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Postponing Assessment and Collection of the IRC 6672 Liability

Posted on Aug. 19, 2014

IRC 6672 imposes a personal liability on those responsible for collecting and paying over to the IRS taxes held in trust. This liability goes by several names including “Trust Fund Recovery Penalty” (TFRP); 100% Penalty; and Responsible Officer Penalty.

The code section sits in the assessable penalty chapter of the Internal Revenue Code but the Supreme Court has determined that this liability does not have the characteristics of a penalty for bankruptcy purposes. The Third Circuit has held that this liability does not have the same unlimited assessment period as other assessable penalties. (If you click on the link to the case, it will quickly become clear why the taxpayer won when you notice who was representing the taxpayer in that case.) The IRS has said that this liability does not have the same collection rules as other penalty assessments and that it will only collect the liability once even though assessments exists against multiple persons.

The policy statement creates an interesting situation when the IRS “over collects” this liability by obtaining payments from more than one responsible person in a total amount that exceeds the liability. For example, assume that ABC Inc. fails to pay $100 of collected taxes. The IRS assesses three responsible persons, Mr. A; Mr. B; and Mr. C, $100 each for this failure. On September 1, three different revenue officers each succeed in collecting $100 from the responsible officers. One collects from Mr. A at 10:00 AM; one from Mr. B at 11:00 AM and the third from Mr. C at 1:00 PM.

What will the IRS do with the “extra” $200 it has collected? It will return the money to Mr. B and Mr. C and keep the full amount paid by Mr. A. While this practice seems shortshigted because it encourages responsible persons not to pay, it creates opportunities for the responsible officer who understands this practice to seek to insure that one of the other responsible officers pays first.

How does a responsible officer seek to insure the other responsible officers pay first – by slowing down the assessment and collection process against himself and by aiding the IRS in collection from the others. In seeking to slow down the assessment and collection process, a representative must take care to avoid restrictions in Circular 230 on inappropriate delay.


It deserves note that the IRS does an excellent job of slowing down assessment without any assistance. On average, it takes the IRS about 21/2 years after the corporation’s failure to pay the trust fund taxes before the IRS makes assessments against responsible individuals. Of course, any given responsible officer wants his assessment to occur later than the assessments against other individuals also responsible for the same tax no matter how long the IRS takes on average.

It also deserves noting that delaying the assessment benefits a responsible officer even if the IRS ultimately collects from him because interest on the liability does not start until the assessment occurs. (The link takes you to a law review article I wrote several years ago explaining the inappropriateness of the beginning point for the running of interest.) Delaying assessment postpones the day on which interest begins as well as the day on which the failure to pay penalty begins. So, the strategy of delaying assessment reaps multiple benefits under the current, seemingly misguided, system.

Aside from avoiding or stalling the revenue officer during the investigative stage, a tactic not condoned by Circular 230 and not recommended here, availing yourself of all opportunities to appeal the proposed assessment presents itself as the simplest way to delay assessment.

Another change in 1996 was the establishment of a process granting an automatic right to go to the Appeals Division to contest a proposed TFRP assessment. The proposed responsible officer who avails himself of this opportunity rather than consenting to assessment or failing to appeal, will delay the assessment, assuming the person cannot persuade the IRS not to make the assessment, for the length of time the case sits in Appeals. The period of time a case sits in Appeals could be fairly long – certainly a time measured in months if not years. Meanwhile, maybe the IRS will have already collected the liability from another responsible person.


Once the IRS assesses the liability, it will send Notice and Demand followed by other letters leading up to the Notice of Intent to Levy and the offer of Collection Due Process (CDP) rights. A responsible officer trying not to be the first to pay will not voluntarily pay in response to the IRS correspondence and will request a CDP hearing. Here is another chance to sit in Appeals inventory, assuming your client qualifies for a CDP hearing and is not precluded by IRC 6330(f)(3). for several months while the IRS maybe collects from the other responsible officers.

CDP also creates the opportunity to go to Tax Court if a satisfactory collection alternative is not reached with the Settlement Officer. The time spent in Tax Court trying to reach an appropriate collection resolution gives more opportunity for the IRS to collect the liability from the other responsible officers.

Aiding the IRS

The IRS policy of keeping the first money it receives creates its own mini-whistleblower statute for responsible officers. These individuals frequently know each other’s finances very well. If they provide information to the revenue officer allowing easier collection of the liability form another of the responsible officers that can enhance the likelihood that the first one to pay will be the other person. The situation might be likenedto the children’s story of the three billy goats crossing the bridge each one telling the troll to wait for the next because the next one is better.


I think the IRS collection policies in this area create improper incentives as I have discussed in the articles linked above. It does not make sense to me from a tax administration standpoint to incentivize taxpayers to not pay or delay paying their taxes. The statute should charge interest from the moment the underlying liability arises and should give benefits to persons paying first rather than last. Nonetheless, since Congress and the IRS have created a system where a taxpayer can win by delaying, it is important to understand the incentives the system uses and work with them to the benefit of your client within the structures of the ethical rules. Paying last can subject the responsible officer to a suit from the person who does pay the trust fund taxes and another post will talk about that potential liability and the unanswered questions there.

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