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“The Trust Fund Recovery Penalty Trap”

 

Trust Fund Recovery Penalty (100% Penalty)

The Trust Fund Recovery Penalty (the 100% penalty) is authorized under section 6672 of the Internal Revenue Code.

IRC Section 6672(a) provides the general rule:

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.

Thus, in determining whether to proceed with assertion of the Trust Fund Recovery Penalty, the IRS must determine:

1. Responsibility and
2. Willfulness

A person must be both "responsible" and "willful" to be liable for an employer’s failure to collect or pay over trust fund taxes to the United States. The burden of production of the facts and persuasion is on the taxpayer to prove, by a preponderance of the evidence, that he is not a responsible person who willfully failed to collect, account for, or pay over taxes.

The IRS will request targeted taxpayer's to complete an interview form. The purpose of the questions is to determine liability. Experience has shown that persons do not understand nor appreciate the significance of their responses, and many times, unintended consequences result. The IRS representative is not your friend. He or she is there to achieve the objective of targeting as many persons for the liability as possible.  These forms should never be filled out without the aid and assistance of legal counsel.

 

 

The above limited information is intended for informational purposes only.  If legal advice or other expert assistance is required, the services of a competent professional should be sought, and this general information should not be relied upon without such professional assistance. 

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