A new memo from IRS's Small Business/Self-Employed (SBSE) Division spells out the documentation that revenue officers (ROs) should obtain when recommending that a trust fund recovery penalty (TFRP) be asserted against a taxpayer under Code Sec. 6672. It provides valuable insight on the documentation that IRS will look for to see if a TFRP is justified.

Background. Under Code Sec. 6672(a), if an employer fails to properly pay over its payroll taxes, IRS can seek to collect a TFRP equal to 100% of the unpaid taxes from a “responsible person,” i.e., a person who: (1) is responsible for collecting, accounting for, and paying over payroll taxes; and (2) willfully fails to perform this responsibility.

Necessary documentation. The SBSE memo says that in the majority of cases, the core evidence necessary to support an agent's TFRP recommendation will consist of:

• Form 4180 (Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes) interviews;
• Articles of Incorporation;
• Bank signature authority cards or electronic PINS/Passwords;
• Copies of a sampling of cancelled checks demonstrating payment to other creditors in preference to the government; or
• If the taxpayer predominately uses electronic banking, bank statements demonstrating debit transaction payments in preference to the government.

IRM 5.7.4.2.4 (4), (04-19-2011), Evidence That May Support Recommendations, adds that other business records that can be reviewed include: partnership agreement or other documents establishing/forming the business entity, minute books, Forms 941 (Employer's Quarterly Federal Tax Return); 1120 (U.S. Corporate Income Tax Return) 1065 (U.S. Return of Partnership Income); or,1040 (U.S. Individual Income Tax Return (for disregarded LLCs)).

Where employment tax returns were submitted in an electronic format (E-file or TeleFile), the signature information is not available on the printed document since the forms are signed via an IRS issued PIN. IRM 5.7.4.2.4 (4), advises agents how to obtain the signature document from one of IRS's data processing centers.

If the business entity doesn't provide the requested records by the deadline communicated by the RO, the SBSE memo says that a summons may be served on either the business entity, the bank, or both to secure the required documents. The Integrated Collection System (ICS) Form 6639, Financial Records Summons, template provides the option of summonsing a bank for additional data, such as bank statements, loan applications and related records, and corporate resolutions.

The SBSE memo says these additional documents should not be routinely requested if responsibility and willfulness can be supported, based upon the core documents discussed. The documents requested should relate to the tax periods associated with the TFRP investigation. In most instances, IRS says only the front of the cancelled checks will needed.

In some circumstances, TFRP case files may contain limited documentation when all responsible parties sign Form 2751, Proposed Assessment of Trust Fund Recovery Penalty. However, the SBSE memo advises that the basic requirement to conduct Form 4180 interviews is not waived by the securing of a signed Form 2751.

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