The Trust Fund Recovery Penalty (TFRP) is based on IRC 6672and facilitates the collection of tax and enhances voluntary compliance. The TFRP serves as an alternative means of collecting unpaid trust fund taxes when taxes are not fully collectible from the company/business that failed to pay the withheld taxes. Internal Revenue Manual (IRM) 5.7.4, Investigation and Recommendation of the Trust Fund Recovery Penalty, contains procedures and guidance for the investigation, recommendation and approval of the TFRP against individuals who are potentially responsible for the non payment of the business trust fund taxes.

IRC 6103, Confidentiality and disclosure of returns and return information.

IRC 6672, Failure to collect and pay over tax or attempt to evade or defeat tax.

IRC 7521, Procedures involving taxpayer interviews.

IRC 7602, Examination of Books and witnesses.

IRC 7609, Special procedures for third-party summonses.

Rev. Proc. 2012-18,Ex Parte Communications Between Appeals and Other Internal Revenue Service Employees.

IRC 3505, Liability of third parties paying or providing for wages.

SBSE Collection Functional Delegation Orders, which may be viewed at http://mysbse.web.irs.gov/opsupport/hc/facilitiesorganizationalsupport/orgsupportteam/imd/delorders/functional/default.aspx.

The Director, Collection Policy, is the executive responsible for the policies and procedures utilized by collection personnel.

Field Collection group managers and revenue officers are responsible for ensuring compliance with the guidance and procedures described in this IRM.

Field Collection is responsible to ensure taxpayers are informed of their rights in accordance with the Taxpayer Bill of Rights (TBOR) adopted in June of 2014.

Program Reports: The Automated Trust Fund Recovery (ATFR) program is used for group controls of imminent assessment statutes and timely TFRP case actions. ATFR pulls data from the Integrated Collection System (ICS) and the Integrated Data Retrieval System (IDRS).

Program Effectiveness: Embedded Quality (EQ) reviews conducted by Group Managers assess the timeliness of TFRP case actions. ATFR timeliness reports measuring TFRP program timeliness goals are provided monthly by Collection Automation Support and Security (CASS). These reports provide the information necessary to allow ROs to make timely and appropriate TFRP recommendations and assessment actions. Collection Policy does periodic program reviews to identify trends and opportunities to improve timely and effective TFRP case actions.

ATFR is used to track and record TFRP assessment actions and history. Ability to take action on ATFR is generally limited to field employees based on the employees’ duties and responsibilities.

ICS is used by Collection field employees for inventory control and history documentation.

Managers approve TFRP determinations and assessment recommendations.

Territory Managers (TM) and Area Directors (AD) include TFRP timeliness trends in operational reviews.

Managers are required to follow program management procedures and controls addressed in IRM 1.4.50, Resource Guide for Managers, Collection Group Manager, Territory Manager and Area Director Operational Aid.

This table lists commonly used acronyms and their definitions:

Additional acceptable acronyms and abbreviations are found in the ReferenceNet Acronym Database, which may be viewed at: http://rnet.web.irs.gov/Resources/Acronymdb.asp

IRM resources

Regardless of the amount of the trust fund, revenue officers will make a reasonable attempt to collect the entire liability in full.

Revenue officers will not solicit partial designated payments to bring the amount of the total aggregate trust fund below ≡ ≡ ≡ ≡ ≡ for the sole purpose of non-asserting the TFRP.

There is no prohibition against assessing the TFRP if the amount is below ≡ ≡ ≡ . See below for factors to consider when making an assessment determination on trust fund balances below ≡ ≡ ≡ ≡ ≡ ≡ .

There may be situations that warrant the assertion of the TFRP when the TFRP amount is below ≡ ≡ ≡ ≡ ≡ . Consideration will be given to the following factors:

The total aggregate trust fund amount should be computed by including any previously assessed TFRP amounts. Revenue officer and group manager discretion should be used if the unassessed amount does not justify the additional expense and effort to prepare a TFRP assertion package.

Group manager approval on ATFR is required to dispose of a case as below IRM criteria.

Certain facts may surface indicating that transfers of corporate stock and/or capital assets have occurred. If this is the case, in addition to pursuing the TFRP, consider recovery of the unpaid corporate liability by recommending:

See IRM 5.17.4, Legal Reference Guide for Revenue Officers, Suits by the United States, to determine which of these actions may be appropriate based on the facts of a particular case.

