There are many factors that the IRS uses to determine who is responsible for the trust fund penalty better known as the TFRP. the Revenue Officer making the determination make a decision using the preponderance of evidence. As a former IRS Revenue Offer, it always leads to somebody. Here are some of the factors used by the IRS
Evidence That May Support Recommendations
In the majority of cases, most of the evidence that can be secured to support recommendations of TFRP will be either corporate records or bank records.
The documentation, including bank records, will be requested from the corporation whenever possible. If the corporation does not provide the requested records, a summons will be served on either the corporation, the bank, or both to secure the required documents
Photocopies of the documentation should be maintained in the TFRP case file as evidence to support the recommendation to assert the TFRP.
Determine on a case by case basis the amount of documentation required to support the recommendation to assert the penalty. There must be sufficient documentation in the file to support each recommendation for assertion. Bank records and copies of the applicable tax returns will be secured on almost every case. If they are not secured, the case file must be documented with the reason(s) why they were not secured and why they are not necessary to support the recommendation.
Corporate records that can be reviewed include:
Articles of Incorporation
Minute Books
Forms 941 and 1120 or 1065
Note:
For cases where the employment tax returns were submitted in an electronic format (E-file or TeleFile), the signature information is not available on the printed document since the forms are signed via an IRS issued PIN. Use Form 4844 to request the specific items below from the appropriate Submission Processing Center. For TeleFile returns, request the “signature document” from the Cincinnati Submission Processing Center (CSPC). For E-File returns, request a “copy of Form 8633” , or if the authorized signer is a Reporting Agent, request a “copy of Form 8655” from the Andover Submission Processing Center (ANSPC). For On-line returns request a copy of the “PIN signature receipt” from CSPC.
Payroll records
Any other records that may be relevant to determining the roles and responsibilities of individuals involved with the corporation
The corporate records will be reviewed to determine:
Duties (and changes to duties) of officers, directors, etc.
Appointments and resignations of officers, directors, etc.
Responsibilities of individuals to file and pay tax returns
Issuance of stock to officers
Assets transferred to officers
Loans made to officers
Unreported payroll and other taxes
Diversion of funds
Borrowing of funds not used to pay taxes
Bank records that can be reviewed include:
Canceled checks and bank statements
Signature cards and correspondence to the bank relative to changes affecting the signature cards
Loan applications and records of loans
Any other records that may be relevant to determining which individuals were involved in the financial affairs of the business
The bank records will be reviewed to determine:
Authority of persons to sign checks and deposit funds
Authority of persons to obligate the corporation by borrowing
Diversion of funds to officers, members, etc.
Deposits and withdrawals of alleged loans to corporation by officers, members, directors, etc.
Excessive salaries, expenses, etc.
Payment of other obligations
Deposit records for monies received for sale of assets
Deposit records of payments for stock in the corporation
IRS also takes a 4180 interview from all parties who it deems may be responsible. You can find this form on our website on the home pages toolbar mark IRS forms. After reviewing the aforementioned information and the 4180, the decision for the IRS becomes very easy.
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