Trust Fund Recovery Penalty -

 IRM, Interview form 4180, willfulness, responsible person

 June 29, 2017

5.7.4  Investigation and Recommendation of the TFRP

• 5.7.4.1   Program Scope and Objectives
• 5.7.4.2   TFRP Determinations, Interviews and Investigations
• 5.7.4.3   Calculating the TFRP
• 5.7.4.4   Payments by Responsible Party on Behalf of the Employer
• 5.7.4.5   Form 4183 Penalty Assessment Recommendation
• 5.7.4.6   Manager’s Review of Trust Fund Recommendations
• 5.7.4.7   Notification of Proposed Assessment
• 5.7.4.8   Determining Whether To Pursue the TFRP in Installment Agreement or Bankruptcy Situations
• 5.7.4.9   TFRP and Offers in Compromise

Manual Transmittal

June 29, 2017

Purpose

(1) This transmits revised IRM 5.7.4, Trust Fund Compliance, Investigation and Recommendation of the Trust Fund Recovery Penalty..

Material Changes

(1) Minor editorial changes made throughout the text.

(2) IRM 5.7.4.1 was updated to include the new Internal Management Documents System, Internal Revenue (IRM) internal control requirements segments.

(3) IRM 5.7.4.1.1 renamed and renumbered to IRM 5.7.4.2.

(4) IRM 5.7.4.1.1.1 renumbered to IRM 5.7.4.2.1.

(5) IRM 5.7.4.1.2 renumbered to IRM 5.7.4.2.2.

(6) IRM 5.7.4.2 renumbered to IRM 5.7.4.2.3.

(7) IRM 5.7.4.2 (2)was updated to include note providing guidance for cases to be worked on Automated Trust Fund Recovery (ATFR) system whenever possible.

(8) IRM 5.7.4.2 (8)was updated to include note providing guidance for cases that cannot be worked on ATFR

(9) IRM 5.7.4.2.1 renumbered to IRM 5.7.4.2.4.

(10) IRM 5.7.4.2.2 renumbered to IRM 5.7.4.2.5.

(11) IRM 5.7.4.2.3 renumbered to IRM 5.7.4.2.6.

(12) IRM 5.7.4.2.3 was updated to include new paragraph (d) with guidance to explain the Trust Fund Recovery Penalty (TFRP) calculation.

(13) IRM 5.7.4.2.4 renumbered to IRM 5.7.4.2.7.

(14) IRM 5.7.4.2.7 (4) was updated with information regarding documentation received via digital media.

(15) IRM 5.7.4.3 (4) IRM 5.7.4.3(4) Note was clarified with guidance when cases cannot be worked on ATFR.

(16) IRM 5.7.4.3(9) Note was moved to create new IRM 5.7.4.3 (9).

(17) IRM 5.7.4.3(9) was renumbered IRM 5.7.4.3 (10).

(18) IRM 5.7.4.5 (6) was updated to delete Control Point Monitoring (CPM) review of core documentation, based on IG memorandum SBSE-05-0716-0032.

(19) IRM 5.7.4.5 (11) was added to clarify guidance for assembling TFRP case files, based on IG memorandum SBSE-05-0716-0032.

(20) IRM 5.7.4.5 (12) was added to remove CPM review of case file to address missing documentation, based on IG memorandum SBSE-05-0716-0032.

(21) IRM 5.7.4.6 (1) was updated to emphasize group manager (GM) responsibility to address missing documentation, based on IG memorandum SBSE-05-0716-0032.

(22) IRM 5.7.4.7 (3) IRM 5.7.4.7(3) table was updated to clarify Letter 1153(DO) delivery options.

Effect on Other Documents

This material supersedes IRM 5.7.4, dated November 12, 2015. This material incorporates Collection Interim Guidance Memorandum SBSE-05-0716-0032, Trust Fund Recovery Penalty (TFRP) Case Processing, dated July 1, 2016.

Audience

Small Business/Self-Employed Collection Employees

Effective Date

(06-29-2017)

Kristen E. Bailey
Director, Collection Policy

5.7.4.1  (06-29-2017)
Program Scope and Objectives

1. Purpose: This chapter provides guidance for collection employees in conducting Trust Fund Recovery Penalty determinations, investigations and recommendations.
2. Audience: Field Collection revenue officers (RO) and group managers (GM) will be the primary users of the IRM. Revenue officers are responsible for making collection determinations including Trust Fund Recovery Penalty recommendations. Group managers have authority to review and approve Trust Fund Recovery Penalty recommendations.
3. Policy Owner: SB/SE Director, Collection Policy.
4. Program Owner: SB/SE Headquarters Collection Policy.
5. Primary Stakeholders: Revenue Officers, Offer in Compromise Employees, Centralized Case Processing, Advisory.
6. Program Goals: This guidance is provided to communicate the responsibilities of revenue officers for making collection determinations including Trust Fund Recovery Penalty recommendations and the authority and responsibilities of group managers to review and approve Trust Fund Recovery Penalty recommendations. This guidance provides the information necessary to allow ROs to make timely and appropriate TFRP recommendations and assessment actions.
7. Contact Information: Recommendations and suggested changes to this IRM should be emailed to the Content Product Owner. The owner is indicated on the Product Catalog Information page which is found in the Forms/Pubs/Products IRM listing of the Media and Publications web site.

5.7.4.1.1  (06-29-2017)
Background

1. 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.

5.7.4.1.2  (06-29-2017)
Authority

1. IRC 6103, Confidentiality and disclosure of returns and return information.
2. IRC 6672, Failure to collect and pay over tax or attempt to evade or defeat tax.
3. IRC 7521, Procedures involving taxpayer interviews.
4. IRC 7602, Examination of Books and witnesses.
5. IRC 7609, Special procedures for third-party summonses.
6. Rev. Proc. 2012-18,Ex Parte Communications Between Appeals and Other Internal Revenue Service Employees.
7. IRC 3505, Liability of third parties paying or providing for wages.
8. SBSE Collection Functional Delegation Orders, which may be viewed at http://mysbse.web.irs.gov/opsupport/hc/facilitiesorganizationalsupport/orgsupportteam/imd/delorders/functional/default.aspx.

5.7.4.1.3  (06-29-2017)
Responsibilities

1. The Director, Collection Policy, is the executive responsible for the policies and procedures utilized by collection personnel.
2. Field Collection group managers and revenue officers are responsible for ensuring compliance with the guidance and procedures described in this IRM.
3. 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.

5.7.4.1.4  (06-29-2017)
Program Management and Review

1. 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).
2. 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.

5.7.4.1.5  (06-29-2017)
Program Controls

1. 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.
2. ICS is used by Collection field employees for inventory control and history documentation.
3. Managers approve TFRP determinations and assessment recommendations.
4. Territory Managers (TM) and Area Directors (AD) include TFRP timeliness trends in operational reviews.
5. 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.