During the initial contact with the taxpayer (IRM 5.1.10.3.2, Effective Initial Contact), the revenue officer will attempt to conduct interviews with potentially responsible persons. The revenue officer will take the following actions during the interview:

Form 4180 is the form to be used for conducting TFRP interviews. It is intended to be used as a record of a personal interview with a potentially responsible person. During the initial contact, attempt to personally secure the form from potentially responsible persons. If Form 4180 cannot be secured, document the case history with the reasons why it was not secured.

The purpose of the personal interview and completion of Form 4180 is to secure direct, detailed information regarding the individual’s or other person's involvement in the business in order to determine if he or she meets the criteria for responsibility (IRM 5.7.3.3.1, Establishing Responsibility) and willfulness (IRM 5.7.3.3.2, Establishing Willfulness). The questions on the form are intended as a guide and are not all inclusive; supplemental questions may be asked.

Do not give or mail Form 4180 to the potentially responsible person(s) or representative for completion by that person or for review prior to the interview. The form must be completed in person or over the phone.

A summons may be necessary to require the potentially responsible person’s presence at the interview (See IRM 25.5 , Summons, and IRM 5.17.6, Legal Reference Guide for Revenue Officers, Summonses, for summons procedures, rights and privileges).

Enter "unknown" in the appropriate block on the form if the person interviewed cannot answer a specific question.

Enter "not applicable" in the appropriate block on the form if a question does not apply. If any information has already been completed on Form 433B, Collection Information Statement for Businesses, the revenue officer can enter "See 433-B" in the applicable blocks.

Form 4180 is formatted to allow for an abbreviated interview when the potentially responsible party is determined to be the only responsible party or in situations when a business structure is not complicated. This format allows the revenue officer to more easily tailor the depth of their TFRP investigation based upon the complexity of the business entity/ownership structure. Form 4180 should be used as follows:

After the interview is completed, ask the potentially responsible person to sign Form 4180. The revenue officer will also sign the form.

If the form can only be partially completed, determine whether to add a statement to page 4 indicating which portions of the form are incomplete.

If the potentially responsible person agrees to the assessment during an interview:

It may be necessary to contact a third party for the purpose of gathering information concerning officers or employees. In these cases, be sure the potentially responsible person has received the advance notice (Letter 3164-A, Third-Party Contact Letter) that a third-party contact may be made. Follow the procedures in IRM 25.27, Third-Party Contacts, as they pertain to respecting taxpayer rights in accordance with IRC 7602(c). The letter will be personally delivered or mailed to all parties who may be investigated as soon as they are identified. Letter 3164A is available as an ICS template.

If an interview cannot be conducted with the third party, send Form 4181, Questionnaire Relating to Federal Trust Fund Tax Matters of Employer.

If the third party is subsequently implicated as potentially responsible and willful, a personal interview will be recorded on Form 4180.

If one or more responsible persons is located in another area or territory and it is necessary to secure Form 4180 in order to determine responsibility and willfulness, it may be necessary to issue an ICS Other Investigation (OI).

An ICS OI should not be issued if the information necessary to recommend assertion is available where the employer balance due accounts are assigned.

The initiating office will furnish the receiving area or territory with all information and documents which relate to the responsibility of the person to be interviewed, including page 4 of Form 4183 , Recommendation re: Trust Fund Recovery Penalty Assessment; Form 2751; and information regarding issuance of Letter 3164A.

The receiving office will:

In the majority of cases, the core evidence necessary to support a TFRP recommendation will be:

The documentation, including bank records, will be requested from the business entity whenever possible. If the business entity does not provide the requested records by the deadline provided, a summons will be served on either the business entity, the bank, or both, to secure the required documents (See IRM 25.5 , Summons, and IRM 5.17.6.8, Third-Party Contact Requirements of IRC § 7602(c), for summons procedures).

The 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, corporate resolutions, and signature cards if not previously secured. These additional documents should not be routinely requested if responsibility and willfulness is supported by the core documents listed in (1) above. The time frames for the documents requested should relate to the tax periods associated with the TFRP investigation. In most instances, only the front of the cancelled checks will need to be secured. Do not use Form 2039, Summons, to summons a third-party record keeper, such as a financial institution, for documents to support a TFRP assessment. All documents related to Form 6639 issuance, including evidence of quash notification delivery, should be maintained in the TFRP case file.

Individual case factors will influence the amount of additional documentation needed to support the TFRP determination. The revenue officer must exercise judgment to determine if documentation beyond the core items is needed prior to submitting the TFRP recommendation for managerial approval. Photocopies of the documentation should be maintained in the TFRP case file as evidence to support the recommendation to assert the TFRP. Documentation received electronically and saved on CDs does not have to be printed. Document the ICS history that the summonsed information was received via digital media and saved on CD, and that the CD is being placed in the case file. (IRM 25.5.3.6.2.2(5), Saving Records for Administrative Case File, provides guidance for passwords and placement in file.))

