I am a former IRS Agent, a Revenue Officer for over 10 years with the IRS as well as a tax instructor with the IRS.

Contrary to popular belief it is not necessary for the IRS to set up the trust fund penalty and all cases. IRS tries to bully there way thru this process but the IRM, the bible of IRS specifically says that determinations of collectibility should be made BEFORE the liability of the trust fund is asserted.

See this IRM section .5.7.5.2 (04-13-2006)

Before the IRS sets up the trust  fund penalty they must makes collectibility determinations to see if the liability should be asserted. To set up the penalty when the case has no collection potential is poor judgement.

The IRS will use these  factors for there determination of the collectibility of the trust tax penalty:

1. IRS will secure Form 433–A, Collection Information Statement  for Wage Earners and Self-Employed Individuals. IRS may use short form  Form 433-F.

2. If the case is over $100k they will always use the 433A, the longer of the IRS financial statements.

3. All financial information needs to be financial info within the last 12 months.

4. Each Revenue Officer will use there gut feeling on each case.

5. IRS will check to see if bankruptcy has been filed.

6. Income history and income potential will play a role.

7. Asset potential (likelihood of increase in equity in assets and taxpayer’s potential to acquire assets in the future)

8. IRS will check to see if prior trust fund penalties have been set up.

9 IRS will check on the existence of prior Currently Not Collectible (CNC) cases

10. IRS will research the taxpayer’s information by using the  internal and external sources, as well as any other applicable sources, to verify and determine collectibility.

You should always hire a true IRS Tax Expert in dealing with these IRS problems. Your best representation is always former IRS Agents.