The Trust Fund Recovery Penalty (TFRP) is a penalty imposed by IRC 6672 against any individual or business entity required to collect, account for, and pay over taxes held in trust, who willfully fails to perform any of these activities. It facilitates the collection of tax and enhances voluntary compliance. The TFRP serves as an additional means of collecting unpaid trust fund taxes when taxes are not fully collectible from the company/business that failed to pay the withheld taxes. The penalty is equal to the total amount of tax evaded, not collected, or not accounted for and paid over.

IRC 3505, Liability Of Third Parties Paying Or Providing For Wages.

IRC 6103, Confidentiality And Disclosure Of Returns And Return Information.

IRC 6331, Levy And Distraint.

IRC 6511, Limitations On Credit Or Refund.

IRC 6672, Failure To Collect And Pay Over Tax, Or Attempt To Evade Or Defeat Tax.

IRC 7602, Examination Of Books And Witnesses.

IRC 7609, Special Procedures For Third-Party Summonses.

Rev. Proc. 2012-18, Ex Parte Communications Between Appeals and Other Internal Revenue IRS Employees.

The Director, Collection Policy, is the executive responsible for the policies and procedures utilized by Collection personnel.

Field Collection group managers (GM) and revenue officers (RO) are responsible for ensuring compliance with the guidance and procedures described in this IRM.

Civil Enforcement Advice and Support Operations (CEASO) managers and advisors are responsible for ensuring compliance with the guidance and procedures described in this IRM.

Field Collection is responsible for ensuring taxpayers are informed of their rights in accordance with the Taxpayer Bill of Rights (TBOR) adopted in June of 2014.

Program Reports: The Automated Trust Fund Recovery (ATFR) program is used for group controls of imminent assessment statutes and timely TFRP case actions. ATFR pulls data from the Integrated Collection System (ICS) and the Integrated Data Retrieval System (IDRS).

Program Effectiveness: Embedded Quality (EQ) reviews conducted by GMs assess the timeliness and accuracy of TFRP case actions. Collection Policy does periodic program reviews to identify trends and opportunities to improve timely and effective TFRP case actions.

ATFR tracks and records TFRP assessment actions and history. Field Collection employees are generally the primary users of ATFR based on the employees’ duties and responsibilities.

Field Collection employees use ICS for inventory control and history documentation.

GMs approve TFRP-related case activities.

Managers are required to follow program management procedures and controls addressed in IRM 1.4.50, Collection Group Manager, Territory Manager and Area Director Operational Aid.

This table lists commonly used acronyms and their definitions:

Additional acceptable acronyms and abbreviations are found in the ReferenceNet Acronym Database, which may be viewed at: https://rnet.web.irs.gov/Resources/AcronymSearch.aspx.

IRM resources;

Section 902 of the Taxpayer Bill of Rights 2 (TBOR 2) expanded IRC 6103(e) to add subsection (e)(9) which provides for certain disclosures to persons who have been assessed the TFRP pursuant to IRC 6672. IRC 6103(e)(9) provides for disclosure to each person who has been assessed the TFRP, certain limited information regarding other persons assessed the penalty for the same underlying tax. See IRM 5.1.22.5, Disclosure of Trust Fund Recovery Penalty Payment Information, for additional information on what information can and cannot be disclosed, as well as the method of disclosure.

Date stamp Form 843 upon receipt and complete the initial review of the claim within 30 days of receipt. Form 843 claims must be processed promptly since the taxpayer may file suit if the claim is not acted upon within six months of filing. CEASO should issue interim status letters as needed to avoid unnecessary litigation. When circumstances dictate, the employee should use problem solving and negotiation techniques, and in so doing consider the applicant’s perspective when analyzing the claim.

Open an ICS NF Other Investigation (OI) Action Requested 172 - Claim for Refund, to control the claim no later than 7 calendar days of receipt in the group. Check ICS for any prior claims or inquiries, review the closed files for any prior claims and document all actions taken on the claim in the ICS history.

Review transcripts to identify payments or credits made within two years of filing of Form 843; these are the only amounts that may be considered for refund (see IRC 6511(a)).

Review Form 843 for processability and to identify the issues involved. Generally, a Form 843 claim is processable if the taxpayer and tax periods can be identified, the required payment has been made, and there is some type of explanation provided. If the form is not processable:

Retrieve the TFRP file(s) and review them to determine:

If the Independent Office of Appeals (Appeals) had already made a determination in regard to the TFRP at issue (whether in the form of a timely protest in response to Letter 1153, Proposed Trust Fund Recovery Penalty Notification, claim, doubt as to liability offer in compromise, etc.), neither CEASO nor field collection employees can reverse the prior determination made by Appeals. Only Appeals can reverse such a determination. Therefore, the claim will be forwarded to Appeals without consideration by CEASO.

