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Interim Guidance for Conducting Trust Fund Recovery Penalty Investigations in Cases Involving a Third-Party Payer

The  IRS Small Business/Self-Employed (SB/SE) Division has issued an internal memorandum SBSE-05-0711-044  which provides interim guidance concerning Internal Revenue Code (IRC) § 6672 and its application to Trust Fund Recovery Penalty (TFRP) investigations in cases involving third-party payer arrangements.

Code Sec. 6672 imposes the trust fund recovery penalty on any person who: (1) is responsible for collecting, accounting for, and paying over payroll taxes; and (2) willfully fails to perform this responsibility. The amount of the penalty is equal to the amount of the tax that was not collected and paid. The penalty is imposed on a “responsible person.” A “responsible person” may be anyone in a business entity who has the duty to collect, account for, or pay over the tax.

Common law employers may designate a third party who is not the common law employer or a statutory employer under section 3401(d)(1) to take over some or all of the employer’s Federal employment tax withholding, reporting, and payment responsibilities and obligations, for example, a payroll company.  A common law employer is any person who has the status of employer under the usual common law rules applicable in determining the employer-employee relationship.

A third-party payer is considered a responsible person if the person had significant control over the payment of its client’s employment taxes. A third-party payer is considered to have willfully failed to perform the payroll tax responsibility if failure to perform the responsibility was intentional, deliberate, voluntary, reckless, or knowing, as opposed to accidental. No evil intent or bad motive is required.

The Beliveau Law Group: Massachusetts | Florida | New Hampshire

The attorneys at The Beliveau Law Group provides legal services for estate planning (wills and trusts), Medicaid (planning and applications), probate (estate and trust administration), business law (formation and operation), real estate (residential and commercial), taxation (federal and state), and civil litigation (in connection with these practice areas). The law firm has offices and attorneys in Naples, Florida; Boca Raton, Florida; Danvers, Massachusetts; Waltham, Massachusetts; Quincy, Massachusetts; Manchester, New Hampshire and Salem, New Hampshire.

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