policy.It is on our company website.

The principal factor that the IRS considers when examining which individuals may or may not be liable for the TFRP is who signs company checks.

As we say in IRS, follow the money and you will find the responsible.

I am former IRS agent instructor & administered hundreds upon hundreds of trust fund recovery penalties and I am an IRS expert trust fund tax situations.

How do you find out if you are responsible for the trust fund penalty

The revenue officer working the case also and you IRS notice 2751 which breaks out the trust fund liability and a forum 1153 with your appellate rights.

It is always best to appeal your tax assessment.

You must take this serious because this becomes an individual assessment and IRS has their full enforcement powers to go ahead and collect these back taxes. This is just like owing individual taxes, bad news.



How to Defend the IRS Trust Fund Penalty

FIND SOMEONE TO BLAME AND RIDE IT TO THE BANK

The use of the IRS form 4180 by the RO is very critical to investigation. You must know the form and the questions the IRS will ask, so be prepared.

The RO determines many things including the business financial policy. As a Former IRS agent I took massive amounts of these 4180 interviews.

The RO will ask a series of questions on the form that will start to point to the responsible persons. Page 2 is critical.Keep in mind, along with the answers and facts and the documentation is king.

IRS will look closely at those who filed and review tax returns, who signed the checks, sign contracts, who signed for loans, who made day-to-day decisions, who paid the bills, who decides what bills not to pay, and who ran the show.

The RO can contact former employees, bank officers, anybody they can find to interview, the secretary is a great source of information.

The principal factor that the IRS considers when examining which individuals may or may not be liable for the TFRP is, who signs company checks.

Now, may times others have signed checks but IRS is looking for ultimate control.Who had the power, who had control.

As we say in IRS, follow the money and you will find the responsible.

In defending responsible persons, it is critical to demonstrate that a person lacked the financial control exhibited by the foregoing factors through such things as company business records, involving the business, contracts, and affidavits from third parties, and providing statements to the IRS.What you are proving is that someone was controlling and directing you.

You must build your own case that you were being controlled of directed by others.

The IRS Revenue Officer.

The TFRP investigation is conducted by a revenue officer from the IRS’s collection unit. The revenue officer typically requests bank signature cards, cancelled checks, corporate resolutions and other business records to identify potential responsible persons.

If the company does not provide these documents voluntarily, administrative summons, a form 2039 will be used to demand the records from the business, banks or from third parties.

The RO usually will follow up with a call or simply send out forms to the company indicating who is responsible, the agent will try to set up as many persons and they can and throw an board net around everyone.

The RO can do as they please because they know you have appeals rights.

If you have been assessed this penalty, by all means, appeal.