When CEASO determines that the TFRP cannot be substantiated, CEASO should follow the procedures in IRM 5.7.7.5.3 below, for accepting the claim and preparing Form 3870, Request for Adjustment, to abate the assessment. Consult Area Counsel if there are questions over the validity of the assessment.

Possible actions by CEASO include:

When a determination is made on the claim (formal or informal), advise the taxpayer in the closing correspondence of any funds moved to excess collections due to IRC 6511(a).

Under IRC section 6672(c), the IRS may not levy or file a suit to collect the remainder of the TFRP if the taxpayer takes all three following actions within 30 days after notice and demand for payment:

Request input of TC 520, Closing Code 82, to delay collection until the final resolution of the court proceedings and the taxpayer's claim for refund. If the taxpayer's claim is later denied, the IRS must continue to delay levy action and refrain from initiating proceedings in court for collection if the taxpayer files suit within 30 days of the date of the letter denying their claim. If the taxpayer fails to file suit within this time period, the IRS may take action to apply the bond to the liability. See IRM 5.6.2, Maintenance.

During the pendency of a taxpayer's TFRP refund suit for tax periods beginning after December 31,1998, IRC 6331(i) generally requires IRS to refrain from issuing new levies to collect the remainder of the taxpayer's unpaid TFRP amounts that are at issue in the suit. See IRM 1.2.1.6.4, Policy Statement 5-16, Forbearance when reasonable doubt exists that assessment is correct.

CEASO will take the actions below If the claim is allowed. CEASO will take actions a, b, and c no later than 14 calendar days of the CEASO determination that the claim is allowed.

CEASO will take the actions below if the claim is denied and the taxpayer did not take the actions outlined in IRM 5.7.7.5.2. CEASO will take actions a, b, and c no later than 14 calendar days of the CEASO determination that the claim is denied.

CEASO will take the actions below if the claim is denied and the taxpayer submits a timely request for appeal:

CEASO will take the actions below if the claim is denied and the taxpayer took the actions outlined in IRM 5.7.7.5.2. CEASO will take actions a and b no later than 14 calendar days of the CEASO determination that the claim is denied.

If the suit is not filed timely, the bond, or other collateral, will be converted to satisfy the TFRP liability in accordance with the agreement. Request reversal of the TC 520 and process the bond or other collateral in accordance with procedures in IRM 5.6.2, Maintenance. Do not assign the balance due accounts to the field.

CEASO will take the actions below if the claim is denied and the taxpayer submits a timely request for appeal:

ROs may process claims that are not submitted on Form 843. If the taxpayer submits a letter requesting refund and the letter contains the required elements from Form 843, contact Area Counsel to determine if the letter should be considered a valid informal claim.

If you allow the claim, request the appropriate adjustment or abatement using Form 3870. Submit Form 3870 to the TFRP unit in CCO for input. These adjustments or abatements may not be input in the local offices.

If you propose to deny the claim, prepare Letter 3784 (See IRM 5.7.7.5.4) or Letter 3783 (See IRM 5.7.7.5.5) to the taxpayer advising:

Prior to completing Form 3870 for an adjustment, carefully analyze the BMF account and all related IMF accounts to ensure the adjustment is necessary. Request Forms 3870 at the same time for all responsible persons. Interest will be due on the IMF accounts unless the underlying BMF account already fully paid on the interest . See IRM 5.19.14.3.7, Computing and Cross-Referencing Interest. Since most credits will be cross-referenced systemically, do not request any adjustment for credits that have been applied to an account for less than 60 days. All TCs 241 with credit reference numbers 699 or 697 as well as TCs 538 on the BMF account need to be accurately analyzed to determine if an abatement is necessary. Check UNLCER for the BMF and all related IMF accounts since the responsible persons are not always assessed the same amount for the same quarters.

Prepare Form 3870 for an abatement or adjustments as follows:

If an RO prepares Form 3870, forward to CEASO:

In order to ensure the appropriate adjustments are made to UNLCER and the appropriate cross-referencing takes place, only the TFRP unit in the compliance center can input Form 3870 TFRP adjustments. Do not send Forms 3870 to CCP for processing. Submit Form 3870 based on the corporate entity’s state as indicated at: https://irsgov.sharepoint.com/sites/ETD-KMT-KB027.

Use the following procedures on reversal of prior TFRP adjustments for:

CEASO will prepare:

Manual coordination procedures must be used to assure over collection does not occur. The employee posting a payment or credit to a balance due account must notify all other employees to whom a related case is assigned.

If one of the accounts is fully satisfied, other responsible units will be so advised. Form 3870 and a memorandum of authority will be prepared to adjust the account(s). The Form 3870 and memorandum are to be forwarded to the compliance center.

For those cases adjusted with TC 241, reference number 699, reversal of adjustments will be accomplished as follows: