Trust Fund Handbook page1
Trust Fund Handbook page2
Trust Fund Handbook page3
Tax Fraud
Willfulness - knowledge of non-payment
Statute of Limitations
Assessment p1
Assessment p2
Assessment p3
GCM 33653

5.7.3.3.2  (04-01-2005)
Establishing Willfulness

1.       Willful means intentional, deliberate, voluntary, reckless, knowing, as opposed to accidental. No evil intent or bad motive is required.

2.       To show willfulness, the government generally must demonstrate that a responsible person was aware, or should have been aware, of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements. A responsible person's failure to investigate or correct mismanagement after being notified that withholding taxes have not been paid satisfies the TFRP "willfulness" element. See IRM 5.17.7.1.3 and LEM 5.4.2.

3.       It is difficult to establish "willfulness" in the types of assessments shown below:

5.7.3.4  (04-01-2005)
Considerations for Employment Tax Examination (ETE) Assessments

1.       IRC Section 3509 applies to an audit or adjustment procedure reclassifying workers from independent contractors to employees. Under this section, the tax is assessed at a lower rate.

2.       The TFRP assessment would not be applicable on Section 3509 balance due accounts unless there is a combination of full and IRC 3509 rates. The TFRP could be asserted against that portion of the ETE assessment that represents full rates.

3.       To determine the portion of the ETE assessment that represents full rates for assertion of the TFRP:

·         Request Form 941 for the last quarter of each year of the audit

·         Review the attached Form 4668 to determine the amount assessed at the full rate

4.       To determine the portion of the Employment Tax Adjustment Program (ETAP) assessment that represents full rates upon which the TFRP can be asserted:

·         Request the Form 941 for the first quarter of each year of the adjustment

·         Review ETAP under-reporter or full rate issues

Note:

No combination of rates applies to ETAP adjustments.

5.       By comparing the balance due assessment amounts with the rates as shown below, the revenue officer will be able to determine if the assessment is at the reduced rate or full rate, as long as the assessment is not a mixture of IRC 3509 rates:

·         Single rate (all applicable returns filed timely by the employer) – Employer’s portion of FICA; 20% of the employee’s portion of FICA plus 1.5% of the wages as income tax withholding

·         Double rate (no applicable returns filed timely by the employer) – Employer’s portion of FICA; 40% of the employee’s portion of FICA plus 3% of the wages as income tax withholding

5.7.3.4.1  (04-01-2005)
Referral from Examination

1.       If during examination of the employment tax returns, the examiner finds that the TFRP may apply, the examiner will send Form 6238, Referral Report of Potential Trust Fund Recovery Penalty Cases, to Technical Services.

2.       Technical Services will determine within 30 days whether or not an investigation will be opened by collection and notify Examination of that determination.

3.       If an investigation is to be opened, Technical Services will issue a Courtesy Investigation to the revenue officer with a copy of the Form 6238.

5.7.3.5  (04-01-2005)
Statutory Assessment Period

1.       Before beginning a full investigation for the assertion of the penalty, determine whether the statutory period for assessment is still open.

2.       The usual limitation period for assessment of the TFRP is as follows:

3.       There is no limitation period for assessing withholding, FICA, excise, or RRTA until a return is filed; however, the following returns do not start the limitations period:

·         Substitutes for returns prepared by the Service under IRC 6020(b)(1)

·         False return or fraudulent return (IRC 6501(c)(1))

·         A filing made in connection with a willful attempt to evade tax (IRC 6501(c)(2))

4.       See IRM 5.7.3.6 for actions that extend the statutory period for assessment.

5.7.3.6  (04-01-2005)
Extension of Statutory Assessment Period

1.       The table below identifies whether or not a particular action extends the TFRP assessment statute.

2.       ATFR will display the IDRS Assessment Statute Expiration Date (ASED) for the underlying employer module. The revenue officer should verify that the ASED is correct and applicable to potentially responsible parties since certain actions, such as submitting an offer in compromise, extend the assessment date for assessing additional tax on the corporate account, but do not extend the assessment date for purposes of the TFRP.

5.7.3.6.1  (04-01-2005)
Form 2750 Waiver

1.       In order to extend the ASED, a potentially responsible person may sign Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty. This waiver can extend:

·         The ASED to a date where the TFRP determination may reasonably be expected to be resolved

·         An ASED already extended by a previous waiver

2.       Form 2750 extends the assessment statute only for the person who signs the waiver; therefore, a waiver should be secured from all potentially responsible persons in order to properly protect the statute.

