The Trust Fund Recovery Penalty (TFRP) is based on IRC 6672 Failure to collect and pay over tax, or attempt to evade or defeat tax, and facilitates the collection of tax and enhances voluntary compliance. The TFRP serves as an alternative means of collecting unpaid trust fund taxes when taxes are not fully collectible from the company/business that failed to pay the withheld taxes. Internal Revenue Manual (IRM) 5.7.4, Investigation and Recommendation of the Trust Fund Recovery Penalty, contains procedures and guidance for the investigation, recommendation and approval of the TFRP against individuals who are potentially responsible for the non payment of the business trust fund taxes.

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

IRC 3509, Determination of employer’s liability for certain employment taxes.

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

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

IRC 7521, Procedures involving taxpayer interviews.

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 Service Employees.

40 U.S.C. 3131, U.S. Code, Performance Bond Provisions of the Miller Act.

Treas. Reg 301.7602-2, Third party contacts.

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 with monitoring the progress of TFRP investigations as well as identifying potential issues on cases with imminent Assessment Statute Expiration Dates (ASED), so the appropriate case actions can be taken 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 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, Resource Guide for Managers, 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

Regardless of the amount of the trust fund, ROs will make a reasonable attempt to collect the entire liability in full.

ROs are not to solicit partial designated payments to bring the amount of the total aggregate trust fund below ≡ ≡ ≡ ≡ ≡ ≡ ≡ for the sole purpose of non-asserting the TFRP under any circumstances.

There is no prohibition against assessing the TFRP if the amount is below ≡ ≡ ≡ ≡ ≡ ≡. See below for factors to consider when making an assessment determination on trust fund balances below ≡ ≡ ≡ ≡ ≡.

There may be situations that warrant the assertion of the TFRP when the TFRP amount is below ≡ ≡ ≡ ≡ ≡. Consideration will be given to the following factors:

Take into consideration all previously assessed and/or unassessed TFRP amounts when determining the total aggregate trust fund. This includes all the unpaid TFRP for the account (not just the open ATFR case) and includes potential tax liabilities resulting after securing unfiled returns. ROs and GMs should use discretion if the unassessed amount does not justify the additional expense and effort to prepare a TFRP assertion package.

GMs should verify that ROs complete full compliance checks for business taxpayers before approving an ATFR disposal of a case as "Below IRM Criteria" , this step is to ensure ROs considered all factors described in IRM 5.7.4.2.1(4) above.

Certain facts may surface indicating that transfers of corporate stock and/or capital assets have occurred. If this is the case, in addition to pursuing the TFRP, consider recovery of the unpaid corporate liability by recommending:

See IRM 5.17.4, Suits by the United States, to determine which of these actions may be appropriate based on the facts of a particular case.

During the initial contact with the taxpayer (IRM 5.1.10.3.2, Effective Initial Contact), the RO will attempt to conduct interviews with all available potentially responsible persons. The RO will take the following actions during the interview:

Form 4180 is the form to be used for conducting TFRP interviews. It is intended to be used as a record of a personal interview with a potentially responsible person. During the initial contact, attempt to personally secure Form 4180 from all potentially responsible persons. If Form 4180 cannot be secured, document the case history with the reasons why it was not secured.

The purpose of the personal interview and completion of Form 4180 is to secure direct, detailed information regarding the individual’s or other person's involvement in the business in order to determine if they meet the criteria for responsibility (IRM 5.7.3.4.1, Establishing Responsibility) and willfulness (IRM 5.7.3.4.2, Establishing Willfulness). The questions on the form are intended as a guide and are not all inclusive; supplemental questions may be asked.

Do not give or mail Form 4180 to the potentially responsible person(s) or representative for completion by that person or for review prior to the interview. The form must be completed in person or over the phone. Letter 3586, Meeting Scheduled with Individual for TFRP Interview, can be used to schedule an appointment to conduct a 4180 interview.

A summons may be necessary to require the potentially responsible person’s presence at the interview (See IRM 25.5, Summons and IRM 5.17.6, Summonses, for summons procedures, rights, and privileges).

Enter "unknown" in the appropriate block on the form if the person interviewed cannot answer a specific question.

