8.25.2. Working Trust Fund Recovery Penalty Cases in Appeals

(1) TFRP cases that are sent to Appeals are loaded onto the Appeals Centralized Database System (ACDS) for monitoring, and if appropriate, Appeals’ jurisdiction is established.

(2) This section discusses the actions taken on various TFRP cases once assigned to an Appeals Technical Employee (ATE) to include:

• Initial contact with the taxpayer

• Initial TFRP statute verification procedures

• Case analysis

• Conference guidelines

• TFRP settlement options

• TFRP ACM preparation

• Closing procedures for the ATE

• Expedite Closing Actions for the Appeals Team Manager (ATM).

(1) IRC 6672 is the authority for the Trust Fund Recovery Penalty. The TFRP is a penalty against any responsible person required to collect, account for, and pay over taxes held in trust who willfully fails to perform any of these activities. The TFRP may be imposed for:

• Willful failure to collect tax,

• Willful failure to account for and pay tax, or

• Willful attempt in any manner to evade or defeat tax or the payment thereof.

(2) According toIRC 6672, the TFRP is equal to the total amount of tax evaded, not collected, or not accounted for and paid over. IRC 6672 applies to the employees' portion of employment tax, namely, the withheld income tax and employee's portion of FICA. It does not apply to the employers' portion of employment taxes. The TFRP also applies to collected excise taxes.

(3) The Service’s policy on assertion of the trust fund recovery penalty is in Policy Statement 5-14 (formerly P-5-60), Trust Fund Recovery Penalty Assessments, IRM 1.1.2.6.3.

(1) Appeals is the sole function that may make the final administrative determination for purposes of IRC 6672(b)(3).

(1) Planning, Quality and Analysis (PQA) provides trends and data analyses and detailed summary reports for Appeals.

(1) The table below lists common acronyms used in this section:

(1) IRM 8.25.1, Trust Fund Recovery Penalty (TFRP), Overview and Authority.

(2) Account & Processing Support (APS) TFRP card-in procedures are contained in IRM 8.20.5 and APS TFRP closing procedures are located in IRM 8.20.7.

(3) The Taxpayer Bill of Rights (TBOR), Pub. 1, applies to Appeals employees’ interaction with taxpayers. For additional information about TBOR, see http://irweb.irs.gov/AboutIRS/tbor/default.aspx.

(1) The ATE must verify that Letter 1153 (DO) was mailed or hand-delivered to the taxpayer’s last known address prior to the ASED.

(2) If Letter 1153 (DO) was not issued before the TFRP assessment was made, the assessment is invalid and must be abated. If the ASED has expired by the time the error is discovered, nothing can be done to save the assessment. In most cases, the 60 day protest period the Letter 1153 (DO) allows must also be granted prior to assessment.

(3) A taxpayer's last known address is the address on the taxpayer's most recently filed return unless the taxpayer filed a change of address with the United States Postal Service or gave clear and concise notification to the IRS of a new address. Treas. Reg. 301.6212-2; Rev. Proc. 2010-16

(4) In determining the applicable ASED, consider:

• IRC 6501 generally requires that any tax be assessed within three years after the return is filed or the due date of the return, whichever is later. IRC 6501(b)(2) adds a special rule for employment taxes. The "presumptive filing date" for returns reporting withheld tax is April 15th of the succeeding taxable year. Based on this section, the trust fund recovery penalty must be assessed within three years from the presumptive filing date or the actual filing date, whichever is later.

• The initial ASED for the TFRP mirrors the initial ASED for the employment tax returns on which it is based.

  Note: For instances of fraud on the employment tax return or where no return was filed, the ASED on the TFRP is unlimited.

  Note: A Form SS-10 Consent to Extend the Time to Assess Employment Taxes will extend the TFRP ASED as well..

• The TFRP ASED for a potentially responsible person can also be extended by a properly-executed waiver (Form 2750).

  Note: Check IDRS for TC 971 AC 330 indicating the responsible party signed a waiver

• For additional considerations see IRM 8.25.2.3.2.2(7), Timely Request - TBOR2 Protest.

(5) The table below identifies whether or not a particular action extends the TFRP assessment statute:

(1) This section describes a variety of deadlines that apply to different types of challenges to the TFRP.

(1) The requirements for requesting each type of TFRP appeal vary.

(1) A timely protest that is signed by a representative (and not signed by the taxpayer) is still a timely protest even though:

• The representative failed to submit a POA with the protest.

• The representative submitted a defective POA.

• The representative is not authorized to represent the taxpayer before Appeals.