5.7.4.1.6  (06-29-2017)
Acronyms

1. This table lists commonly used acronyms and their definitions:

2. 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

5.7.4.1.7  (06-29-2017)
Related Resources

1. IRM resources
• IRM 5.1.10, Taxpayer Contacts
• IRM 5.1.18, Locating Taxpayers and Their Assets
• IRM 5.1.24, Third-Party Payer Arrangements for Employment Taxes
• IRM 5.7.3, Establishing Responsibility and Willfulness for the Trust Fund Recovery Penalty (TFRP)
• IRM 5.7.5, Collectibility Determination
• IRM 5.7.6, Trust Fund Penalty Assessment Action
• IRM 5.7.7, Payment Application and Refund Claims
• IRM 5.14.5, Streamlined, Guaranteed and In-Business Trust Fund Express Installment Agreements
• IRM 5.14.17, BMF Installment Agreements
• IRM 5.19.14, Trust fund Recovery Penalty (TFRP)
• IRM 25.5, Summons
• IRM 25.27, Third-Party Contact Program

5.7.4.2  (06-29-2017)
TFRP Determinations, Interviews and Investigations

1. The decision whether to pursue the TFRP should be made:
• After the initial contact with the BMF trust fund taxpayer.
• As soon as possible, but no later than 120 calendar days after assignment of the balance due account(s) to a revenue officer (ICS will provide a warning notice when there are 60 days remaining on the determination date and when the determination date has expired.).

Note:

The determination date may be shortened if there is an imminent assessment statute expiration date (ASED). See IRM 5.7.3.5, Statutory Assessment Period, for information on the ASED.

2. The 120-day determination date will appear on the Automated Trust Fund Recovery Penalty (ATFR) system. A decision to pursue or not pursue the TFRP must be made within this time period, unless the trust fund tax balance is less than ≡ ≡ ≡ ≡ (see IRM 5.7.4.2.1, Factors When Considering Trust Fund Balance Owed Amounts) or the group manager authorizes a delay to the TFRP determination time frame (e.g., when the taxpayer/potentially responsible persons cannot be located or identified) prior to its expiration. The decision to pursue or not pursue the TFRP will be documented in the ICS history.

Note:

Cases must be worked on the ATFR system whenever possible. This ensures the correct means of calculation and the current procedures have been followed in case processing, and that systemic records are created of the determination and assessment (IRM 5.7.3.2(4), Automated Trust Fund Recovery (ATFR) Program).

3. The decision whether to pursue the TFRP should be made unless one of the following is present:
• The taxpayer is out of business and the responsible party cannot be identified or located. See IRM 5.1.18, Locating Taxpayers and Their Assets, for guidance on locating taxpayers.
• The taxpayer meets the criteria for an In-Business Trust Fund Express Installment Agreements (IBTFIA) and the decision has been made to grant the agreement. (See IRM 5.14.5.4, In-Business Trust Fund Express Installment Agreements.)
4. Before the revenue officer may decide not to pursue the TFRP in IBTFIA situations, the taxpayer must meet all the following conditions:
• Unpaid Balance of Assessment (UBA) is $25,000 or less
• Outstanding liabilities only include current year or prior calendar year periods
• Entire liability will be paid in 24 months
5. Regardless of any authorized delay or exception listed in (3) and (4) above, the revenue officer is expected to follow initial contact procedures for trust fund investigations found in IRM 5.1.10.3.2, Effective Initial Contact.

Note:

If the revenue officer determines during pre-contact analysis that the outstanding trust fund balance is under ≡ ≡ ≡ , and the taxpayer is not accruing additional liabilities, the revenue officer may waive the requirement to secure Form 4180 if a resolution for immediate full payment, short term (less than 120 days) full payment, or IBTFIA meeting the criteria in (3) above is agreed upon during the initial contact with the taxpayer.

6. If the determination to pursue the TFRP is delayed beyond the 120-day period, the determination screen on the ATFR system must be updated to request the delay. If the delay option is selected, the user must enter an explanation and provide a new determination date. The request must be made prior to the expiration of the 120-day determination period.
7. If the delay request is approved by the group manager, the determination date will change on the ATFR screen.

Note:

If the request is not approved, a notification will appear on the ATFR corporate screen and the reason for the disapproval will be shown in the history.

8. If the case cannot be processed on ATFR, the request to delay the TFRP determination beyond the 120-day time period should be requested via Form 8213, Recommendation to Delay Decision re: Assessment of Trust Fund Recovery Penalty or Personal Liability for Excise Tax.

Note:

In those rare instances (e.g., excise taxes) when you cannot use ATFR, contact your Collection Automation Coordinator (CAC) or Functional Automation Support Specialist (FASS), who can be located on the CAC and FASS research tool at:http://serp.enterprise.irs.gov/databases/who-where.dr/cass/fas.html. The CAC or FASS will verify the action cannot be completed on ATFR before you begin the process manually (IRM 5.7.3.2(4) Note.) You will need to use ICS Templates to generate all necessary letters and forms, including Forms 2749 and 2859 for actual assessment, and seek manual manager approval.

9. If the revenue officer’s decision is to pursue the TFRP, Form 4183, Recommendation re: Trust Fund Recovery Penalty Assessment, will be submitted to the group manager for approval no later than 120 calendar days from the date the decision was made to pursue the TFRP, unless the group manager determines circumstances exist to warrant more time. Group managers will grant additional time for recommendation to assert or not assert the TFRP by making an entry in the ICS history documenting the circumstances when the delay is approved. See IRM 5.7.4.8, Determining Whether to Pursue the TFRP in Installment Agreement or Bankruptcy Situations, for situations in which the business wishes to enter into an installment agreement or the business or a responsible party has filed bankruptcy.

5.7.4.2.1  (06-29-2017)
Factors When Considering Trust Fund Balance Owed Amounts

1. Regardless of the amount of the trust fund, revenue officers will make a reasonable attempt to collect the entire liability in full.
2. 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.
3. 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 ≡ ≡ ≡ ≡ ≡ ≡ .
4. 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:
1. Potential to incur additional liabilities on an in-business taxpayer who is not remaining current.
2. Potential for additional liabilities from unfiled returns.
3. Taxpayer's history of non-compliance that extends beyond the open balance due accounts.
4. Responsible person's history of employment tax non-compliance.
5. 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.
6. Group manager approval on ATFR is required to dispose of a case as below IRM criteria.

5.7.4.2.2  (06-29-2017)
Additional Actions to Consider

1. 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:
• Suit to establish a transferee liability.
• Suit to set aside a fraudulent transfer.
• Examination referral.
2. 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.

