Trust fund recovery penalty - "significant control" to be a "responsible person"

.  Code Sec. 6672 imposes the trust fund recovery penalty on any person who: (1) is responsible for collecting, accounting for, and paying over payroll taxes; and (2) willfully fails to perform this responsibility. The amount of the penalty is equal to the amount of the tax that was not collected and paid. 

The penalty is imposed on a “responsible person,” i.e., anyone in a business entity who has the duty to collect, account for, or pay over the tax. In determining whether there is willfulness, the courts have focused on whether a taxpayer had knowledge about the non-payment of the payroll taxes, or showed reckless disregard with respect to whether the payments were being made. Although the Code doesn't define who is “responsible” for purposes of the penalty, the Second Circuit has said that the determinative question is whether the individual has significant control over the enterprise's finances. 

The Second Circuit has instructed courts to consider the following relevant factors in determining whether an individual had significant control: whether the individual (1) is an officer or member of the board of directors; (2) owns shares or possesses an entrepreneurial stake in the company; (3) is active in the management of day-to-day affairs of the company; (4) has the ability to hire and fire employees; (5) makes decisions regarding which, when, and in what order outstanding debts or taxes will be paid; (6) exercises control over daily bank accounts and disbursement records; and (7) has check-signing authority. (U.S. v. Rem, (CA 2 1994) 74 AFTR 2d 94-6649)




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