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. TFRP assessments are based on liabilities for the following tax forms:

TFRP assessments against individuals are assessed on the Individual Master File (IMF) using Master File Tax Account Code (MFT) 55 and reference number 618. TFRP assessments against business entities are assessed on the Non-Master File (NMF) using MFT 17 and reference number 618.

The TFRP may be imposed, with respect to the taxes described in (3) above for:

Although the TFRP is normally applied to employment tax returns for withheld income tax, Social Security and Medicare tax, or withheld Railroad Retirement Tax, the TFRP provided by IRC 6672 also applies to those excise taxes which are commonly referred to as "collected excise taxes" (see IRM 5.7.3.2 , TFRP for Collected Excise Taxes). "Collected excise taxes" are those which are imposed on persons other than the person who is required by law to collect the tax and pay it over to the Government (a collecting agent). In other words, "collected excise taxes" are those for which the collector, not the taxpayer, must file a return and remit the tax. The business entity that was required to collect the tax (corporations, S corporations, LLPs etc) will be considered the “responsible person” and that same business entity could be the “collecting agency.”

The RO will explore the possibility of asserting the TFRP against the collecting agent’s responsible persons and will follow the same procedures for investigation and recommendation of the TFRP on employment taxes or "collected excise taxes”.

Each responsible person is jointly and severally liable for the entire unpaid trust fund tax liability, plus interest and penalties; however, the full unpaid trust fund amount will be collected only once in a particular case, whether it is collected from the employer/collecting agent, from one or more of its responsible persons, or from a combination of the employer/collecting agent and one or more of its responsible persons.

IRC 3505, Liability of third parties paying or providing for wages.

IRC 4041, Imposition of tax (“Diesel Fuel And Special Motor Fuels”).

IRC 4081, Imposition of tax (“Tax On Removal, Entry, Or Sale” of taxable fuel)

IRC 4103, Certain additional persons liable for tax where willful failure to pay.

IRC 4251, Imposition of tax (“communication services”)

IRC 4261, Imposition of tax (“taxable transportation by air” tax equal to 7.5 percent of the amount so paid).

IRC 4271, Imposition of tax (“taxable transportation” tax equal to 6.25 percent of the amount so paid).

IRC 5000B, Taxes on indoor tanning services.

IRC 6020, Returns prepared for or executed by Secretary.

IRC 6103, Confidentiality and disclosure of returns and return information.

IRC 6501, Limitations on assessment and collection.

IRC 6672, Failure to collect and pay over tax or attempt to evade or defeat tax.

IRM 1.2.1.6.3, Policy Statement 5-14 (Formerly P-5-60), Trust Fund Recovery Penalty Assessments.

IRM 1.2.65.3, SB/SE Functional Delegation Orders - Collection.

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

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

Group managers have the authority to review and approve TFRP recommendations.

Revenue officers are responsible for making a complete and thorough TFRP investigation, including ensuring TFRP case files contain all documentation needed to support assessment recommendation.

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). ATFR is also supplemented by the ENTITY Case Management System (ENTITY). The following reports assist GMs and ROs to monitor the progress of TFRP investigations as well as identifying potential issues on cases with imminent Assessment Statute Expiration Date (ASED) and take the appropriate actions to protect the statute:

Program Effectiveness: Embedded Quality (EQ) reviews conducted by GMs assess the timeliness of TFRP case actions. Collection Automation Support and Security (CASS) provides monthly ATFR timeliness reports that measure TFRP program timeliness goals. These reports provide the information necessary to allow ROs the opportunity to make timely and appropriate TFRP recommendations and assessment 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.

Managers approve TFRP determinations and assessment recommendations.

Territory Managers (TM) and Area Directors (AD) include TFRP timeliness trends in operational reviews.

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: http://rnet.web.irs.gov/Resources/Acronymdb.asp

IRM resources

IRC 4103 creates personal liability for certain people who are under a duty to assure payments of tax under IRC 4041(a)(1) or 4081, reported on Form 720, who either willfully fail to perform that duty or willfully cause the taxpayer to fail to pay such tax. Once a willful failure under either IRC 4041(a)(1) or 4081 has occurred, IRC 4103 imposes personal liability for willful failure to perform (IRC 4103(1)) or for willfully causing the taxpayer to fail to pay the tax (IRC 4103(2)). The main difference between the TFRP for collected excise taxes and the personal liability for excise taxes is that the TFRP is an assessment of a civil penalty under MFT code 55, while the personal liability for excise taxes is an assessment of the actual unpaid tax as either transaction code (TC) 150 or 290 under the responsible person's Social Security number.

Taxes reported on Form 720 that are imposed by IRC 4041(a)(1) and IRC 4081 are:

Responsible and willful persons can become jointly liable with the business taxpayer for the excise taxes listed above which the business has reported on BMF Form 720. When assessed against an individual, they will owe the same tax liability as the business taxpayer who filed the Form 720. The responsible person will also be liable for interest and certain penalties from the same date as the business taxpayer.

The following IRM procedures should be followed for investigating both TFRP and personal liability for excise tax cases:

The ATFR system is used by ROs to:

The GM uses the ATFR system to approve RO case actions and review ATFR reports monthly (See IRM 1.4.50.11, Group Controls) to ensure timely TFRP actions as follows:

Control Point Monitoring (CPM) uses the ATFR system to:

Responsibility is a matter of status, duty, and authority. A determination of responsibility is dependent on the facts and circumstances of each case.