5.7.4.2.3  (06-29-2017)
TFRP Interviews and Investigations

1. 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:
1. Provide Publication 1, Your Rights as a Taxpayer, and document in the history the publication was delivered.
2. Explain the TFRP.
3. Present a copy of the TFRP calculation (Page 4 of Form 4183, see IRM 5.1.10.2(6), Pre-Contact) to all potentially responsible persons and advise them the IRS can personally assess the TFRP against those it determines liable for the penalty for the unpaid trust fund amount and collect the liability from their personal income and assets. Also, see IRM 5.7.4.4, Payments by Responsible Party on Behalf of the Employer.
4. Explain how the TFRP was calculated and if the taxpayer provides payroll records showing the composition of the FTD and that it was timely, it may lower the TFRP calculation. See IRM 5.7.4.3(9).
5. Provide Notice 784, Could You Be Personally Liable for Certain Unpaid Federal Taxes?, to the person interviewed and provide sufficient copies of Notice 784 to allow distribution to all other persons associated with the business who, based on the interview and other preliminary investigation, may be liable.
6. Advise the person(s) being interviewed of the proper actions to take to avoid such liability.
7. Begin asking questions and securing core documentation items from the taxpayer in support of assertion of the penalty (See IRM 5.7.4.2.7(1), Evidence That May Support Recommendations). If the documents are not secured, establish deadlines for the information and documents.
8. Attempt to secure at least one Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes, from a potentially responsible person (See IRM 5.7.4.2.4, Form 4180, and IRM 5.7.4.2.7, Evidence That May Support Recommendations).

Note:

Secure additional Forms 4180 from all potentially responsible persons to the extent possible.

9. Generally, if a taxpayer states during any interview that he or she wishes to consult with an authorized representative, the employee will suspend the interview to permit such consultation. See IRM 5.1.10.7.1, Rights During Interviews.

5.7.4.2.4  (06-29-2017)
Form 4180

1. 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.
2. 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.

Note:

Notice 609, Privacy Act Notice, should be provided to the individual during the interview.

3. 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.
4. 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).
5. Enter "unknown" in the appropriate block on the form if the person interviewed cannot answer a specific question.
6. 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.
7. 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:
1. Page 1 incorporates core willfulness and responsibility questions to support assertion recommendations and may be used as an abbreviated interview when there is only one responsible party or in situations when the business entity and ownership structure is not complex.

Question responses on page 1 will prompt revenue officers to make determinations as to whether the TFRP interview should be continued on subsequent pages. For example, if the party being interviewed indicates they used the services of a third-party payer, or if the party being interviewed is the third-party payer, the form will direct the revenue officer to complete subsequent section(s) on page 3 related to third-party payers. If the party being interviewed indicates other individuals had the responsibility or authority to perform the core responsibilities in Section II, the form will direct the revenue officer to complete Section IV and V on page 2.

If the revenue officer determines that page 1 of the form sufficiently addresses willfulness and responsibility, and is not prompted to complete additional sections of the form, the taxpayer’s signature may be obtained on page 1.

2. Section VI on page 3 has Payroll Service Provider (PSP) or Professional Employer Organization (PEO) questions to assist the revenue officer in TFRP investigations when a PSP or PEO is involved. If the business has never used the services of a PSP or PEO, Section VI will not require completion.
3. Section VII on page 3 will only require completion for excise tax case investigations.
4. Page 4 provides narrative space to record any additional information provided by the taxpayer.
5. If the revenue officer determines page(s) 2 and/or 3 of the form must be completed, the taxpayer’s signature should be obtained on page 4.
7. After the interview is completed, ask the potentially responsible person to sign Form 4180. The revenue officer will also sign the form.

Note:

Make a copy of the signed Form 4180 and give it to the potentially responsible person and/or authorized representative, when feasible.

9. 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.

Note:

A statement can be updated at a later date with the changes initialed by the revenue officer and the person interviewed.

10. If the potentially responsible person agrees to the assessment during an interview:
1. Advise the individual of his or her appeal rights and document the history accordingly.
2. Secure his or her signature on Form 2751, Proposed Assessment of Trust Fund Recovery Penalty.

Reminder:

A Form 4180 interview must still be completed, even if the responsible party or parties sign Form 2751.

3. Advise the taxpayer interest will accrue on the TFRP from the date of assessment to the date of payment on the underlying trust fund liability and on any unpaid interest. (See IRM 5.7.7.2 , Pre-Assessment Payment, for information on processing payments received prior to the assessment of the TFRP).

Note:

Provide Letter 1153(DO)(DO) to the taxpayer (IRM 5.7.4.7 , Notification of Proposed Assessment) as soon as possible when Form 2751 is executed during an interview and explain to the responsible person he is waiving the 60-day restriction on notice and demand set forth in IRC 6672(b) . See IRM 5.7.6.1.2, Agreed Cases, for actions on agreed cases.

5.7.4.2.5  (06-29-2017)
Third-Party Interviews and Third-Party Contact Considerations

1. 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.

Note:

If the revenue officer knows the identity of potentially responsible officers or other parties, such as a third-party payer, prior to conducting the interview, all potentially responsible parties will be provided with Letter 3164A before any interviews are conducted. Completing the Form 4180 interview should not be viewed as a third-party contact with respect to persons who are being identified for the first time during the interview. During the Form 4180 interview, if the revenue officer becomes aware of additional potentially responsible parties, the revenue officer will continue conducting the interview and completing Form 4180. The revenue officer does not need to stop in the middle of an interview whenever another potentially responsible party is identified. If the revenue officer intends to contact third parties to investigate the other potentially responsible parties identified during the interview, he or she must mail or personally deliver Letter Letter 3164A prior to making any further contacts for purposes of determining whether they may be held liable.

2. If an interview cannot be conducted with the third party, send Form 4181, Questionnaire Relating to Federal Trust Fund Tax Matters of Employer.
3. If the third party is subsequently implicated as potentially responsible and willful, a personal interview will be recorded on Form 4180.

5.7.4.2.6  (06-29-2017)
Courtesy Investigations

1. 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).
2. An ICS OI should not be issued if the information necessary to recommend assertion is available where the employer balance due accounts are assigned.
3. 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.
4. The receiving office will:
1. Initiate all appropriate correspondence, conduct the necessary interviews, and secure Form 4180.
2. Ensure compliance with third-party notice requirements.
3. Secure Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals.
4. Secure waivers (IRM 5.7.3.6.1 , Form 2750 Waiver), if appropriate.
5. Secure the responsible party's signature on Form 2751 if the responsible party agrees to the assessment following the guidelines in IRM 5.7.4.2.4 (10), Form 4180.
6. Secure and include in the file documentation of sources of income and assets and all necessary supporting documents in order for the initiating revenue officer to make a recommendation for assertion or nonassertion of the TFRP, including nonassertion due to collectibility.
7. Close the courtesy investigation and submit the documentation to the initiating office for the TFRP determination to be completed.

5.7.4.2.7  (06-29-2017)
Evidence That May Support Recommendations

1. In the majority of cases, the core evidence necessary to support a TFRP recommendation will be:
• Form 4180 interviews
• Articles of Incorporation
• Bank signature cards or electronic PINs/Passwords assignment information
• 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.

Note:

If any of the core items listed above are not secured, the ICS case history must document why the items were not secured.

2. 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).