(2) The Tax Court as well as the Conference and Practice Requirements have applied the law of agency as a supplement to the Code and Regulations. The law of agency provides guidance that protects the taxpayer's right to file a protest and the Service's time to assess the penalty imposed by IRC 6672(a).

(3) When a taxpayer engages a representative to represent him/her before the Service, an agency relationship is formed. If the representative acts with actual authority by signing the protest, the Service will accept the protest but must attempt to secure a valid Form 2848, Power of Attorney and Declaration of Representative (POA), or a protest signed by the taxpayer. The ASED is suspended by TBOR2 until the final administrative determination is made in the case.

(4) The taxpayer or representative can cure the defective or missing POA by executing a valid Form 2848. The revised Form 2848 should be attached to the original Form 2848 if the original Form 2848 is defective.

(5) Examples of invalid or defective powers of attorney include:

• The POA lists the name of the business entity instead of the taxpayer's name.

• The POA has missing periods.

• The tax form number is incorrect.

• The representative is not authorized to represent the taxpayer before Appeals.

(6) In all cases, the taxpayer can validate the protest by signing and dating the original protest or signing and dating a copy of the original protest. Attach this copy to the original protest.

(7) If, within 30 days of your request, the taxpayer or representative fails to provide or perfect the POA or the taxpayer fails to sign and date the protest (original copy):

• Consider the protest withdrawn and close the case.

• Select closing code "13" (Unagreed) and the resolution reason code "Taxpayer/Representative failed to perfect invalid or defective POA."

• In the Remarks section of Form 5402, select the Remark: "The protest is considered withdrawn because the taxpayer did not provide or perfect the POA or sign the protest on his own behalf."

(8) Refer to IRM 11.3, Disclosure of Official Information, and IRM 21.3, Taxpayer Contacts, for guidance concerning powers of attorney and who to contact about the defective or missing POA. In most cases, the taxpayer should be contacted in lieu of the representative. Unauthorized disclosure is a concern in these cases.

(1) The TFRP statute review must include verification that the case summary card (CSC) is correct.

(2) The CSC for the TFRP appeals shown below must include all periods listed on the corresponding forms:

(3) To remove agreed periods from CSC:

• Call the taxpayer/representative to verify the desire to appeal specific periods only. Ensure the taxpayer understands that Appeals will release jurisdiction on the periods not being appealed and Compliance will assess the taxes immediately and initiate collection action.

• Ask APS (through your ATM) to remove the periods not appealed from the case summary card and create a case summary card for the periods deleted from the original case summary card.

• Close the second case as a premature referral.

• In the Remarks section of Form 5402, select the Remark: "The taxpayer does not wish to protest the assessment of the following specific periods: (list periods here). Assessment of these periods is necessary. The ASED expires (enter date). Appeals retains jurisdiction of the following related periods: (list periods here)."

• Select closing code "20" and the premature referral reason "Specific periods excluded from taxpayer's protest."

(1) Appeals will not accept a TFRP case with a late protest unless the TFRP has been assessed and a claim filed. For all post-assessment appeals, verify that the assessment has been made.

(2) The statute entries for all TFRP cases are based on if they are pre-assessment or post-assessment appeals.

(3) Pre-assessment appeals should reflect the following statute information:

(4) Post-assessment Appeals: TFRP Jeopardy Assessment Reconsideration Requests; Claims; and Reconsideration Cases have the following statute entries on the CSC:

(1) As soon as possible after case assignment, review the administrative file for completeness.

(2) You can ask the taxpayer to provide any additional information that you (or the taxpayer) believe would be helpful or necessary.

(3) Do not return a TFRP appeal to Collection as a premature referral if the case is not fully developed or if documentation is missing. Make your determination based on the information provided in the file.

(1) Local procedures require some offices to prepare a rough draft Appeals Case Memorandum (ACM) prior to holding the conference.

(2) Other offices allow the use of an in-depth conference or appointment letter.

(3) Both methods require a thorough review of the administrative case file to identify all relevant information and determine how the evidence in the file relates to establishing duty, status, authority and knowledge within the corporate structure.

(4) The ATE should compare the evidence in the file with the responses on the Forms 4180 and/ or with the potentially responsible person’s issues in the protest.

(5) Any additional evidence required from the taxpayer on specific issues should be identified.

