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Trust Fund Recovery Penalty

How do I make a designated payment for Trust Fund Taxes so as to reduce “Responsible Person” liability exposure?


Explanation as to making a designated payment of the Trust Fund Portion of Employment Taxes:

The following is a sample Designated Payment letter for Payment of the Trust Fund Portion of Employment Taxes of a Corporation.  Additionally, the designation MUST also be written on the FACE of the CHECK. As sample of a check designation is also set forth. This letter was for a case involving an IRS  Revenue Officer [such reference could be removed if not applicable].

This sample letter involved a case where all Trust Fund Taxes were paid.  Your Legal Counsel must review the computation of the Trust Fund Taxes, and determine which Quarters should be paid first.  For example, the statute of limitations for assessment of the Trust Fund Penalty may have expired on some quarters, and thus, the priority for payment of the Trust Fund Portion of the Employment Taxes may be those quarters for which personal Trust Fund Liability exposure remains.  Also, it may be appropriate to designate a specific dollar amount for each specific quarter.  Moreover, a Cashier Check may be appropriate so that the IRS doesn’t levy the bank account causing an attempted voluntary designated payment to fail due to insufficient funds.  If the IRS levies, such is not a voluntary payment and is not a designated payment. If the Corporation sets up an installment payment, then it can’t designate the payment. Accordingly, proactive planning and action is necessary. If the target (e.g., responsible person) has equity and can borrow the funds, legal counsel should advise as to obtaining a loan BEFORE the IRS makes an assessment of the Trust Fund Penalty against the individual, files tax liens, with the result of potentially destroying the ability of a potentially “responsible person” to obtain financing. The IRS routinely uses the phrase that it must “protect the best interest of the government”. However, the fact is that the IRS will take arbitrary actions which jeopardize a positive plan of action to resolve an outstanding balance. The IRS actions may in reality not be in the “governments best interest”, not to mention that of the taxpayer.  IRS Revenue Officers have even made threats that if the taxpayer makes a designated payment, they will levy and seize.

Proper designation is critical. You have right to make voluntary designated payments.  Also, you do NOT need the IRS to agree to apply a voluntary payment in a specific manner. Such was done in this sample case because legal counsel was working with a Revenue Officer who was being “aggressive” which required  IRS manager involvement. The IRS historically is very aggressive when it comes to non payment of payroll taxes. You must be sure and retain copies of the cancelled check(s), front and back, in addition to your correspondence.

DESIGNATED PAYMENT LETTER – SAMPLE ONLY – To be reviewed by your legal counsel.

Internal Revenue Service

       [ address  ]

 Attention:   [Name]   , Revenue Officer  

RE: Voluntary Payment to be applied solely and exclusively to Trust Fund Portion of Employment Taxes of  [name of corporation], Inc. E.I. Number: [insert]  for the following form  ____  quarters ended   [insert]

Dear Mr. / Ms.  [insert name]  :

As per telephone conversations with Mr. / Ms. [   name  ] , Group Manager, and you,  the enclosed voluntary designated payment is being made. This is part of the taxpayer's continuing positive plan of action to resolve these matters. This will confirm your agreement to apply the payment as designated.

[insert name of corporation], Inc. (E.I. Number: [insert]) hereby makes the enclosed voluntary designated payment in the amount of $ [  insert   Dollars and __ /100] and directs that said payment be applied solely and exclusively to the Trust Fund Portion of the Employment Taxes of  [name of corporation], Inc., for the following quarters, as follows: first to Quarter ended March, 31, [insert] ; thereafter, to quarter ended June 30, [insert] ; thereafter, to quarter ended September 30, [insert]; and thereafter to quarter ended December 31, [insert], until payment is fully exhausted.

Mr.[Name of IRS employee] advised that the following is the balance of the Trust Fund Taxes before application of the within designated payment:

          Quarter - March, __            Trust Fund Taxes       $________

          Quarter - June, __              Trust Fund Taxes         ________

          Quarter - September, __    Trust Fund Taxes         ________

          Quarter - December,__      Trust Fund Taxes         ________


          Balance before Application                                 $


          Less: Designated Trust Fund

                  Payment (ck #   )  enclosed                            -


          Trust Fund Balance                                                  ZERO


This will confirm that upon application of the within voluntary designated payment, that all Trust Fund Taxes of   [name of corporation], Inc., are full paid for all quarters and years  as follows:   _[list quarters / years ] .

Cashing of the enclosed check is conditioned upon and constitutes agreement as to application of the within payment solely and exclusively to the Trust Fund Portion of the above Employment Taxes. The within designation appears on the face of the enclosed check and the terms of this designation are incorporated therein by reference.

Thank you.

     Very truly yours



     Attorney at Law

enclosure Check number [insert] 


ALSO, ON THE FACE of the Check the following is also written:

 “Voluntary designated payment-apply solely and exclusively to the Trust Fund Portion of the Employment Taxes of [name of corporation], Inc. (E.I. Number: [insert] ) , for the following quarters, as follows: first to Quarter ended March, 31, [insert] ; thereafter, to quarter ended June 30, [insert] ; thereafter, to quarter ended September 30, [insert]; and thereafter to quarter ended December 31, [insert], until payment is fully exhausted. See copy of legal counsel’s letter dated _______, attached hereto and incorporated herein by reference as though fully set forth.”

Note:  The above FACE OF CHECK DESIGNATION may have to be abbreviated to fit on the check, and/or reduced in font size. Also, wording must match your specific case and facts. Do not merely cut and paste this example.

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Trust Fund Recovery Penalty (100% Penalty)

The Trust Fund Recovery Penalty (the 100% penalty) is authorized under section 6672 of the Internal Revenue Code.

IRC Section 6672(a) provides the general rule:

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.

Thus, in determining whether to proceed with assertion of the Trust Fund Recovery Penalty, the IRS must determine:

1. Responsibility and
2. Willfulness

A person must be both "responsible" and "willful" to be liable for an employer’s failure to collect or pay over trust fund taxes to the United States. The burden of production of the facts and persuasion is on the taxpayer to prove, by a preponderance of the evidence, that he is not a responsible person who willfully failed to collect, account for, or pay over taxes.

Also, be aware that the IRS will request targeted taxpayer's, as well as other potential witnesses, to complete an interview form (form 4180). The purpose of the questions is to determine liability (an element of which is “willfulness”). Experience has shown that persons do not understand nor appreciate the significance of their responses.

The IRS representative is not your friend. He or she is there to achieve the objective of targeting as many persons for the liability as possible.  These forms should never be filled out without the aid and assistance of legal counsel.

The serious nature of the Responsible Person “Interview” and form 4180, is that there exists not only civil liability exposure for the Trust Fund Recover Penalty, but also the potential for criminal prosecution.

Taxpayers should not attend an Interview / Meeting concerning these matters,  or  fill out form 4180 (Report of Interview With Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes), without the assistance and advise of  a Tax Attorney. See further discussion here



The above limited information is intended for informational purposes only.  If legal advice or other expert assistance is required, the services of a competent professional should be sought, and this general information should not be relied upon without such professional assistance. 








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