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Trust fund taxes are unique, especially in that the IRS has the ability to personally assess responsible individuals for their collection. In addition to the civil issues, criminal exposure exists for the same conduct.
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S
Understanding, and
Protecting Your Client
Against, Civil and
Criminal Liability for
Trust Taxes
Kevan P. McLaughlin, Esq., LL.M
Introduction
oWhat are trust taxes?
oExamples
Civil Liability
What to look for:• Unsophisticated taxpayer
• Financially distressed companies
• Embezzlement from those in
financial control
IRC § 6672
General rule
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 or part II of subchapter A of chapter 68 for any offense to which this section is applicable.
Calculating Trust Fund Amount
Unpaid income taxes
withheld, plus
Employee’s portion of withheld
Federal Insurance Contribution
Act (“FICA”) taxes.
TFRP Elements
oResponsibility
oWillfulness
Indicators of Responsibility
o Authority to sign checks
o Control financial affairs of business
o Officer, director, shareholder
o Authorized in by-laws
o Ability to hire and fire employees
o Sign 941’s
o Make EFTPS payments
Investigating Civil Liability
McLaughlin Legal
Defense Strategies
o Full pay
o Lack of knowledge
o No duty or authority
o Following orders
o Establish negligence
o Reasonable causes
o (In)ability to pay
o Directed payments to TFRP amount
o In-Business Installment Agreement
o Statute of limitations
McLaughlin Legal
Federal Tax Deposit Alert
Assigned to Revenue Officer1. Compliance
2. TFRP Investigation
Summons bank signature cards
4180 interview
4183 Recommendation1153(DO) Letter
AppealRefund
Appeals Conference
Refund1 Employee, 1Quarter ($100)
Form 843
Judicial Appeal
(6 mon. or Notice of Disallowance)
U.S. District Court
Court of Federal Claims
Bankruptcy Court
Collections1. OIC DATL
2. CDP
Criminal Liability
IRC § 7202
Any person required under this title to collect,
account for, and pay over any tax imposed by this
title who willfully fails to collect or truthfully
account for and pay over such tax shall, in
addition to other penalties provided by law, be
guilty of a felony and, upon conviction thereof,
shall be fined not more than $10,000, or
imprisoned not more than 5 years, or both,
together with the costs of prosecution.
Criminal Elements
• Duty to collect, and/or to truthfully
account for, and/or pay over a tax;
• Failure to collect, or truthfully
account for, and/or pay over the tax;
and
• Willfulness
Duty
“the authority required to exercise significant control over the corporation's financial affairs, regardless of whether [the individual] exercised such control in fact.”
U.S. v. Jones, 33 F.3d 1137 (9th Cir. 1994)
the "persons" who are "responsible" for the payment of withholding taxes are those who "had the final word as to what bills should or should not be paid, and when.”
Purcell v. U.S., 1F.3d 932 (9th Cir. 1993)
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