In some circumstances, TFRP case files may contain limited documentation if all responsible parties sign Form 2751 prior to Form 4183 submission and approval. Trust Fund Recovery Penalty Investigations in which Forms 2751 are obtained from all responsible persons prior to managerial approval of Form 4183 and the amount to be assessed is less than ≡ ≡ ≡ ≡ do not require additional documentation to prove responsibility. The responsible parties willfulness must still be established. The basic requirement to conduct Form 4180 interviews contained in IRM 5.7.4.2.3TFRP Interviews and Investigations, and IRM 5.1.10.3.2(11) ), Effective Initial Contact, is not waived by the securing of a signed Form 2751. Trust fund recovery penalty investigations where Forms 2751 are obtained from all responsible persons prior to managerial approval of Form 4183 and the amount to be assessed is greater than ≡ ≡ ≡ ≡ ≡ ≡ ≡ , also require at least one piece of documentary evidence that shows persons signing the Form 2751Form 2751 are responsible. The examples below show the varying degrees of documentation required when Form 2751 is signed prior to Form 4183 approval:

Unless the TFRP amount to be assessed is less than ≡ ≡ ≡ ≡ ≡ , there should be sufficient documentation in the TFRP case file to support each recommendation, for each specific period of the liability. See IRM 5.7.4.2.7(1) for the core documentation requirements. The example below shows an appropriate assertion recommendation based upon the core documentation items:

If a business is a large or mid-sized corporation, or a business with a multi-layered or complicated ownership structure, or uses the services of a third-party payer, the revenue officer may determine additional documentation beyond the core items is necessary to support a TFRP assertion. The more convoluted the corporate structure (multiple responsible parties and/or multiple periods, intricate corporate structure) the more documentation is needed to support the assertion.

The RO must exercise judgment in determining if documentary evidence beyond the core items is necessary to support a TFRP assertion. Additional business records that may be reviewed include:

The business records may be reviewed to determine:

Additional bank records that may be reviewed include:

The bank records can be reviewed to determine:

Proceeds from an offset or a levy on a contract are applied to the liability incurred during the period of the contract even though the application may not serve the best interests of the government.

For payments from court proceedings, i.e., bankruptcy, insolvency, or decedents, contact Insolvency (see IRM 5.5, Decedent Estates and Estate Taxes).

Local management may determine a centralized unit will be responsible for processing the TFRP files after the Form 4183 has been approved.

These actions may include:

When the originally proposed TFRP amount is increased after the issuance of a Letter 1153(DO) and Form 2751, but prior to the TFRP assessment, a new Letter 1153(DO) and Form 2751 must be issued to the taxpayer to advise them of the proposed increase. The new Letter 1153(DO) and Form 2751 shall reflect the entire amount being proposed for the affected period(s) only.

If multiple periods were reflected in the original Letter 1153(DO) and Form 2751, only the period(s) affected by the increase shall be included in the new Letter 1153(DO) and reflected on a new Form 2751. Periods not affected by the increase will continue to be processed in accordance with established procedures and time frames.

The determination of whether a protest for the period(s) not affected by an increase is timely shall remain based on the date the initial Letter 1153(DO) and Form 2751 were issued, as will all processing time frames for periods not affected by the increase.

To facilitate the issuance of the new Letter 1153(DO) andForm 2751 for the period(s) affected, you must contact your Collection Automation Coordinator (CAC). The CAC will remove the affected period(s) from the current case and note the reason for the removal in the ATFR history. The CAC will then create a new case for the new issuance and processing. This action will enable the periods not affected by the increase to continue to be processed.

When a new case is created to address the need to issue a new Letter 1153(DO) and Form 2751 because of an increase in the proposed TFRP amount for a period(s) included in an earlier Letter 1153(DO) and Form 2751, additional periods not previously addressed may be due and subject to a Letter 1153(DO) and Form 2751. These new periods not included in a previous Letter 1153(DO) and Form 2751 may be included in the new Letter 1153(DO) and Form 2751 with the period(s) subject to the increase.

Letter 1153W, Proposed Trust Fund Recovery Penalty Rescission Notification, is used to rescind issuance of Letter 1153(DO).

If information that was not available prior to the issuance of Letter 1153(DO) is received before the assessment of a TFRP and results in a decision by the revenue officer to reverse all or a portion of the periods on Letter 1153(DO), the revenue officer will take the following actions:

If Letter 1153W is issued, it will nullifyLetter 1153(DO)) for the periods listed on Letter 1153W, and there will be no effect on the Assessment Statute Expiration Date (ASED).

