Source: http://dicknorton.com/trust.htm
Timestamp: 2020-01-29 01:34:37
Document Index: 37860797

Matched Legal Cases: ['§3505', '§31', '§6672', '§6672', '§523', '§6672', '§6672', '§6672']

Many taxpayers believe that if they operate as a Corporation, their personal assets are shielded by the "corporate veil." In many instances, that is true. However, Federal (and most state) payroll (and excise) taxes are an exception. If a Corporation does not pay their income tax withholding and withheld Social Security taxes, the IRS can - and almost always will - pursue its collection from officers, directors, stockholders, key employees and anyone else who could possibly be held liable for the Trust Fund Recovery Penalty (TFRP) under the Internal Revenue Code Section 6672(a). Most states has similar statutes - such as the EDD in California that will assert a "personal liability" to an officer, shareholder or employee deemed willful and responsible for the unpaid employment taxes.
Section 6672 applies to trust fund taxes imposed by Section 7501 of the Internal Revenue Code. It does NOT apply to the corporaton's portion of the social security taxes, interest and late payment penalties.
Wife was sole shareholder, chairman of the board, and vice president of the corporation, and had check-signing authority. She held these positions to enable the company to enter into contracts and obtain a line of credit because she was not encumbered by her husband's lien. She was not involved in day-to-day operation of the corporation and delegated her authority to sign on its payroll account to her husband. Nevertheless, the 4th Circuit held that she was liable for trust fund recovery penalties for unpaid payroll taxes as a "responsible person" because she possessed both legal and actual authority over the business. Her husband could not avoid liability for payroll taxes by making his wife the sole owner and officer, and then having her delegate her authority to him. Johnson v. U.S. , 112 AFTR 2d 2013-XXXX (4th Cir.).
The payor is not required to ascertain how the funds will be used. Nevertheless, when the loan payor has actual notice or knowledge that the proceeds of the loan are to be specifically used to pay net wages, §3505(b) can apply. Treasury Regulation §31.3505-1(b)(3).
The Revenue Officer (RO) assigned the Corporate case, upon determining that the taxes are not readily collectible from the Corporation, will begin an investigation to obtain evidence to establish willfulness and responsibility of potential individuals. The RO will summons bank records (such as cancelled checks, signature cards and corporate resolutions), interview potentially liable persons and secure corporate records, such as tax returns, articles of incorporation, etc. This is discussed in Exhibit 5601-1 of the Internal Revenue Manual ("IRM").
An Appeals Officer will hold a conference and consider the taxpayer's arguments. If, after the conference, the taxpayer and the IRS cannot agree, the taxpayer's only recourse is to wait for the IRS to assess the tax against him, pay it (or a divisible portion of it), and file a claim for a refund. If only a divisible portion of the tax is paid (such as one employee's tax for one quarter of the corporation's unpaid tax liability), the taxpayer has the additional requirement of posting a bond. See IRC §6672(b) and IRM 5755.2
Once the tax has been assessed against the responsible person and any appeal and/or litigation has been exhausted, he or she must deal with the Collection Division of the IRS. Several relevant issues are worth noting:
b) The IRS can, and frequently does, pursue collection of the Penalty against more than one responsible person. However, IRS can retain only the amount equal to the employer's trust fund taxes, together with interest. See the IRS Policy Statement P-5-60.
The first thing that should be noted is that IRC §6672 taxes are generally not dischargeable in bankruptcy. See §§523(a)(1)(A) and 507(a)(7)(C) of the Bankruptcy Code. Thus any individual against whom the 100% Penalty has been assessed has little or no hope of discharging it through bankruptcy.
IRS MEMO ON DOCUMENTATION REQUIRED FOR SUPPORTING A TFRP CASE
Here is a link to a memorandum released in 2011 to IRS Field Revenue Officers guiding them in the development of a trust fund recovery case.
Presently before the Court are the United States' motion to dismiss the com [pg. 2005-1751] plaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted, and Brewer's motion to allow amendment to the pleadings. Because Brewer's complaint is untimely, the Government's motion to dismiss will be GRANTED. Because the proposed amendment would be futile if allowed, Brewer's motion to allow amendment to the pleadings will be DISMISSED as moot.
Before the Court is the United States' Motion to Dismiss (Court's Doc. No. 16). Having reviewed the motion, Defendants' brief, and the record, it is recommended that Defendants' motion be granted for the reasons stated herein.
All references to Rules herein are to the Federal Rules of Civil Procedure unless indicated otherwise.
Defendants also argue that the United States is the only proper defendant for two reasons. First, they argue, the IRS is an agency of the United States and, as such, it enjoys sovereign immunity. Congress has not waived this immunity. Thus, they argue, the IRS is not an entity subject to suit and the United States is properly substituted in its place.
10/2008 Court Case:
Trust fund recovery penalty. A federal appeals court has ruled that the president of a day care facility's board of directors was a responsible person liable for the IRC §6672(a) trust fund penalty. Under IRC §6672(a), when an employer fails to properly pay over its payroll taxes, the IRS can seek to collect a penalty equal to 100% of the unpaid taxes from a “responsible person,” i.e., a person who: (1) is responsible for collecting, accounting for, and paying over payroll taxes; and (2) willfully fails to perform this responsibility. In this ruling, the president played an active role in various aspects of the day care facility's operation and could have ensured that it paid its taxes, but chose instead not to exert any authority over these business affairs. Further, he didn't qualify for the protection from the penalty given voluntary board members under IRC §6672(a) [Jefferson v. U.S., CA 7, 102 AFTR 2d 2008-6572, 10/8/08].