Potential responsible persons include:

A responsible person has:

To determine whether a person has the status, duty and authority to ensure that the trust fund taxes are paid, consider the duties of the officers as set forth in the corporate by-laws as well as the ability of the individual(s) to sign checks. In addition, determine the identity of the individuals who:

The TFRP is available and may be appropriately asserted when the taxpayer is organized as a Limited Liability Company (LLC). The need for a TFRP investigation is based on how the LLC is classified for tax purposes and when the liability accrued. See IRM 5.1.21.6.5, Trust Fund Recovery Penalty, for additional information on LLCs.

Willful means intentional, deliberate, voluntary, reckless, knowing, as opposed to accidental. No evil intent or bad motive is required.

To show willfulness, the government generally must demonstrate that a responsible person was aware, or should have been aware, of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements. A responsible person's failure to investigate or correct mismanagement after being notified that withholding taxes have not been paid satisfies the TFRP "willfulness" element. See IRM 5.17.7.1.3, Willfulness.

It is difficult to establish "willfulness" in the types of assessments shown below:

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Common law employers may designate a third party who is not the common law employer or a statutory employer under IRC 3401(d)(1) to take over some or all of the employer’s Federal employment tax withholding, reporting, and payment responsibilities and obligations. The common law employer becomes the “client” of the third party. 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. Generally an employer-employee relationship exists when the person for whom the services are performed has the right to direct and control the worker who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. Some common third-party arrangements include:

Each recommendation for assertion of the TFRP against a third-party payer, i.e., a responsible person, must stand on its own merits based on the facts the RO discovers during the TFRP investigation regarding “responsibility” and “willfulness.”

The factors to be considered when determining the potential “responsibility” and “willfulness” of a third-party payer are:

The factors to be considered for establishing “responsibility” and “willfulness” of a responsible person within a common law employer/client where there is a third-party payer arrangement are:

Additional factors to be considered when determining “willfulness” include:

Consult with your local Area Counsel in any case involving whether a third-party payer is a responsible person(s) under IRC 6672 for the TFRP.

If during examination of the employment tax returns, the examiner finds that the TFRP may apply, the examiner should secure Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, if the ASED is within one year on both agreed cases and on unagreed cases to allow sufficient time for the case to go through the appeal process plus one year. The examiner should also request input of TC 971-330 on the corporate account to indicate that the responsible person has signed Form 2750. If Form 2750 cannot be secured, Form 6238, Referral Report for Potential Trust Fund Recovery Penalty Cases, should be completed by the Examiner and sent to Advisory.

Advisory will determine within 30 days whether or not an investigation will be opened by Field Collection and notify Examination of that determination.

If an investigation is to be opened, Advisory will issue a Courtesy Investigation to Field Collection with a copy of the Form 6238.

In order to extend the ASED, a potentially responsible person may sign Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty. This waiver can extend:

Form 2750 extends the ASED only for the person who signs the waiver; therefore, a waiver must be secured from all potentially responsible persons in order to properly protect the statute.

The law does not impose a maximum limit on the time period the assessment statute for TFRP may be extended by a potentially responsible person and the IRS, however the ASED cannot be extended beyond the Collection Statute Expiration Date (CSED) of the underlying tax assessment.

The IRS Restructuring and Reform Act of 1998 (RRA 98) states the IRS must:

Every time an extension is requested (IRC 6501(c)(4) as amended by RRA 98), the IRS must notify the taxpayer that they may:

If a third party is authorized to act on behalf of the potentially responsible person, Form 2750 may be solicited from and signed by the authorized representative. If the third-party information is not available on the Centralized Authorization File (CAF), the instrument which authorizes the representative to act for the responsible person should be attached to Form 2750 or included in the TFRP case file.

After the potentially responsible person or representative executes the waiver:

For IRC 6672 assessments made after the enactment of the Taxpayer Bill of Rights 2 on July 30, 1996, the following actions are required:

If the 60-day notice was properly mailed or delivered in person to the responsible person before the expiration of the assessment limitation period for the TFRP, then the assessment statute will not expire before the later of:

The RO will take the following actions when a waiver is secured:

After a waiver has been secured, request input of transaction code TC 971 AC 330 on the corporate account to indicate that the responsible person has signed a waiver. The transaction code will include the Social Security number of the responsible person and the date the ASED is extended to for that individual. This will allow the information to be readily available on IDRS in order to determine if the ASED has been extended for a particular person. The transaction code must be input for each responsible person for each period for which a waiver was secured. If the extension cannot be input on ATFR (e.g., in the case of manual TFRP assessments, such as in excise tax cases), request input using Form 4844, Request for Terminal Action.

In order to determine if Examination has already secured a waiver to extend the TFRP assessment statute:

If a waiver is appropriate and was not previously secured, follow the instructions in IRM 5.7.3.7.1 , Form 2750 Waiver, for securing Form 2750.

The ASEDR indicator should be selected as follows:

ASEDR indicators of 2, 3, 4, or 5 should be input via Form 4844, Request for Terminal Action, with managerial approval, if the related action has already been completed and the ASEDR did not automatically upload from ATFR. Complete the entity and employee information blocks and enter in the Remarks section "Request input of Command Code ASEDR" with the appropriate indicator shown. Managers are responsible for verifying that the ASEDR input request is appropriate to the circumstances of each case.

An ASEDR indicator 1 is systemically uploaded by ATFR when an assessment is made.

Only one indicator can be requested per module. Select the most appropriate indicator based on the facts of the case.

ASEDR indicators will appear on ICS Module Summary Screen.

If an ASEDR indicator of 1, 2, 3, 4, or 5 is input to IDRS, the appropriate indicator will appear on Entity and on the ATFR reports.