If the TFRP will not be assessed on any periods, the TC 130, Entire Account Frozen from Refunding, which is systemically generated following input of a Letter Letter 1153(DO) delivery date on ATFR, must be reviewed to determine if reversal of the TC 130 is appropriate. The TC 130 may remain appropriate on an individual account, as there may be additional pending TFRP assessments from a different business or related sole proprietor liabilities. If none of these circumstances are present, initiate action to input TC 131, Reversal of TC 130 Refund Freeze.

A revenue officer can secure an in-business installment agreement rather than recommending immediate assertion of the TFRP, as long as:

If a revenue officer determines an in-business installment agreement is the appropriate case action, generally the TFRP will not be assessed if the taxpayer meets the terms of the installment agreement. However, based on the taxpayer's prior history as a repeater or because of the length of the proposed installment agreement, the revenue officer may determine assertion of the TFRP is in the best interests of the government. If the TFRP is not being assessed, the following actions must be taken relative to the TFRP if the agreement will not fully pay all balances due at least one year prior to the earliest ASED:

For cases where the installment agreement will fully pay all balances due at least one year prior to the earliest ASED, the revenue officer and the group manager should determine how far to proceed with the TFRP investigation in the event the agreement defaults. The decision should be based on the facts of the case, including:

Inform the responsible parties whether or not the penalty will be assessed. If the assessment of the TFRP is being held pending completion of the terms of an installment agreement, advise the responsible parties that default of the agreement will result in the processing of the recommendation for assessment.

When an in-business trust fund (IBTF) installment agreement is granted, and the TFRP is not being assessed, the TFRP file must be sent along with the IBTF installment agreement to Centralized Case Processing where the agreement is being monitored. Label the TFRP file, "Unassessed TFRP-IBTF IA Backup Documents - Earliest ASED is: {insert date}" Additional information on processing and monitoring these cases is contained in IRM 5.14.7.4, In-Business Trust Fund Installment Agreements Requiring Financial Analysis and Determining Ability to Pay.

When taxpayers do not meet the terms of their installment agreement, the agreement will be terminated. Centralized Case Processing (CCP) will secure the paper case file, transfer the case back to FC via ICS, and mail the paper case file to the appropriate group manager.

If the responsible party was not previously given appeal rights, follow the procedures in IRM 5.7.4.7, Notification of Proposed Assessment, for notifying the responsible party of the proposed assessment and of his or her appeal rights.

If the responsible party was already given appeal rights and Form 2751 was previously secured:

If an employer who owes trust fund taxes files bankruptcy, the TFRP ASED is not suspended with respect to the assessment. When a revenue officer learns an employer who owes trust fund taxes has filed bankruptcy, he or she should immediately contact Insolvency. Also, see IRM 5.9.3.11, Trust Fund Recovery Penalty.

If the TFRP determination and investigation have not been completed, the field group manager will review the facts of the case and determine whether to issue an ICS OI, Other Investigation, to conduct the TFRP investigation. The determination should be based on the dollar amounts involved, collection potential of the TFRP assessments, effect on compliance, and any other relevant factors.

In making the TFRP assessment determination, consider all available information including:

Once it is determined assessment of the TFRP is appropriate, collection may or may not be suspended against responsible persons if a filed bankruptcy limits collection actions. See IRM 5.9.3.11, Trust Fund Recovery Penalty, for a list of relevant factors. Revenue officers must contact the controlling Insolvency office for local guidelines addressing NFTL determination decisions to file, not file, or defer filing, and conditions under which the TFRP accounts are to be suspended, if applicable.

Secure waivers whenever possible from all responsible persons to protect the TFRP assessment statute (see IRM 5.7.3.6.1 , Form 2750 Waiver, for the actions required when securing a waiver). A waiver will be secured if the assessment statute will expire within one year following the scheduled full payment date of the plan. If a potentially responsible person refuses to sign the waiver, continue with the investigation and assertion of the penalty.

If a potentially responsible party files a bankruptcy petition after October 21, 1994, the statutory period for assessment will not be automatically extended by the bankruptcy filing.

If the potentially responsible person has filed bankruptcy, immediately contact Insolvency and advise them of the potential liability so a proof of claim may be filed. See IRM 5.9.3.11, Trust Fund Recovery Penalty.

Although the TFRP is nondischargeable in all bankruptcy cases filed on or after October 17, 2005, it is important to file a timely proof of claim to receive payment through the bankruptcy case.