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Trust Fund Recovery Penalty (100% Penalty) 

- overview and some legal cases -

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

NOTE: 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.


Some case law links and information are provided. However, a  tax professional should be consulted.


Willfulness, within the meaning of section 6672 , has been defined as a " 'voluntary, conscious and intentional act to prefer other creditors over the United States.' " Klotz v. United States [79-2 USTC ¶9552 ], 602 F.2d 920, 923 (9th Cir. 1979) (quoting Sorenson v. United States [75-2 USTC ¶9694 ], 521 F.2d 325, 328 (9th Cir. 1975)); see also Maggy [77-2 USTC ¶9686 ], 560 F.2d at 1375; Teel v. United States [76-1 USTC ¶9190 ], 529 F.2d 903, 905 (9th Cir. 1976). An intent to defraud the government or other bad motive need not be proven. Klotz [79-2 USTC ¶9552 ], 602 F.2d at 923. In fact, conduct motivated by a reasonable cause may nonetheless be willful. Barnett v. United States [79-1 USTC ¶9318 ], 594 F.2d 219, 221 (9th Cir. 1979).

In Henry D. Buffalow, Jr., v. United States of America, US-CT-APP-9, [97-1 USTC ¶50,290] (1997)  a president and sole shareholder of a company who made a plan to liquidate the company in an effort to secure a payment for the company's unpaid withholding taxes was liable for the trust fund recovery penalty because he was a responsible person who willfully failed to pay over withholding taxes. Although he informed the IRS of his plan, he paid other creditors, as part of the plan, while he knew the withholding taxes were unpaid. Although he was trying to ultimately rescue something for the IRS, the president, who was a continuing responsible person, was the one conducting the rescue operations.

In Dan O. Davis,  v. United States of America, (Apr. 14, 1992) [92-1 USTC ¶50,292] (CA-9), U.S. Court of Appeals, 9th Circuit, 90-16209, 4/14/92, Affirming unreported District Court decision, A president and major shareholder of a corporation was the responsible officer liable for willfully failing to pay withholding and social security taxes of the corporation's employees. The taxpayer contended that because he lacked knowledge of the corporation's failure to pay taxes until after they were due, his subsequent use of corporate revenues to compensate creditors rather than to pay the delinquent taxes did not evince willfulness. The courts view was that such argument was inconsistent with the definition of willfulness promulgated by the Supreme Court and other courts of appeals, and rejected the taxpayer's contention. He alternatively sought an order of mandamus requiring the IRS to return to its original allocation of the corporation's payments. This order was denied since the taxpayer failed to show actual harm from the reallocation or a failure of the IRS to follow a designation on a voluntary payment. 

See: Slodov v. United States [78-1 USTC ¶9447 ], 436 U.S. 238, 243 (1978).


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. 


For assistance please contact A. Nathan Zeliff, Attorney at Law








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