(6) If relevant new information is submitted on the potentially responsible party’s behalf that in the judgment of the ATE requires investigative analysis, then Appeals will retain jurisdiction of the case and forward the new information via Form 10467 , Appeals Division Feedback Report and Transmittal Memorandum, requesting an Appeals Referral Investigation (ARI) to the originating Collection Advisory Group for action. SB/SE will have 45 days to investigate and inform Appeals of their findings. This time may be extended by mutual agreement. These situations should be highly uncommon and Appeals has responsibility for informing the potentially responsible person (PRP) that the information was sent to SB/SE, sharing SB/SE’s response with the PRP and allowing them time to comment.

(7) If the new information is not relevant, or does not require investigative analysis, Appeals will make a determination without ARI issuance. For instance, if the new information solely affects the consideration of hazards, then Appeals will evaluate the probative value of the new information and make a determination

(1) An important aspect of your TFRP analysis is the statute and its interpretation in relevant case law.

(2) Common arguments for responsibility and willfulness can be researched through the BNA on the Appeals website or through Lexis or Westlaw.

(3) If the RO and the taxpayer have presented case law arguments, it is important to research and Shepardize the citations to determine their applicability to the facts of the issue.

(4) Identify which court the taxpayer would petition to determine where precedent is established:

(5) Weigh case law according to circuit and/or level of related court:

• The decision of a court that doesn’t generally hear tax cases, such as Bankruptcy Court, may have less weight than a decision from a court that regularly deals with tax issues.

• The Service is not necessarily bound by a decision from the Federal Claims Court.

• A trial court decision, such as the District Court or Tax Court, carries less weight than the Court of Appeals.

• The tax court has to follow decisions on the same issues of the Circuit Court, so precedent for this type of TFRP case is established by the Court of Appeals where the taxpayer resides.

• A Court of Appeals or District Court decision in your specific jurisdiction has greater authority than a Court of Appeals or District Court decision from another jurisdiction.

• The U.S. Supreme Court is the country’s highest court, and its decisions therefore carry the greatest weight.

  Note: These decisions still need to be Shepardized because both opinion and legislation can change over time.

(6) Organize your analysis to clearly state the issues raised by the taxpayer and the RO’s reasoning behind determining the taxpayer to be responsible and willful, as well as how the evidence and case law support these contentions.

(1) Often, TFRP appeals include disputes about the amount of trust fund tax outstanding.

(2) In certain situations, the taxpayer may claim that the amount of the TFRP is incorrect because FTDs were incorrectly applied.

(3) There may also be a difference in the application of payments depending on whether the payments are voluntary or involuntary.

(4) Generally, payments are applied in the best interest of the Government, i.e., oldest liability first.

(5) To limit personal liability, a taxpayer can designate voluntary payments to the trust fund taxes, but must make this designation at the time of payment. The designation of payments is a frequent issue in TFRP cases.

(6) Guidelines to follow to determine the application of payments for purposes of determining the trust fund recovery penalty liability can be found in IRM 1.2.1.6.3, Policy Statement 5-14.

(7) In general, the trust fund portion of employment tax is equal to half of the FICA taxes plus all of the withholding.

(1) Factual settlements are based on your analysis of the facts of the case. A factual settlement can result in fully sustaining the penalty; full concession by the Government or settlement for an amount less than originally proposed. The latter would be based on a factual consideration.

(2) Taxpayers frequently challenge the application of payments in Appeals. This is a factual issue that must be addressed. Refer to IRM 8.25.2.4.4(1) above for a detailed discussion of payments.

(3) Changes in duty, status, authority, and knowledge can occur during the relevant time periods, as people change positions, leave or join the organization, or the organization itself changes.

(1) Appeals may settle a trust fund recovery penalty case by allocating the trust fund liability among the responsible individuals. However, the ATE must secure certified payment of the entire trust fund liability and agreement forms such as theForm 2751-AD , Proposed Assessment of Trust Fund Recovery Penalty, or closing agreements which state that the taxpayer(s) will not file a claim for refund. The agreement form(s) and the subsequent assessment(s) should be for the amounts of the liabilities each responsible individual is paying. Appeals will not allocate the liability unless the entire corporate trust fund liability is paid by certified funds and the appropriate agreement forms are secured.

(1) A litigating hazard is a substantial uncertainty about the outcome of a case should the taxpayer petition the court, based on:

• How the courts would interpret and apply the law (the decision-maker);

• What facts the court would find (factual complexities); or

• The admissibility of, or weight that would be given to a specific item of evidence.

(2) Some examples of factual and evidential hazards are:

• All the facts of the case may not be known

• Even after full development, there may be some dispute as to certain facts, and the weight they should be given

• Lack of evidence to support allegations asserted in the file

• Inability to obtain required evidence to support the issue or the inadmissibility of evidence

• The availability of witnesses

• The credibility of witnesses

(3) Consider all the known facts, divide them into those that are for and those that are against responsibility and willfulness, and weigh each one carefully to determine:

• If the government should concede;

• If the case is strong enough to support full assessment; or

• an acceptable settlement range.