Reminder:

Revenue officers must ensure and document Letter 3164A issuance prior to submitting a Form 6639, Financial Records Summons, for manager approval to comply with IRC 7602(c).

Note:

See IRM 25.5.1.4.1, Documents from Financial Institutions in the Tenth Circuit , for summons issues specifically related to Kansas, Oklahoma, Wyoming, Utah, Colorado, and New Mexico.

3. 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.

Reminder:

Revenue officers must ensure Part D of Form 6639 is issued to all named parties on the summons, including the business entity, to comply with IRC 7609(a). See IRM 25.5.6.4.1, Procedures for Summonses Issued to Investigate Liabilities for the Trust Fund Recovery Penalty.

4. 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.))

Note:

There must be sufficient documentation in the file to support each recommendation for assertion for each specific period of the liability.

5. 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:

Example:

A revenue officer (RO) completes an initial analysis and determines who the probable officers are through the information reviewed in the Articles of Incorporation. The business is not current with Federal Tax Deposits. The RO makes a field call to the business and both officers are present. The RO completes Form 433B and determines the business is unable to pay the liability. The RO secures Form 4180 and Form 433A, Collection Information Statement, from both officers. Both officers state they are responsible and they each sign a Form 2751 for ≡ ≡ ≡ ≡ ≡ The RO in this example has the Articles of Incorporation secured during initial analysis as well as Forms 4180 and 433-A from each officer. No additional documentation is required.

Example:

A RO completes an initial analysis and determines who the probable officers are through the information reviewed in the Articles of Incorporation. The RO makes a field call to the business and both officers are present. The RO secures Form 4180 and Form 433A from both officers. Both officers state they are responsible and both sign a Form 2751 for ≡ ≡ ≡ ≡ . The RO secures a copy of bank signature cards from the officers. The RO in this example has the Articles of Incorporation secured during initial analysis and Form 4180 and Form 433A. The Articles of Incorporation are a core documentation item and satisfy the requirement for one additional piece of documentary evidence.

6. 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:

Example:

A RO completes an initial analysis and determines who the probable officers are through the information reviewed in the Articles of Incorporation. The RO makes a field call to the business, speaks to the one officer present and secures Form 4180 and Form 433A, Collection Information Statement. The RO requests bank documents from the taxpayer and establishes a deadline for the information. The RO schedules and completes a Form 4180 interview with the officer who was not present during the initial field call. When the taxpayers fail to submit the requested documents, the RO prepares Form 6639 requesting bank signature cards and a sampling of the front copy of checks for the periods of the liability. Following the expiration of the bank summons quash period, the RO reviews the bank records and determines there are no additional signature authorities on the account. Based upon review of the cancelled checks, the RO determines payments were made by both officers to other creditors in preference to the accruing taxes. The RO has secured the core documentation items and has sufficient documentation to support recommendation of the TFRP against both parties.

7. 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.
8. 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:
• Partnership Agreements; 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).

Note:

For cases in which the employment tax returns were submitted in an electronic format (E-file or TeleFile), the signature information is not available on the printed document because the forms are signed via an IRS issued PIN. The Reporting Agent File (RAF) database holds the Reporting Agent Records and related taxpayer/client records. Reporting Agents (RAs) are companies (not individuals) that perform payroll services for other businesses. In connection with the payroll services, RAs may file their client’s employment tax returns on magnetic tape or electronically. Taxpayers designate authorization to the RA using Form 8655, Reporting Agent Authorization. IDRS Command Code RFINK will identify the forms and tax periods authorized for the Reporting Agent. The information obtained is mainly to establish a relationship existed between the taxpayer and the payroll service provider. RFINK data could necessitate a deeper investigation of the responsible parties and the payroll service provider(s) to ensure we have addressed all potentially responsible parties. The RO's investigation of who is authorizing payroll and payment of other creditors will provide the most important elements of who is responsible and willful. See IRM 21.3.9, Processing Reporting Agents File Authorizations and IRM 5.1.23.3.4, Authority Granted by Form 8655, for additional information on Reporting Agents.

• Payroll records.
• Copy of the contract or agreement for service between the taxpayer and a third-party payer.
• Any other records that may be relevant to determining the roles and responsibilities of individuals involved with the business entity.

Note:

Consult with your local Area Counsel in any case involving whether a third-party payer is a responsible person(s) under IRC 6672 for the TFRP.

9. The business records may be reviewed to determine:
• Duties (and changes to duties) of officers, directors, etc.
• Appointments and resignations of officers, directors, etc.
• Responsibilities of individuals to file and pay tax returns.
• Issuance of stock to officers, directors, etc.
• Assets transferred to officers, directors, etc.
• Loans made to officers, directors, etc.
• Unreported payroll and other taxes.
• Diversion of funds.
• Borrowing of funds not used to pay taxes.
• Responsible parties within a Payroll Service Provider (PSP).
• Responsible parties within a Professional Employer Organization (PEO).
10. Additional bank records that may be reviewed include:
• Correspondence to the bank relative to changes affecting the signature cards or PIN assignment information.
• Loan applications and records of loans.
• Any other records that may be relevant to determining which individuals were involved in the financial affairs of the business.
11. The bank records can be reviewed to determine:
• Authority of persons to sign checks and deposit funds.
• Authority of persons to obligate the business by borrowing.
• Diversion of funds to officers, members, etc.
• Deposits and withdrawals of alleged loans to business by officers, members, directors, etc.
• Excessive salaries, expenses, etc.
• Payment of other obligations.
• Deposit records for monies received for sale of assets.
• Deposit records of payments for stock, membership, or other ownership rights in the business.
• Payments to third-party payers.
• Any other relevant records.

5.7.4.3  (06-29-2017)
Calculating the TFRP

1. If a taxpayer submits a partial payment of a liability when there are assessments for more than one taxable period, and does not provide specific written instructions as to the application of the partial payment, then apply the payment in a manner serving the best interests of the government. The payment will generally be applied to satisfy the liability for successive periods in descending order of priority until the payment is absorbed. When considering the best interests of the government and period of priority, in addition to statute and lien priority issues, consideration will be given to applying payments first to non-trust fund modules such as Form 1120, Form 940 and Form 1040 (for disregarded LLCs). If the amount applied to a period is less than the liability for the period, the amount will be applied to tax, penalty, and interest, in that order, until the amount is absorbed (Rev. Proc. 2002-26, 2002-1 C.B. 746, Sec. 3.02). This procedure also applies if there are unassessed amounts for which the Service and the taxpayer agree the taxpayer is liable.
2. Do not solicit partial designated payments for the sole purpose of reducing the trust fund balance on the case below ≡ ≡ ≡ ≡ .
3. The ATFR system should be used to calculate the TFRP balance. The system interfaces with IDRS and receives from IDRS all open trust fund modules with a balance due when it is calculating the trust fund amount. In addition, the user has the ability to add pre-assessed periods and local payments. ATFR may be used at any time during the investigation to determine the current outstanding TFRP balance.