Enter "not applicable" in the appropriate block on the form if a question does not apply. If any information has already been completed on Form 433-B, Collection Information Statement for Businesses, the RO can enter "See 433-B" in the applicable blocks.

Form 4180 is formatted to allow for an abbreviated interview when an individual is determined to be the only responsible person or in situations when a business structure is not complicated. This format allows the RO to more easily tailor the depth of their TFRP investigation based upon the complexity of the business entity/ownership structure. Form 4180 should be used as follows:

After the interview is completed, ask the potentially responsible person to sign Form 4180. The RO will also sign the form.

If the form can only be partially completed, determine whether to add a statement to page 4 indicating which portions of the form are incomplete.

If the potentially responsible person agrees to the assessment during an interview:

It may be necessary to contact a third party for the purpose of gathering information concerning officers or employees. In these cases, be sure all potentially responsible persons have received the advance notice (Letter 3164-A, Third Party Contact, or Letter 3164-Y, Third Party Contact - Excise Taxes) notifying them that a third party contact may be made. See IRM 25.27.1.3 , Notification Requirements for additional information. These letters will be personally delivered or mailed to all persons who may be investigated as soon as they are identified and once it is determined a third party contact will be necessary (see IRM 5.1.1.12.1, TPC Advance Notification Procedures). Letter 3164-A is available as an ICS template, Letter 3164-Y can only be accessed at this time through the Published Products Catalog link, https://publish.no.irs.gov/catlg.html#tab=tab1.

ROs may secure authorization from potentially responsible person(s) to waive the 45-day waiting period by securing the potentially responsible person’s signature on Form 12180, Third Party Contact Authorization Form. This authorization applies only to the third parties listed on Form 12180 and only waives the advanced notice periods for the potentially responsible person who signed it (multiple forms may be secured, if necessary). Therefore, if the RO intends to issue a bank summons for core documentation, they must list the bank’s full name, address and telephone number on the form. Copies of all signed Forms 12180 should be kept in both corporate and TFRP case files. See IRM 25.27.1.3.6, Taxpayer Authorizes Contact with a Third Party for reference.

If an interview cannot be conducted with the third party, send Form 4181, Questionnaire Relating to Federal Trust Fund Tax Matters of Employer. Form 4181 can be used to interview non-responsible parties who have knowledge of the business and it’s decision making processes. (See IRM 5.17.7.1.5, Interview of Witnesses).

If the third party is subsequently implicated as potentially responsible and willful, a personal interview will be recorded on Form 4180.

If one or more potentially responsible persons are located in another area or territory and it is necessary to secure Form 4180 in order to determine responsibility and willfulness, it may be necessary to issue an ICS Other Investigation (OI).

An ICS OI should not be issued if the information necessary to recommend assertion is available where the employer balance due accounts are assigned.

The initiating office will furnish the receiving area or territory with all information and documents which relate to the responsibility of the person to be interviewed, including page 4 of Form 4183, calculation sheets, Form 2751, and information regarding issuance of Letter 3164-A.

The receiving office will:

In the majority of cases, the core evidence necessary to support a TFRP recommendation will be:

The documentation, including bank records, will be requested from the business entity whenever possible. If the business entity does not provide the requested records by the deadline provided, a summons will be served on either the business entity, the bank, or both, to secure the required documents (See IRM 25.5, Summons, and IRM 5.17.6.7, Third-Party Contact Requirements of IRC 7602(c), for summons procedures).

ICS Form 6639, Financial Records Summons, template provides the option of summonsing a bank for additional data, such as bank statements, loan applications and related records, corporate resolutions, and signature cards if not previously secured. These additional documents should not be routinely requested if responsibility and willfulness is supported by the core documents listed in (1) above. The time frames for the documents requested should relate to the tax periods associated with the TFRP investigation. In most instances, only the front of the cancelled checks will need to be secured. Do not use Form 2039, Summons, to summons a third party record keeper, such as a financial institution, for documents to support a TFRP assessment. All documents related to Form 6639 issuance, including evidence of quash notification delivery, should be maintained in the TFRP case file.

