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)