Reminder:

If returns were calculated under IRC 6020(b) and the liability is being included as part of the TFRP assessment, these returns must be submitted for processing and added to ATFR as pre-assessed modules if the assessment has not yet posted. This will allow for the appropriate cross referencing and reconciliation of the trust fund balances required for financial reporting requirements.

4. The following TFRP assessments can and should be processed on ATFR:
• Form 941, Employer's Quarterly Federal Tax Return - TFRP is equal to the amount of the employees' share of FICA and withholding.
• Form 943 , Employer's Annual Federal Tax Return for Agricultural Employees - TFRP is equal to the amount of the employees' share of FICA and withholding.
• Form 944 , Employer's Annual Federal Tax Return - TFRP is equal to the amount of the employees' share of FICA and withholding.
• Form 945, Annual Return of Withheld Federal Income Tax - TFRP is 100 per cent of the tax.
• Form 1042, Annual Withholding Tax Return for US Source Income of Foreign Persons - TFRP is 100 per cent of tax.
• Form CT-1, Employer's Annual Railroad Retirement Tax Return - Due to the different rates on Tier 1 versus Tier II, the ATFR FICA and Withholding amounts downloaded from IDRS will require adjustment. Please seek assistance from your Collection Automation Coordinator (CAC) .

Note:

In rare instances (e.g., excise taxes, see IRM 5.7.3.1.3 , Personal Liability for Excise Taxable Fuel Taxes, for Form 720, Quarterly Federal Excise Tax Return), you cannot use ATFR to propose and process the TFRP assessment. Contact your Collection Automation Coordinator (CAC) to verify the action cannot be completed on ATFR and obtain procedural guidance to complete the process manually (IRM 5.7.3.2(4)Automated Trust Fund Recovery (ATFR) Program.).

Locate contact information for your Area CAC or FASS on the ATFR website at: http://serp.enterprise.irs.gov/databases/who-where.dr/cass/fas.

5. When the single member owner (SMO) and the LLC are the liable taxpayers for different tax periods under the same Employer Identification Number, contact the Area CAC or FASS to create two cases on ATFR.When there are separate cases on ATFR, separate actions may be taken:

6. When the original trust fund amount reported (i.e., TC 150) on a return has been satisfied and there is a subsequent assessment of additional tax (e.g., TC 290, 294 or 298, Additional Tax Assessment; TC 300, TC 304, TC 308, Additional Tax or Deficiency Assessment by Examination Division or Collection Division) on the module, any payments made towards the previously satisfied tax may not be reapplied to any part of the additional tax assessment for purposes of the TFRP calculation. There is no distinction if the original assessment was satisfied by Federal Tax Deposit(s) or subsequent payment(s), as the operative fact is that the original tax had been satisfied prior to the additional assessment. The ATFR system has been programmed to take this situation into account and will ask if the user wants the additional assessment included in the TFRP calculation. Refer to 5.7.3.3.2, Establishing Willfulness, for guidance when determining if an additional assessment should be included in the TFRP calculation.

Note:

You should use this same payment application methodology when manually calculating the TFRP for modules involving additional tax assessments.

7. Before submitting Form 4183 , Recommendation re: Trust Fund Recovery Penalty Assessment, for approval, the TFRP calculation must be updated.
8. In order to determine the TFRP balance:
• On cases where the Letter 1153(DO) is issued on or after June 19, 2000,
• For all payments received on or after January 1, 2003, for cases where the Letter 1153(DO) was issued before June 19, 2000,

all undesignated payments on a tax period are applied following the guidelines below:

9. If the taxpayer established a deposit was in the amount required by Treasury Regulation 31.6302–1 (after December 31, 1992, with allowance for the safe harbor rule), the FTD will be applied to 1 and 2 for the specific period covered by the FTD, even before June 19, 2000. The taxpayer must provide payroll records showing the composition of the FTD and that the FTD was timely. The records must reflect exactly how much of the FTD was employer FICA, employee FICA, and income tax withheld. The procedures on ATFR for using designated (split) TC 650 payments should be used in these types of cases.
10. For TFRP assessments when the Letter 1153(DO) was issued prior to June 19, 2000, involuntary payments and undesignated payments received through December 31, 2002 were applied to the non-trust fund portion of the tax (Sequence 1) before being applied to the amounts described in Sequences 3 through 7 above, and then finally to the trust fund portion of the tax (Sequence 2). Policy Statement P-5-14 reflects the effective date of the revised manner of applying payments.

5.7.4.3.1  (06-26-2012)
Special Payment Application Rules

1. 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.
2. For payments from court proceedings, i.e., bankruptcy, insolvency, or decedents, contact Insolvency (see IRM 5.5, Decedent Estates and Estate Taxes).

Note:

If the Field Insolvency assignment is unknown, research the Insolvency (Bankruptcy) National Field/Centralized Site Directory on Servicewide Electronic Research Program (SERP) under the Who/Where Tab.

5.7.4.4  (06-26-2012)
Payments by Responsible Party on Behalf of the Employer

1. When efforts to collect the tax, penalty, and interest from the employer have been unsuccessful, advise the responsible persons they have two options:
• Pay the withheld tax liability on behalf of the business. This is the total amount of the tax withheld and not a portion to reduce the withheld amount below ≡ ≡ ≡ .
• Have the TFRP assessed against them.
2. If a responsible person chooses to pay on behalf of the business then:

A.    Payment will be made by cash, cashier’s check, certified check, or other acceptable payment form.

B.     The responsible person may provide the funds to the business and pay with a business check.

C.     If the payment is not made with a business check, the responsible person(s) will provide a signed statement certifying payment is being made on behalf of the business for application to the trust fund tax liability.

D.    The statement will read as follows: "I/We {Name(s)}, hereby tender payment of ${Amount} and specifically request that such funds be applied to the trust fund tax liability of {Business Name}, {Business EIN} for the period(s) ending {List Each Period}."

E.     This statement protects the government's position in cases in which a responsible person later files a claim for refund of the TFRP, claiming their personal tax payment was misapplied or applied against their wishes to the business liability.

F.      Retain the signed statement along with a copy of Form 4183 as part of both the balance due and any TFRP case files.

Note:

If statements accompanying unsolicited payments are to be accepted as adequate, they must clearly indicate the intent to designate payments, similar to the statement in (d) above.

G.    The TFRP investigation will continue while awaiting designated payments from a responsible person.

                        If the payment is not made with a business check and the statement described in IRM 5.7.4.4 (2) above is not provided, the employee will:

 .        Apply the payment to the trust fund portion of tax for the employer business in question;

A.    Send the person who made the payment a letter stating "in accordance with our understanding of your specific intention to pay the trust fund tax liability on behalf of {insert name of the employer business}, {insert EIN of the employer business}, we have applied your payment of ${insert amount} received on {insert date} toward that company's trust fund tax liability for the period(s) ending {list each period}. If our understanding is incorrect and you intended the payment for a different liability, please respond in writing within thirty days of the date of this letter to the person and address that appear above stating to which liability you wanted the payment applied;"

B.     Retain the letter (and any written response) or copy as part of both the balance due and TFRP case files;

C.     Initiate credit transfer action according to the payor's direction, move the payment(s), and continue with the TFRP assessment process if the person timely responds in writing that we have applied the payment incorrectly against his/her wishes.

