1. INTRODUCTION

§ 5:1 In General

Congress enacted the Trust Fund Recovery Penalty Statute to encourage prompt payment of withheld and other collected taxes by allowing the IRS to assert a liability against responsible third parties. [IRC § 6672] The amount of the penalty imposed by the statute for failure to comply with its provisions is measured by the tax required to be collected or collected and not paid over. That is why the liability is referred to as a “100% Penalty.” The penalty is civil in nature, not criminal. The penalty is also sometimes called a Trust Fund Penalty because of the provisions of IRC §7501. IRC § 6672 reads as follows:

Any person required to collect, personally account for, and pay over any taxes owed by this title who willfully fails to collect such tax, or personally account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax on the penalty 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 § 6653 for any offense to which this section is applicable.

§ 5:2 Trust Fund

Congress clearly restricted the provisions of IRC §6672 to “Trust Fund” taxes as defined in IRC §7501. In other words, the penalty only applies to collected or withheld taxes that are imposed on persons other than the party who collects; accounts for, and pays over such taxes. The statute does not apply to direct taxes such as the employer’s portion of FICA, FUTA, noncollected income taxes, nor noncollected excise taxes. IRC § 7501 reads as follows: Read More