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“The IRS Trust Fund Recovery Penalty”


Trust Fund Recovery Penalty (100% Penalty)

(also called the 100% PENALTY)

The Civil Penalty, Criminal Exposure, and Civil Injuntions

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.

Trust Fund Recovery Penalty Interview - (copy of form 4180)

The IRS will request targeted taxpayer's, as well as other potential witnesses, to complete an interview form (form 4180). The purpose of the questions is to determine liability (an element of which is “willfulness”). Experience has shown that persons do not understand nor appreciate the significance of their responses.

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 serious nature of the Responsible Person “Interview” and form 4180, is that there exists not only civil liability exposure for the Trust Fund Recover Penalty, but also the potential for criminal prosecution.

As stated by in the U.S. Department of Justice Criminal Tax Manual (copy here 5/2017): 

 the primary focus of § 7202 [criminal prosecution] is on taxes required to be withheld from the gross wages paid to employees”.

Note that this is the same subject as the Trust Fund Recovery Penalty.

The Criminal Statute, 26 U.S. Code § 7202 - Willful failure to collect or pay over tax, provides:

“Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”

Now, let’s look at  26 U.S. Code § 6672 - Failure to collect and pay over tax, or attempt to evade or defeat tax (The Trust Fund Recovery Penalty provision):

“ (a) 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….”

The use of the same terminology in both the Civil and Criminal statues, is cause for concern.

What about your admissions, or making statements, during an interview concerning the Trust Fund Recovery Penalty?  How does the U.S. government view such?

The Department of Justice criminal manual advises that:  Prosecutors should ascertain whether an IRS Form 2751, Proposed Assessment of Trust Fund Recovery Penalty, or an IRS Form 4180, “Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for ExciseTaxes,” was completed during the civil administrative part of the case, because these documents may contain relevant admissions or statements by the defendant.

The U.S. Department of Justice Criminal Tax Manual, further states, in part:

       “Section 7202 enforces the requirement that employers and “responsible persons” withhold trust fund taxes from the gross wages of employees, truthfully account for those withheld taxes, and pay over those taxes to the United States Treasury. Under § 6672, a voluntary, conscious, and intentional act of paying the claims of other creditors, including the wage claims of employees, instead of paying over the trust fund taxes to the IRS,  constitutes a “willful” violation of the duty to pay over. In other words, “[e]mployees to whom wages are owed are but a particular type of creditor,” and a person violates his statutory duty to pay over where he pays the wage claims of employees instead of the employment tax claims of the United States.13 Sorenson v. United States, 521 F.2d 325, 328 (9th Cir. 1975) (holding that “the payment of net wages in circumstances where there are no available funds from which to make withholding is a wilful failure to collect and pay over under § 6672”). The Tax Division has successfully argued in § 7202 cases that repeatedly paying net wages to employees knowing that there are insufficient funds to pay the concomitant withholding taxes constitutes criminal willfulness. See Gilbert, 266 F.3d at 1185 (based upon evidence that the defendant repeatedly paid net wages to his employees knowing that withholding taxes were not being remitted to the IRS, the court agreed that the defendant’s “act of paying wages to his employees, instead of remitting withholding taxes to the IRS, shows that he voluntarily and intentionally violated § 7202.”). (emphasis added)”

What about your “good faith” in just trying to keep that business running? In this regard, the U.S. Department of Justice Criminal Tax Manual states:

 A defendant may argue that she was using the withheld tax to pay current expenses so she could keep the company operating and eventually pay the delinquent tax in the future. Although such facts may affect jury appeal and perhaps how the judge views sentencing, if the government proves the defendant voluntarily and intentionally used unencumbered funds to pay creditors other than the United States, the jury may properly convict even if the intentional non-payment of the known trust fund tax liability was motivated by a desire to keep the business afloat. Cf., Collins v. United States, 848 F.2d 740, 741–42 (6th Cir. 1988) (in a § 6672 case, the court held that “[i]t is no excuse that, as a matter of sound business judgment, the money was paid to suppliers and for wages in order to keep the corporation operating as a going concern—the government cannot be made an unwilling partner in a floundering business.”); Blanchard, supra (evidence at trial showed that in spite of the corporation’s persistent cash shortages and precarious financial condition, the defendant continued to pay net wages to the employees for five years without paying the concomitant payroll taxes). (emphasis added)”.

Upon reading of the above, reflect that the fact patterns in the above examples are not rare. They are very real world situations, and Trust Fund Recovery cases routinely involve similar type fact patterns. Yet, Taxpayer’s continue in their failure to understand the civil and potential criminal exposure they face.

As “they” say, the road to hell is paved with good intentions. This is an area of taxation law that has been referred to as “draconian”, and “a living hell”.  

In its Press Release of April 27, 2016, the Department of Justice reminds taxpayers of the April, 2016 filing deadline (copy of Press Release is here) and reminds employers that they have a legal responsibility to collect and pay over to the Internal Revenue Service (IRS) taxes withheld from their employees’ wages. For employers and other responsible persons who fail to withhold, report, and pay employment taxes to the IRS, the Department advises that it is committed to enforcing federal employment tax laws through both civil litigation and criminal prosecutions. The Amount of Tax Revenues are substantial - Taxes withheld from employee wages accounting for approximately 70 percent of annual revenue collected by the IRS, and as of September 2015, more than $59 billion of tax reported on employment tax returns remained unpaid. The IRS and the Department of Justice are working together.  

The Press Release (April 27, 2016) makes clear that  an individual’s failure to comply with employment-tax obligations is not simply a civil matter.  Employers who view amounts withheld from employee wages as a personal slush fund, treat withheld employment taxes as a loan from the government that can be repaid if and when they see fit, or whose business model is based on a continued failure to pay employment tax, are engaging in criminal conduct and face prosecution, imprisonment, monetary fines and restitution.  According to statistics provided by IRS Criminal Investigation, in the 2015 fiscal year, individuals convicted of employment tax crimes were sentenced to an average of 24 months in prison. 

The IRS Press release above references taxpayers who failed to pay payroll taxes in the millions of dollars. However, criminal exposure is not limited to such million dollar type cases. 

For example, a trucking firm owner, who admitted to evading more than $300,000 in employee payroll taxes, received an 18-month prison term (March, 2016).  

The U.S. Department of Justice News for Thursday, February 23, 2017, advised that a North Carolina Man was Sentenced to Prison For Failing to Pay Employment Taxes. The prison sentence was 15 months, and he was ordered to pay restitution to the IRS in the amount of $385,610.

Civil Injunctions Against Employers

The Government also can seek Civil Injunctions. Violation of an injunction can result in civil or criminal contempt, including incarceration.

The U.S. Depart. of Justice, on its web site, states that it is continuing to pursue civil injunctions against employers and their principal officers who willfully fail to truthfully collect, account for and deposit employment tax. According to the DOJ, the terms of the injunction impose various requirements and prohibitions, including the obligation to comply with the law and provide current notice of each deposit to the IRS, as well as restrictions on opening and operating new businesses and transferring or dissipating assets. When employers violate these injunctions, the Tax Division stands ready to seek orders of civil or criminal contempt, including incarceration of the principal officer(s), to bring the business into compliance. 

A recent April 21, 2017 Order for Permanent Injunction is attached here.

The bottom line is that a taxpayer should not attend an Interview / Meeting concerning these matters,  or  fill out form 4180 (Report of Interview With Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes), without the assistance and advice of  a Tax Attorney.  

Frequently asked questions about the IRS Trust Fund Recovery Penalty, and related  Topics and information are Here.


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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