                        If a responsible party pays the entire withheld tax liability in full after approval of Form 4183 and issuance of Letter 1153(DO), once the payment clears and posts to accounts, the TC 130 should be reviewed to determine if TC 131, Reversal of TC 130 Refund Freeze, is appropriate. The TC 130 may remain appropriate on an individual account, if there are additional pending TFRP assessments from a different business, or related sole proprietor liabilities. If appropriate, the revenue officer will prepare Form 3177, Notice of Action for Entry on Master File, to request input of the TC 131 to release the freeze of any potential refunds for all individuals determined to be responsible for the TFRP.

5.7.4.5  (06-29-2017)
Form 4183 Penalty Assessment Recommendation

1. Review all of the documentation in the case file as well as all Forms 4180 in order to make a determination regarding responsibility (IRM 5.7.3.3.1 , Establishing Responsibility) and willfulness (IRM 5.7.3.3.2, Establishing Willfulness) for each potentially responsible party.
2. A collectibility determination must be completed (IRM 5.7.5, Collectibility Determination) for each potentially responsible person determined to be both responsible and willful. If the TFRP will not be recommended based on collectibility, prepare Form 9327, Nonassertion Recommendation of Uncollectible Trust Fund Recovery Penalty or of Uncollectible Personal Liability for Excise Tax, prior to submitting Form 4183 for approval.
3. The revenue officer must address all person(s) considered for assertion of the TFRP on Form 4183 and must state the reasons for assertion or nonassertion for each person considered. This will include all individuals who were in a position that would warrant consideration. The revenue officer must also indicate whether the individual is fully responsible for all periods or partially responsible for some periods.

Note:

When there are multiple officers and one or more are partially responsible for a particular quarter, the Form 4183 narrative section should also address any unique cross-referencing issues by outlining how much of the liability should be cross-referenced upon payment from a partially responsible officer.

4. The Form 4183 narrative will include a statement of facts concerning responsibility and willfulness for each person listed, including those persons considered but not recommended for assertion. Do not routinely target all of the principals in the business or prepare the narrative with no specific reasoning for each person listed (including those considered but not recommended for assertion) that Appeals should consider making a final determination as to responsibility and willfulness. An example of a statement to support the recommendation for assessment is as follows:

Example:

The Articles of Incorporation indicate Mr. A was president of the corporation from (date) to (date). He was responsible for filing the tax returns, making financial decisions for the business, and he exercised his signature authority on corporate checks at the (Bank name). He stated during the Form 4180 interview he was aware of the liability but allowed other creditors to be paid so he could remain in business. A review of a sampling of checks for the periods of the liability indicate Mr. A paid payroll as well as other creditors in preference to the government, such as vehicle, utility and personal vacation expenses. He is both responsible and willful. A review of his financial statement shows equity in assets reflecting collection potential if the TFRP is assessed.

Note:

In complex cases, ensure that the willfulness and responsibility factors are fully explained and supported with specific detail in the Form 4183 narrative.

5. The following statement is not adequate to support a recommendation for assessment:

Example:

Mr. B. was an officer. He should have known the taxes had not been paid. He was also authorized to sign corporate checks. He is responsible and willful.

6. The TFRP case file must contain adequate information to support the recommendation for assertion of the penalty. The core documentation items listed in IRM 5.7.4.2.7(1) will be secured in most cases. A brief ICS history addressing missing core documentation items should be made prior to sending the TFRP file to to the GM for approval of the Form 4183 . A notation in the TFRP case file regarding the missing documentation is insufficient.
7. Prepare and submit a completed Form 4183 recommending assertion or nonassertion to the group manager for approval as soon as possible after the investigation has been completed. Before submitting the file for approval, the revenue officer will consider the following:
• Are all periods addressed, including unfiled returns?
• Is the computation correct? Are all payment applications in compliance with IRM guidelines?
• Are the core documentation items included in the TFRP case file, or has a reason for their absence been documented in the ICS history?
• Is documentation beyond the core items required to support the assertion?
• Does the TFRP case file contain evidence covering all periods of the liability?
• Have all potentially responsible individuals been considered?
• Has collectibility been addressed on each potentially responsible person?
• Was all information submitted by the potentially responsible person considered before making the recommendation?
• Are ICS and ATFR histories printed and present in TFRP case file?
• Have all issues been adequately addressed?
8. If collection appears to be in jeopardy based on the reasons identified in IRM 5.1.4.2, Jeopardy and Termination Assessment Overview, the revenue officer will prepare and submit Form 2644, Recommendation for Jeopardy/Termination Assessment, for approval.
9. If the trust fund balance is below ≡ ≡ ≡ ≡ ≡ ≡ and assertion of the TFRP is not being recommended, update the calculation of the unpaid trust fund balance on page four of Form 4183. The potential liability of any unfiled returns must be considered prior to closing the TFRP account based on the dollar criteria.
10. Revenue officers must ensure the Form 4183 narrative and ICS history entry made at the time of the Form 4183submission to the group manager for approval provides sufficient detail to support a TFRP assertion recommendation. Due to ex parte communication restrictions on supplemental documentation to support TFRP assertions after receipt of a taxpayer protest, group managers must ensure the TFRP assertion is fully supported and documented prior to approving the assertion on ATFR and documenting concurrence in ICS. The TFRP case file must contain the necessary core documentation items, or the reason for their absence must be documented in ICS.
11. TFRP case files are assembled using either Document 9600-C, Key File Trust Fund Recovery Penalty Case File Tabs (Other than Appeals Cases), or Document 9526, Supplemental File on Other Responsible Officers - Trust Fund Recovery Penalty Case File Tabs (Other than Appeal Cases). Single responsible party investigations only require use of Document 9600-C(Key File). Use Document 9526(Supplemental) for additional responsible parties. Document 9526(Supplemental) is not a substitute for the Key Case file when there was a prior TFRP assessment against the responsible party.
12. It is Field Collection’s (FC) responsibility to ensure all required documentation is in the TFRP case file. Control Point Monitoring (CPM) will not review case files to address missing documentation. See IRM Exhibit 5.7.6-1, TFRP Case File Check Sheet, to assist in case accuracy and completeness.