Individual case factors will influence the amount of additional documentation needed to support the TFRP determination. The RO must exercise judgment to determine if documentation beyond the core items is needed prior to submitting the TFRP recommendation for managerial approval. Photocopies of the documentation should be maintained in the TFRP case file as evidence to support the recommendation to assert the TFRP. Documentation received electronically and saved on CDs does not have to be printed. Document the ICS history that the summonsed information was received via digital media and saved on a portable storage device (PSD), and that the PSD is being placed in the case file. (IRM 25.5.3.6.2.2, Saving Records for Administrative Case File, provides guidance for passwords and placement in file.)

There must be sufficient documentation in the TFRP case file to support each recommendation, for each specific period of the liability. See IRM 5.7.4.2.7(1) for the core documentation requirements. The example below shows an appropriate assertion recommendation based upon the core documentation items:

If a business is a large or mid-sized corporation, or a business with a multi-layered or complicated ownership structure, or uses the services of a third party payer, the RO may determine additional documentation beyond the core items is necessary to support a TFRP assertion. The more convoluted the corporate structure (multiple potentially responsible persons and/or multiple periods, intricate corporate structure) the more documentation is needed to support the assertion.

ROs must exercise judgment in determining if documentary evidence beyond the core items is necessary to support a TFRP assertion. Additional business records that may be reviewed include:

The business records may be reviewed to determine:

Additional bank records that may be reviewed include:

The bank records can be reviewed to determine:

all undesignated payments on a tax period are applied following the guidelines below:

Proceeds from an offset or a levy on a contract are applied to the liability incurred during the period of the contract even though the application may not serve the best interests of the government.

For payments from court proceedings, i.e., bankruptcy, insolvency, or decedents, contact Insolvency (see IRM 5.5, Decedent, Estate and Gift Taxes).

When the originally proposed TFRP amount is increased after the issuance of a Letter 1153 and Form 2751, but prior to the TFRP assessment, a new Letter 1153 Form 2751 must be issued to the taxpayer to advise them of the proposed increase. The new Letter 1153 and Form 2751 shall reflect the entire amount being proposed for the affected period(s) only.

If multiple periods were reflected in the original Letter 1153 and Form 2751, only the period(s) affected by the increase shall be included in the new Letter 1153 and reflected on a new Form 2751. Periods not affected by the increase will continue to be processed in accordance with established procedures and time frames.

The determination of whether a protest for the period(s) not affected by an increase is timely shall remain based on the date the initial Letter 1153 and Form 2751 were issued, as will all processing time frames for periods not affected by the increase.

To facilitate the issuance of the new Letter 1153 and Form 2751 for the period(s) affected, you must contact your Collection Automation Coordinator (CAC). The CAC will remove the affected period(s) from the current case and note the reason for the removal in the ATFR history. The CAC will then create a new case for the new issuance and processing. This action will enable the periods not affected by the increase to continue to be processed.

When a new case is created to address the need to issue a new Letter 1153 and Form 2751 because of an increase in the proposed TFRP amount for a period(s) included in an earlier Letter 1153 and Form 2751, additional periods not previously addressed may be due and subject to a Letter 1153 and Form 2751. These new periods not included in a previous Letter 1153 and Form 2751 may be included in the new Letter 1153 and Form 2751 with the period(s) subject to the increase.

Letter 1153-W, Proposed Trust Fund Recovery Penalty Rescission Notification, is used to rescind issuance of Letter 1153.

If information that was not available prior to the issuance of Letter 1153 is received before the assessment of a TFRP and results in a decision by the RO to reverse all or a portion of the periods on Letter 1153, the RO will take the following actions:

If Letter 1153-W is issued, it will nullify Letter 1153) for the periods listed on Letter 1153-W, and there will be no effect on the Assessment Statute Expiration Date (ASED).

If the TFRP will not be assessed on any periods, the TC 130, Entire Account Frozen from Refunding, which is systemically generated following input of a Letter 1153 delivery date on ATFR, must be reviewed to determine if reversal of the TC 130 is appropriate. The TC 130 may remain appropriate on an individual account, as there may be additional pending TFRP assessments from a different business or related sole proprietor liabilities. If none of these circumstances are present, initiate action to input TC 131, Reversal of TC 130 Refund Freeze.

