IRS And the Trust Fund Recovery Penalty (TFRP) for Employment Tax Delinquencies
Here are 5 things I learned through experience regarding TFRP:
1. An IRS Revenue Officer makes a determination to “assess” or “not assess” the Trust Fund Recovery Penalty (TFRP). Bankruptcy does not stop the Assessment Statute even though it can stop the Collection effort. One of the major reasons why an IRS Revenue Officer won’t assess the TFRP is doubt as to collectability. If you are filing bankruptcy you are showing everybody including the IRS that collectablity is a problem and maybe the TFRP should be not be assessed. However Revenue Officers and their managers can and sometimes will pursue the penalty even with doubt as to collectability.
2. Appeal the determination under CAP, CDP. When an IRS Revenue Officer sends you the initial letter (L1153) it contains appeal rights. Ultimately if you go to IRS Appeals you take the case out of the hands of the IRS Revenue Officer and his or her Manager who are trained to advocate aggressively on behalf of the government’s position and into the hands of an IRS Settlement Office who approaches making a determination from a neutral perspective taking into consideration the hazards of litigation. Generally speaking I have found that most IRS Settlement Officers are impartial and very good at what they do. To date, I rarely have had a problem with a Settlement Officer’s knowledge and fairness. Be sure to know what is expected of you in terms of timely responding as your rights expire if you do not respond within the required parameters. Appealing under Collection Appeal (CAP) won’t stop enforced collection action and you loose the right to petition Tax Court if an adverse determination is made by the Settlement Officer. The CAP basically gives you the opportunity to tell your side of the story.
3. Ask for your trust fund recovery penalty file under the Freedom of Information Act (FOIA). With this you will be able to verify the evidence the IRS has accumulated in order to assess you as a willful and responsible party for failure to pay Trust Fund Taxes. Be sure to ask for the main file not just your tax file. The main file will have the bank information and alledged evidence against you.
4. To prove doubt as to liability file IRS Form 656-L Offer In Compromise – Doubt as to Liability. Show that you did not have control or shared control particularly of the checkbook or payroll. The risk is that unless you have a solid case you will receive a judgment that will be good for 20 years instead of an assessment good for 10 years. Additionally if claiming this doubt exists you do not have to submit financial statements or pay the application fee.
5. To prove doubt as to collectibility according to Internal Revenue Manual Section 188.8.131.52.1. Basically if you are disabled or about to retire on Social Security and have little in terms of liquid assets you have a case. If you have the opportunity to get back on your feet or have reasonably substantial assets, you usually don’t.