5.7.4.6  (06-29-2017)
Manager’s Review of Trust Fund Recommendations

1. The group manager must complete a thorough review of the TFRP recommendation to determine the adequacy of the TFRP recommendation prior to the revenue officer issuing Letter 1153(DO). Due to ex parte related restrictions on supplemental documentation to support TFRP assertions after receipt of a taxpayer protest, the group manager must ensure prior to Form 4183 approval that the assertion is fully supported and documented. CPM will not review case files to address missing documentation.
2. The group manager must also review and approve any related Forms 9327 for nonassertion due to collectibility prior to approving Form 4183. If the Form 9327 is not approved, Form 4183 must be updated before it can be approved.
3. The manager’s review of the recommendation must address the same issues the revenue officer addressed before submitting Form 4183 for approval (IRM 5.7.4.5(7), Form 4183 Penalty Assessment Recommendation). When the answer to any of the questions is "no," the manager will consider whether to return the recommendation to the revenue officer for corrective action and/or further development. Managers must ensure all required documents are in the case file and a collectibility determination has been made on each potential responsible officer. ATFR will send a history entry to ICS when Form 4183 is approved by the group manager.

5.7.4.6.1  (04-19-2011)
Centralized Processing of TFRP Actions and Files

1. Local management may determine a centralized unit will be responsible for processing the TFRP files after the Form 4183 has been approved.
2. These actions may include:
• Generating and delivering IRM 1153(DO) and Form 2751.
• Monitoring the responsible person's response to Letter 1153(DO).
• Forwarding any appeals documents to the revenue officer for a determination.
• Generating Form 2749, Request for Trust Fund Recovery Penalty Assessment(s), (including updating the computation) and inputting "2749 to CPM" date on ATFR to release it to the Advisory CPM unit responsible for processing of the file.
• Forwarding the case file to CPM Advisory on Form 3210, Document Transmittal.

5.7.4.7  (06-29-2017)
Notification of Proposed Assessment

1. Once Form 4183 is approved by the group manager, the revenue officer can issue Letter 1153(DO).
2. Letter 1153(DO) and Form 2751 should be prepared on the ATFR system. Letter 1153(DO) and Form 2751 will be delivered to the responsible person(s) within 20 calendar days of the Form 4183 approval. The ATFR system does not input a date on the Letter 1153(DO), therefore it is important the revenue officer either date stamp or hand write the date of service on the Letter 1153(DO), as well as document the ATFR and ICS histories regarding service of the Letter 1153(DO). It is important the copy of Letter 1153(DO) maintained in the TFRP case file also be dated. Publication 1 will be included with Letter 1153(DO) and Form 2751 when they are delivered to the taxpayer (see (3) below for the recommended method of delivery). A copy of page 4 of Form 4183 , showing the penalty computation, may also be included with the documents delivered to the taxpayer so they are aware of how payments were applied to the account. ATFR will systemically upload TC 130, Entire Account Frozen from Refunding, to freeze any potential refunds when a Letter 1153(DO) delivery date is entered on ATFR.

Reminder:

If a responsible party or corporate entity pays the entire withheld tax liability in full after approval ofForm 4183 and issuance of Letter 1153(DO), once the payment clears and posts to accounts, the TC 130 should be reviewed to determine if TC 131, Reversal of TC 130 Refund Freeze, 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.

3. For assessments made under the provisions of IRC 6672 after the enactment of the Taxpayer Bill of Rights 2 on July 30, 1996, the following actions are required:

Note:

The method of delivery and any discussions with the responsible party related to receipt of the Letter 1153(DO) will be documented in the ICS history for the employer's case. These procedures are recommended in order to ensure the responsible person learns of the Service's proposed TFRP assessment and has an opportunity to question the revenue officer about potential appeal opportunities. If the responsible person later forgets having received the Letter 1153(DO), the ICS history notes regarding the method of delivery may help show that the responsible person is not entitled to another opportunity to contest the correctness or amount of the TFRP in a Collection Due Process hearing.

4. For mail delivery, the RO should use U.S. Postal Form 3800, U.S. Postal Certified Mail Receipt, and U.S. Postal Form 3811, Return Receipt, requesting a return receipt. Form 3800 is the small green and white form that is affixed to the front of the mailing envelope. The RO should staple the bottom half of Form 3800 (with the Post Office stamp certifying proof of mailing if possible) to Letter 1153(DO)Letter 1153e certified mail. IRM 5.7.6.4(1) , Case File Documentation, states the TFRP file should contain a copy of Letter 1153(DO) with proof of mailing if not personally delivered. Actual proof of mailing is Form 3800 but both Form 3800 and Form 3811 should be included in the TFRP case file.
5. If the Service discovers an individual determined to have been responsible is deceased prior to issuing the Letter 1153(DO), determine if a fiduciary exists. Do not assume a surviving spouse is the personal representative of the decedent. A fiduciary is required to give notice to the Service of the fiduciary relationship. Form 56, Notice Concerning Fiduciary Relationship, may be used for this purpose. Other legal documents establishing fiduciary relationships may be substituted for Form 56. If a fiduciary relationship is unknown, the Letter 1153(DO) should reflect the pattern "John Doe (deceased)" and be mailed to the taxpayer's last known address. If a fiduciary relationship is known, the letter should reflect the pattern "John Doe (deceased), Richard Doe, Executor" and be sent to the executor's address as well as to the taxpayer's last known address via certified mail.
6. The ATFR program will be updated when Letter 1153(DO) is delivered. Include a copy of Letter 1153(DO) and part 3 of Form 2751 in the TFRP case file. Process the case file according to the instructions in IRM 5.7.6.1.1, Taxpayer's Response to Letter 1153(DO), based on the potentially responsible person's response to the Letter 1153(DO).

5.7.4.7.1  (06-26-2012)
Increases to TFRP Amount after Letter 1153(DO) Issuance

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

Note:

The revenue officer should contact the taxpayer to ensure they recognize the period(s) affected by the increase and the time frame associated with a timely protest.

5.7.4.7.2  (08-05-2013)
Rescission of Proposed Assessment

1. Letter 1153W, Proposed Trust Fund Recovery Penalty Rescission Notification, is used to rescind issuance of Letter 1153(DO).
2. 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:
• Document ICS history with the facts supporting the decision to reverse the prior recommendation.
• Amend Form 4183, Recommendation re: Trust Fund Recovery Penalty Assessment, on ATFR and submit the TFRP case file for managerial review and approval.
• After group manager approval of the amended Form 4183, generate Letter 1153W using ATFR for the applicable periods no longer recommended for assertion.
• Issue Letter 1153W and a copy of Letter 1153(DO) to the taxpayer.
• Retain a copy of Letter 1153W in the TFRP case file.
• If the assessment recommendation is reversed for all periods, the TFRP file should not be forwarded to CPM. Retain the information in the business case file.

Example:

A RO conducts a TFRP investigation, secures managerial approval of Form 4183, and issues Letter 1153(DO). After issuing Letter 1153(DO), the RO receives additional information resulting in a decision to reverse the recommendation in whole. The RO documents ICS, prepares an amended Form 4183, and submits the TFRP case file for managerial review and approval. Following managerial approval of the amended Form 4183, the RO generates and issues Letter 1153W to the taxpayer.

Caution:

Letter 1153W cannot be issued after a protest has been forwarded to Appeals. See IRM 5.7.6, Trust Fund Penalty Assessment Action, for procedures when a protest has been received.