An RO can secure an in-business installment agreement rather than recommending immediate assertion of the TFRP, as long as:

If an RO determines an in-business installment agreement is the appropriate case action, generally the TFRP will not be assessed if the taxpayer meets the terms of the installment agreement. However, based on the taxpayer's prior history as a repeater or because of the length of the proposed installment agreement, the RO may determine assertion of the TFRP is in the best interests of the government. If the TFRP is not being assessed, the following actions must be taken relative to the TFRP if the agreement will not fully pay all balances due at least one year prior to the earliest ASED:

For cases where the installment agreement will fully pay all balances due at least one year prior to the earliest ASED, the RO and the GM should determine how far to proceed with the TFRP investigation in the event the agreement defaults. The decision should be based on the facts of the case, including:

Inform the responsible persons whether or not the penalty will be assessed. If the assessment of the TFRP is being held pending completion of the terms of an installment agreement, advise the responsible persons that default of the agreement will result in the processing of the recommendation for assessment.

When an in-business trust fund (IBTF) installment agreement is granted, and the TFRP is not being assessed, the TFRP file must be sent along with the IBTF installment agreement to Centralized Case Processing where the agreement is being monitored. Label the TFRP file, "Unassessed TFRP-IBTF IA Backup Documents - Earliest ASED is: {insert date}" Additional information on processing and monitoring these cases is contained in IRM 5.14.7.4, In-Business Trust Fund Installment Agreements Requiring Financial Analysis and Determining Ability to Pay.

When taxpayers do not meet the terms of their installment agreement, the agreement will be terminated. Centralized Case Processing (CCP) will transfer the case back to FC via ICS. If the case file contains TFRP supporting documents, the assigned RO should request the case file from CCP (see also IRM 5.4.11.8.2 , IBTF and PPIA Default Procedures)

If the responsible person was not previously given appeal rights, follow the procedures in IRM 5.7.4.7, Notification of Proposed Assessment, for notifying the responsible person of the proposed assessment and of their appeal rights.

If the responsible person was already given appeal rights and Form 2751 was previously secured:

If an employer who owes trust fund taxes files bankruptcy, the TFRP ASED is not suspended with respect to the assessment. When an RO learns an employer who owes trust fund taxes has filed bankruptcy, they should immediately contact Insolvency. Also, see IRM 5.9.3.10, Trust Fund Recovery Penalty.

If the TFRP determination and investigation have not been completed, the field GM will review the facts of the case and determine whether to issue an ICS OI, Other Investigation, to conduct the TFRP investigation. The determination should be based on the dollar amounts involved, collection potential of the TFRP assessments, effect on compliance, and any other relevant factors.

In making the TFRP assessment determination, consider all available information including:

Once it is determined assessment of the TFRP is appropriate, collection may or may not be suspended against responsible persons if a filed bankruptcy limits collection actions. See IRM 5.9.3.10, Trust Fund Recovery Penalty, for a list of relevant factors. ROs must contact the controlling Insolvency office for local guidelines addressing NFTL determination decisions to file, not file, or defer filing, and conditions under which the TFRP accounts are to be suspended, if applicable.

Secure waivers whenever possible from all responsible persons to protect the TFRP assessment statute (see IRM 5.7.3.6.1 , Form 2750 Waiver, for the actions required when securing a waiver). A waiver will be secured if the assessment statute will expire within one year following the scheduled full payment date of the plan. If a responsible person refuses to sign the waiver, continue with the investigation and assertion of the penalty.

If a responsible person files a bankruptcy petition after October 21, 1994, the statutory period for assessment will not be automatically extended by the bankruptcy filing.

If the responsible person has filed bankruptcy, immediately contact Insolvency and advise them of the potential liability so a proof of claim may be filed. See IRM 5.9.3.10, Trust Fund Recovery Penalty.

Although the TFRP is nondischargeable in all bankruptcy cases filed on or after October 17, 2005, it is important to file a timely proof of claim to receive payment through the bankruptcy case.