3.       The law does not impose a maximum limit on the time period the assessment limitation period for the TFRP may be extended by a potentially responsible person and the Service.

A.                  In the case of approved and adhered to business installment agreements and bankruptcy payment plans, it is ordinarily the Service's policy to withhold TFRP assertion recommendations if there are no statute considerations. If there are statute concerns, Form 2750 can be secured to extend the assessment limitation period beyond the projected length of the business installment agreement or bankruptcy payment plan. See Policy Statement P-5–60, paragraph (6).

B.                  Otherwise, unless there are unusual circumstances, the Service ordinarily should not seek extension dates of the TFRP assessment period beyond December 31 of the year following the year in which the statutory period will expire (e.g., 1 year and 260 days after the April 15 statutory due date of the Form 941 returns for statute of limitation period purposes).

Note:

This policy, ordinarily applicable outside of business installment agreement or bankruptcy payment plan circumstances, allows the Service to make its TFRP determinations when the evidence is still likely to be available.

4.       The IRS Restructuring and Reform Act of 1998 (RRA 98) states the Service must:

·         Ensure that taxpayers are aware that they have the right to refuse to extend the limitations period for tax assessments

·         Notify the taxpayer of such right

5.       Every time an extension is requested (Code Section 6501(c)(4) as amended by RRA 98), the IRS must notify the taxpayer that they may:

·         Refuse to extend the period of limitations

·         Limit the extension to particular issues or a particular period of time

6.       If a third party is authorized to act on behalf of the potentially responsible person, Form 2750 may be solicited from and signed by the authorized representative. If the third party information is not available on the Centralized Authorization File (CAF), the instrument which authorizes the representative to act for the responsible person should be attached to Form 2750 or included in the TFRP case file.

7.       After the potentially responsible person or representative executes the waiver:

 .        Have the authorized delegate for the Service manually sign and date the waiver and include the authorized delegate’s title.

A.      Write, type or stamp the Compliance Area Director's name. Refer to Delegation Order No. 42 ( IRM 1.2.2.23).

B.      Give part 2 to the responsible person or authorized representative.

C.      Follow the procedures in IRM 5.7.3.6.3 for disposition of the executed waiver.

5.7.3.6.2  (04-01-2005)
Impact of Letter 1153(DO) on Assessment Statute

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

A.      A 60 day preliminary notice, Letter 1153(DO), must either be mailed to the potentially responsible person's last known address or, after July 22, 1998 , delivered in person to the potentially responsible person.

Note:

See IRM 5.7.4.7 for instructions on proper delivery and documentation regarding the delivery of Letter 1153(DO).

B.      The Service must wait 60 days after issuance of Letter 1153(DO) before issuing notice and demand for payment (Form 3552).

Note:

See IRM 5.7.4.7 for exceptions to the 60 day requirement for jeopardy situations or if the taxpayer signs Form 2751, Proposed Assessment of Trust Fund Recovery Penalty, agreeing to the assessment.

2.       If the 60 day notice was properly mailed or delivered in person to the potentially responsible person before the expiration of the assessment limitation period for the TFRP, then the assessment statute will not expire before the later of:

·         The date 90 days after the date on which the 60 day notice was mailed (or delivered in person)

·         30 days after Appeals' "final administrative determination" if the potentially responsible person files a timely protest (mailed, or faxed, if applicable, on or before the 60th day after the proper delivery of Letter 1153(DO))

Note:

See IRM 5.7.4.7 for instructions on proper delivery and documentation regarding the delivery of Letter 1153(DO).

5.7.3.6.3  (04-01-2005)
Disposition of Executed Waivers

1.       The revenue officer will take the following actions when a waiver is secured:

A.      Update the ATFR-AO application with the date the waiver was signed.

B.      Include part 1 of Form 2750 in the TFRP recommendation file.

C.      Retain Part 3 in the balance due case file.

2.       After a waiver has been secured, request input of transaction code 971–330 on the corporate account to indicate that the potentially responsible party has signed a waiver. The transaction code will include the Social Security number of the potentially responsible party and the date the ASED is extended to for that individual. This will allow the information to be readily available on IDRS in order to determine if the ASED has been extended for a particular party. The transaction code must be input for each potentially party for each period for which a waiver was secured. Until the information is able to be systemically uploaded via ATFR, request input using Form 4844, Request for Terminal Action.