3. 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).
4. 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.

5.7.4.8  (06-29-2017)
Determining Whether To Pursue the TFRP in Installment Agreement or Bankruptcy Situations

1. The TFRP will normally be pursued when efforts to collect the unpaid tax, penalty, and interest from the employer have been unsuccessful.
2. In certain situations, the Service may decide to withhold assertion of the TFRP while the employer is attempting to resolve the liability through another method. These situations could involve an in-business installment agreement (IRM 5.7.4.8.1, Considerations for In-Business Installment Agreements) or bankruptcy (IRM 5.7.4.8.2, Trust Fund Taxpayer in Bankruptcy), and IRM 5.7.4.8.3, Responsible Party in Bankruptcy).

Note:

If the revenue officer determines during pre-contact analysis that the outstanding trust fund balance is under ≡ ≡ ≡ ≡ ≡ ≡ , and the taxpayer is not accruing additional liabilities, the revenue officer may waive the requirement to secure Form 4180 if a resolution for immediate full payment, short term (less than 120 days) full payment, or IBTFIA meeting the criteria in IRM 5.7.4.2(3), TFRP Determinations, Interviews and Investigations, is agreed upon during the initial contact with the taxpayer.

5.7.4.8.1  (06-29-2017)
Considerations for In-Business Installment Agreements

1. A revenue officer can secure an in-business installment agreement rather than recommending immediate assertion of the TFRP, as long as:
• The taxpayer qualifies for an in-business installment agreement (IRM 5.14.7, BMF Installment Agreements).
• The TFRP assessment limitation period is appropriately extended.
• The investigative aspects of the TFRP inquiry are documented and preserved.

Exception:

No TFRP determination is required on cases meeting the requirements for In-Business Trust Fund Express Installment Agreements (see IRM 5.14.5.4, In-Business Trust Fund Express Installment Agreements, and IRM 5.7.4.2(3), TFRP Determinations, Interviews and Investigations).

2. 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:

A.    Complete interviews for all potentially responsible persons and any other interviews necessary to determine responsibility and willfulness.

B.     Secure the appropriate Collection Information Statement from all potentially responsible persons and complete the collectibility determination (IRM 5.7.5, Collectibility Determination).

C.     Request a signature on Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, from all potentially responsible persons (see IRM 5.7.3.6.1, Form 2750 Waiver, for the actions required when securing a waiver) to extend the statute to the expected end-date of the agreement plus one year.

D.    Assemble all documentation for completion of the penalty to the point of assessment (including securing approval of Form 4183).

Note:

If a potentially responsible person refuses to extend the ASED and his or her TFRP is determined to be collectible, or if Appeals has already upheld the TFRP recommendation, submit the TFRP file for assessment. After assessment, collection may be withheld on these cases if appropriate (IRM 5.14.7.4.1, Trust Fund Recovery Penalties and Installment Agreements)..

                        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:

·         Financial condition of the business.

·         Financial position and actions by the responsible parties.

·         Length of the agreement compared to the ASED.

·         Ability to secure documentation in the future to support the recommendation.

                        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.

Note:

While under an approved installment agreement, a corporation may not designate its monthly installment payment be applied to the trust fund portion of the tax (See IRM 5.14.7.5 , Payments on Trust Fund Accounts During Approved In-Business Trust Fund Installment Agreements).

                        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:

 .        Compute the new balance using ATFR (no assessment may be made for periods or balances for which the taxpayer was not previously given appeal rights).

A.    Update the assessment information on the ATFR system.

B.     Advise the taxpayer of the pending assessment.

C.     Process the case according to IRM 5.7.6.2, Revenue Officer Assessment Actions. If the TFRP account is not resolved (pre-assessed CNC or IA, full pay, etc.), the RO should request assignment of the TFRP assessment when possible (IRM 5.7.6.1.1.1 and IRM 5.7.6.2).

5.7.4.8.2  (11-12-2015)
Trust Fund Taxpayer in Bankruptcy

1. 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.

Note:

If the Field Insolvency assignment is unknown, research the Insolvency (Bankruptcy) National Field/Centralized Site Directory on Servicewide Electronic Research Program (SERP) under the Who/Where Tab.

2. 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.
3. In making the TFRP assessment determination, consider all available information including:
• Refusal of potentially responsible individuals to sign Form 2750 waivers.
• Pyramiding of additional unpaid liabilities after the petition date.
• Business continuing to operate at a loss.
• Liquidation of assets.
• Excessive compensation to officers, directors, etc. during the proceeding.
• Inability to effectuate a plan.
• Unreasonable delay in proposing a plan.
• Default occurring on plan (e.g., pattern of late payments, missing or sporadic plan payments, plan in arrears, etc.).
4. 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.
5. 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.

5.7.4.8.3  (11-12-2015)
Responsible Party in Bankruptcy

1. 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.
2. 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.
3. 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.

Reminder:

Use the appropriate Letter 1153(DO) when a potentially responsible party is in bankruptcy ( IRM 5.7.4.7(2), Notification of Proposed Assessment). The modified version will print from the ATFR system when entering "Y" when asked if the responsible party is in bankruptcy during the Letter 1153(DO) generation process on ATFR.

5.7.4.9  (11-12-2015)
TFRP and Offers in Compromise

1. It is the Service's policy that before an offer to compromise trust fund tax will be investigated for entities in which the trust fund recovery penalty is applicable, i.e. determined to be responsible and willful in regard to the unpaid employment taxes (in business or out of business), the trust fund portion of the taxes must be paid, the TFRP must be assessed against all responsible persons, the trust fund package forwarded for assessment, or a determination has been made by an RO to not assert due to collectibility. See (2) Note , below, in circumstances when the aggregate outstanding trust fund liability is under ≡ ≡ ≡ ≡ ≡ ≡ .

Note:

See IRM 5.8.11.5, Documentation and Verification, for circumstances when an offer in compromise is submitted by an entity impacted by the fraudulent acts of a Payroll Service Provider. See also IRM 5.1.24.5.7, Offers in Compromise, for revenue officer actions.

2. The amount offered by an entity to compromise unpaid trust fund liabilities will represent what can be collected from that entity. If the Service enters into a compromise for a portion of the trust fund tax liability, the remainder of the trust fund taxes may still be collected from a responsible person pursuant to Section 6672 of the Internal Revenue Code and Treas. Reg.§ 301.7122-1(e)(5). See IRM 5.8.4.22.1, Trust Fund Liabilities.

Note:

If the taxpayers' aggregate outstanding trust fund liability is under ≡ ≡ ≡ , the business is out of business with no potential to incur additional liabilities, and the RO determines no other prior TFRP assertions (from unrelated entities) were made against the responsible parties, a determination may be made by an RO to not assert the TFRP.

TFRP collectibility determinations are still required if the trust fund portion of the taxes was not paid.

More Internal Revenue Manual

Trust Fund Recovery Penalty (100% Penalty)