Trust fund recovery penalty, also called CIVPEN on a Federal Tax Lien, may be uncollectible

Internal Revenue Code Section 6672 authorizes the IRS to assess and to collect personally from the “responsible person” when employment taxes are not paid over to the IRS.

A Revenue Officer conducts an interview on FORM 4180 to determine liability. The factors to make a “responsible person” finding include whether the person had control over bank accounts, hired/fired employees, prepared tax returns, decided which creditors were to be paid, and more.

However, all these factors may lead the IRS Revenue Officer to a dead end if the “responsible person” is uncollectible, that is, has no funds now nor reasonably will have funds to pay in the future.

The rules for determining collectability are found in the Internal Revenue Manual Sections 5.7.5.1(2) and 5.7.5.3.1.

Generally, the amount of the trust fund recovery penalty charged to the individuals is equal to the taxes deducted from employee paychecks but not paid to the IRS, plus interest. When analyzing for collectability, the Revenue Officer will require the taxpayer to make a financial statement on FORM 433-A. If the results of the financial statement truthfully demonstrate an uncollectible “responsible person”, then the IRS’s collection activity may cease.

 

Also see:

http://howardlevyirslawyer.com/documents/ea_journal_trust_fund06-1-09.pdf

 

About Mark

LL.M. Tax - Univ of Denver 1986 JD - Loyola Univ School of Law 1980 Botany - Southern Illinois Univ 1976 Culver Military Academy, Troop A 1971
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