Reminder:

Securing a waiver from one or more potentially responsible parties will not change the corporate ASED shown on IDRS or ATFR.

5.7.3.6.4  (04-01-2005)
Waivers on Examination Cases

1.       In order to determine if Examination has already secured a waiver to extend the TFRP assessment statute:

A.      Request the return and examination papers; the waiver will be in the file if secured by examination.

B.      Examine the TFRP file maintained in the ETE group to determine whether a waiver was secured.

C.      Maintain the original waiver in the TFRP administrative file and place a copy in the Examination file.

2.       If a waiver is appropriate and was not previously secured, follow the instructions in IRM 5.7.3.6.1 for securing Form 2750.

5.7.3.7  (04-01-2005)
Cases Received With Less than Six Months Remaining on the Assessment Statute

1.       When a balance due account is received with less than six months remaining on the assessment statute, immediately bring it to the attention of the group manager and determine:

·         Priority of the case

·         Whether there is adequate time to conduct the TFRP investigation

Note:

Whenever possible, a reasonable effort should be made to conduct the penalty investigation.

2.       If there is not sufficient evidence to substantiate an assessment before the statute expires, do not assess the penalty. Prepare Form 4183, Recommendation Re: Trust Fund Recovery Penalty Assessment, outlining the facts and circumstances and submit the form for approval ( IRM 5.7.4.5). The ATFR system will automatically upload the ASEDR with the appropriate definer code (generally definer code "2" - see IRM 5.7.3.9.1) after Form 4183 is approved.

3.       If there is evidence of liability but there are issues that need to be resolved, attempt to secure a waiver ( IRM 5.7.3.6.1). If the waiver cannot be secured, issue Letter 1153(DO) and wait 60 days for assessment of the TFRP.

Note:

The quality of the investigation and determination should not be compromised because of an imminent statute. If additional documentation is needed, the investigation should continue during this 60 day time period.

5.7.3.8  (04-01-2005)
Reporting Expiration of the TFRP Statute

1.       When a balance due account is received after the assessment statute has expired, the group manager will review the balance due account and determine the reason for the delay in receipt:

A.      If the statute expired because of internal procedures, the group manager will recommend, through the territory manager, how the situation can be avoided in the future.

B.      If the statute expired because of external procedures or a systemic defect, the group manager will submit Form 5391, Procedures System Change Request, through the appropriate management chain to the appropriate Headquarters office.

2.       When a statute expires on a case assigned to a revenue officer, the revenue officer will:

A.      Report the expiration of the statute by memorandum.

B.      Forward the memorandum through appropriate management channels to the compliance area director.

Note:

Managers will attach any comments they may have to the revenue officer's report, including indications of performance deficiencies and what corrective actions have or will be taken.

3.       A report is not required for the following types of cases:

·         Aggregate trust fund below the dollar criterion in LEM 5.4.2 (Also consider the potential liability on unfiled returns when making this determination)

·         CAWR assessment and willfulness cannot be established

·         Employment Tax Assessment under IRC 3509 where willfulness cannot be established

·         Received by the revenue officer with less than six months remaining on the assessment statute and the TFRP assessment could not be completed (see IRM 5.7.3.7)

5.7.3.9  (04-01-2005)
Issuance of CP 527 ASED Notice

1.       To reduce the instances of non-assertion of the TFRP caused by expiration of the assessment statute, CP 527, TFRP Assessment Statute Expiration Date Notice, is generated once per module when there are 58 to 70 weeks left before the statute expires.

Note:

Beginning July 2000 no paper CP 527s will be generated on accounts that are in status 26 — the notice data will be downloaded to the Integrated Collection System. CP 527s will continue to be generated on other statuses.

2.       The notice data includes:

·         Taxpayer’s name and address

·         TIN

·         Notice date

·         IDRS cycle date

·         MFT

·         Tax form number

·         Tax Period

·         Balance due Location Code

·         Case Assignment Code

·         Power of Attorney Code

·         Current IDRS status

·         Date assessment statute will expire

·         Individual module balance

·         Total of all trust fund module balances