Employers serve as tax collectors under the Internal Revenue Code: In addition to paying its own FICA and FUTA obligations, an employer must withhold FICA and income tax from its employees’ pay. See I.R.C. §§ 3102 (FICA “shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid”); 3402 (“every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary”).
For good measure, Congress included a mechanism to ensure compliance; if an employer fails to withhold and pay over the tax, responsible parties affiliated with the employer can be assessed with the trust fund recovery penalty under section 6672 of the Code, which makes these individuals liable if they willfully fail to assure that the taxes are paid.… Read More
When an employer fails to withhold and pay over FICA and income taxes from employees’ wages, individuals associated with the business may be subject to liability for the employer’s tax obligations under section 6672(a) of the Internal Revenue Code, which imposes the trust fund recovery penalty. Specifically, “the officers or employees of the employer responsible for effectuating the collection and payment of trust-fund taxes who willfully fail to do so are made personally liable to a ‘penalty’ equal to the amount of the delinquent taxes.” Slodov v. United States, 436 U.S. 238, 244-45 (1978). Liability is therefore tied to two distinct requirements: First, the individual must be “responsible,” and second, he must act willfully.… Read More
Section 6672 of the Internal Revenue Code provides the IRS with the authority to assess the trust fund recovery penalty, which imposes personal liability for employees’ FICA and income taxes on responsible officials affiliated with an employer. I.R.C. § 6672(a). Before the penalty is imposed, the statute provides for individual notice. I.R.C. § 6672(b)(1) (“No penalty shall be imposed under subsection (a) unless the Secretary notifies the taxpayer in writing by mail . . . or in person that the taxpayer shall be subject to an assessment of such penalty.”). The issuance of the notice generally tolls the assessment statute of limitations for ninety days, but “if there is a timely protest of the proposed assessment,” the statute is tolled until “the date 30 days after the Secretary makes a final administrative determination with respect to such protest.” I.R.C.… Read More
An individual who has been assessed with the trust fund recovery penalty for failure to collect, account for or pay over employment taxes generally cannot obtain review in Tax Court. Instead, judicial review is available by means of a refund claim, which can be heard either in district court or the Court of Federal Claims. Normally, jurisdiction over a refund action requires full payment of the tax. Flora v. United States, 362 U.S. 145, 150 (1960). For someone who is challenging the imposition of the trust fund recovery penalty, this rule is relaxed: because the tax is divisible, jurisdiction is established if the plaintiff has paid the withheld tax for one employee for one quarter.… Read More
Jurisdiction over a refund action requires full payment of the tax. Flora v. United States, 362 U.S. 145, 150 (1960). For someone who is challenging the imposition of the trust fund recovery penalty, this rule is relaxed: jurisdiction is established if the plaintiff has paid the withheld tax for one employee for one quarter is paid. Psaty v. United States, 442 F.2d 1154, 1159 (3d Cir. 1971).
A recent Court of Federal Claims case addressed an interesting issue: what if the plaintiff lacks sufficient access to records to determine what is the correct amount; will an estimate suffice? Kaplan v. United States, 2014 U.S.… Read More