(4) A settlement that is acceptable to all parties is preferable to a trial. Because of this, we emphasize a range of settlement values versus arriving at a precise amount for a hazards settlement.

(1) When appropriate, either Appeals or the taxpayer can make a settlement proposal. If both Appeals and the taxpayer agree, you need to determine if the assessment should be closed with finality by initiating a closing agreement.

(2) For determining TFRP liabilities with finality, Form 866, Agreement as to Final Determination of Tax Liability, is used.

(3) IRC 7121(b) provides: "If such agreement is approved by the Secretary (within such time as may be stated in such agreement, or later agreed to) such agreement shall be final and conclusive, and except upon a showing of fraud or malfeasance, or misinterpretation of material fact - (1) the case shall not be reopened as to the matters agreed upon or the agreement modified by any officer, employee, or agent of the United States, and (2) in any suit, action, or proceeding, such agreement, or any determination, assessment, collection, payment, abatement, refund, or credit made in accordance therewith, shall not be annulled, modified, set aside, or disregarded".

(4) Special agreement forms, like the Form 866, differ from theForm 870 type of general agreement in several ways. The following table compares the two categories of forms:

(5) Form 2751-AD, may be used in any case in which each responsible person agrees with the proposed settlement. In certain cases a closing agreement may be used instead of a Form 2751-AD. See IRM 8.13, Closing Agreements. This is usually done if the taxpayer or the Service desire finality and it would not be disadvantageous to the other party.

(6) In related TFRP cases where all responsible parties are not in agreement with an Appeals settlement based on hazards of litigation, a Form 2751 should be secured from the agreeing responsible person(s). Inform the agreeing responsible person(s) by closing letter that the case can be reopened if the Department of Justice decides to join all potentially responsible persons in a refund suit before the assessment limitation period expires. A refund suit in the Court of Federal Claims, as opposed to in a district court, does not permit the government to join other putative responsible persons. The government can either file a counterclaim or wait until the Court of Federal Claims proceeding ends before filing a collection suit elsewhere against all potentially responsible persons.

(7) If Appeals determines that the agreed upon settlement should be closed with finality:

1. Select the Agreement or TFRP category found in APGOLF in ACDS

2. Select Form 866, and then be sure to select the radio button to include the TFRP language. This format follows the pattern agreement inIRM Exhibit 8.13.1-8 . Your local closing agreement reviewer can assist you with any questions you may have.

3. Once the draft form is prepared, it is transmitted along with Form 4222 and a draft ACM to the closing agreement reviewer;

   Note: Since the Form 866 closing agreement determines tax liability, the Appeals Case Memorandum (ACM) must comment on all significant matters involved in the case, whether changed or unchanged by the Service, the reasons for recommending the closing agreement; and what the parties intend to accomplish by it .

4. If the reviewer finds the agreement acceptable, s/he will so indicate and return the agreement and the Form 4222 to you

5. At this point, you send the form to the taxpayer for original signature of all three copies;

   Note: For additions to tax of $250,000 or less, the Form 2751 as well as the Form 866 can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire to submit the waiver/agreement by fax.

6. Upon receipt of the signed copy, stamp the date received from the taxpayer on the reverse of all copies of the agreement, sign it as the receiver, and forward it, along with the Form 4222, to your reviewer for final review

7. Once the closing agreement reviewer has again reviewed the form it may be submitted along with the case to the ATM for final approval.

8. Delegation Order 8-3 (formerly DO-97, Rev. 34) gives authority to ATMs to sign closing agreements.

9. The date the agreement is signed by an official on behalf of the Commissioner is the date the agreement becomes effective; therefore it is important that the date on the closing agreement match the date on the Form 5402, Appeals Transmittal and Case Memo.

10. The date the agreement is signed on behalf of the Commissioner must be shown.

11. If an attorney or agent signs the agreement for the taxpayer, the power of attorney (or a copy) authorizing that person to sign must be attached to the agreement.

12. One of the blocks at the top of Form 5402 and ACM is checked where a closing agreement is executed in the case.

13. The following is sample wording for a TFRP closing agreement - Pattern Tax Liability Agreement Reflecting Trust Fund Recovery Penalty Assessment of Unpaid Federal Employment Taxes for Use on Form 866: See also IRM Exhibit 8.13.1-8: