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Employer's and Those In Charge of Administering Employment Taxes Can Be Held 100% Liable as Responsible Persons. The IRS Calls This the Trust Fund Recovery Penalty.

Free Advice

If you receive a form Letter 3586, requesting a "meeting" or an "interview" with an IRS Revenue Officer, you should consult an attorney right away.  This means you are being targeted as a "Responsible Person" for unpaid employment taxes.  Even if your business has gone under, the Government can hold you responsible.  They will give you a "Date, Time and Place" to meet with them.  Do not go to that meeting alone out of a sense of obligation and fear.  But, also do not skip the meeting as there can be dire consequences, not the least of which would be if the Revenue Officer turned on you.  Instead, call the Revenue Officer, and tell them you need to reschedule because you have consulted with competent counsel and they will contact the Revenue Officer to reschedule.

Responsible Persons

The courts have considered numerous factors in determining whether an individual is a person responsible for paying over withholding taxes, including and centering on whether the employee exercised significant control over the corporation's finances. The hallmarks of such control include holding a corporate office, the ability to sign checks and tax returns for the corporation, and paying other creditors in lieu of taxes. See, Greenberg v. United States, 46 F.3d 239, 242-43 (3d Cir. 1994); U.S. v. Carrigan, 31 F.3d 130 (3d Cir. 1994); Brounstein, 979 F.2d 952, 954-955 (3d Cir. 1992); Datlof v. United States, 252 F. Supp. 11, 32-33 (E.D. Pa.), aff'd, 370 F.2d 655 (3rd Cir. 1966), cert. denied, 387 U.S. 906 (1967).

Willful Non-Payment

Even a responsible person is not liable for Trust Fund Recovery Penalties unless his failure to collect, account for, or remit withholding taxes was willful. See, Cook v. United States 52 Fed. Cl. 62 (2002), citing Godfrey v. U.S., 748 F.2d 1568, 1574 (Fed. Cir. 1984). In order to show that failure to pay overdue taxes was willful, there must be proof of a voluntary, intentional, and conscious decision not to collect and remit taxes thought to be owed. See Godfrey, 748 F.2d at 1576-77 Citing Scott v. United States, 354 F.2d 292, 295 (1965). The United States Supreme Court has stated that willfulness requires some showing of "personal fault." See Slodov v. U.S., 436 U.S. 238 at 254 (1978).

There is a lot of room to argue about willfulness and present evidence showing: (1) you were not personally at fault; or (2) any fault you had was due to inadvertent mistakes.  Your view of an inadvertent mistake and the IRS view will vary dramatically.  If you took action which was not under duress, which was not clouded by drug use, which was not contributed to by horrible health problems or psychological disability, the IRS is going to start from the position that you are responsible for the reasonably foreseeable consequences of your action and that you willfullintended them.  

3 Year Statute of Limitations

The courts have held that the assessment of Trust Fund Recovery Penalties under IRC Sec. 6672 is subject to the statute of limitation provided in IRC Sec. 6501(a), namely that the amount of any tax must be assessed within 3 years after the return was filed, and the IRS acquiesced to this position. See, Laucker v. U.S., 68 F.3d 69 (3rd Cir. 1995). Under section 6501(a) Trust Fund Recovery Penalties must assessed within 3 years after the return was filed. However, for employment taxes, under section 6501(b)(2), a return for any period ending with or within a calendar year that is filed before April 15 of the succeeding calendar year will be deemed filed on April 15 of the succeeding calendar year. See, T.A.M. 8510004.

Additional Resources

http://www.irs.gov/irm/part8/irm_08-025-001.html