All IRS Back Tax Help comments are in blue. This post is about whether or not taking the IRS to court is a good idea when disputing the Trust Fund Recovery Penalty (TFRP) collection process. If you have questions about this post, please reference: BP #41.
If you know you need to take action, read my thread about whether or not you should hire someone (You should not automatically.) titled “Owe IRS back taxes? When, who, and how do I hire IRS back tax help?” before you do anything else.
Our source and full text for this public record:
The excerpts below are heavily edited so click on the link above if you want to see every thing that happened. Potential clients often want to sue the IRS for the enforced collection actions they are experiencing (i.e. tax lien, bank levy, asset seizure, etc…) People get so mad at the IRS’ actions; they lose sight of the goal which is getting this tax problem solved so you can move on with your life. In this case, the amount of back taxes owed is not in dispute, only the manner in which the IRS attempted to collect the Trust Fund Recovery Penalty.
Business owner closed a business with trust fund taxes still owed, roughly $10.3mm in past due trust fund tax. The IRS made the “willful & responsible” determination and personally assessed business owner and CFO for overdue corporate tax. IRS then filed tax lien and proceeded to set levy process in motion. Business owner then sued IRS for procedural violations and won.
Business owner and CFO owe the IRS $10.3 million dollars. No difference. In the time it took to get to this result, they entire liability could have been handled, and today they would debt free from the IRS. Instead, today, a decade later, they still owe the entire Trust Fund Recovery Penalty. Don’t get caught up in the “fairness” of the collection methods. There are no surprises with the IRS collection process, they tell you what they are going to do, how they are going to do it, and then they do it.
Instead, focus on a real tax solution that will solve the IRS problem for good. Excerpts will be in quotes and in black text. Our comments are in blue.
“Conway was National’s chief executive officer (CEO), its president, and chairman of its board of directors during the tax periods at issue. Nakano was National’s chief financial officer during the tax periods at issue.”
- We get this question a lot. Yes, if you are a corporate officer in any type of corporation you may be held responsible for the TFRP.
The IRS “…determined that petitioners were responsible for National’s failure to pay the excise taxes. On March 14, 2003, respondent notified petitioners that he proposed to assess TFRPs against them. On May 9, 2003, petitioners filed protests of the proposed TFRP assessments with IRS Appeals. Almost 3 years later, on March 23, 2006, IRS Appeals notified petitioners that it had rejected their protests. Five days later, on March 28, 2006, TFRPs were assessed against petitioners.”
- This was a good move by the owner’s representation. Please note, none of this took place in court, it was purely administrative. The attorneys knew their client would not be able to avoid the personal assessment forever, but this keeps the IRS from pursuing any other enforced collection against the corporate officers for the duration of the appeal. At this point, once the client is safe, get a solution in place, whether it’s an Installment Agreement, Partial Payment Installment Agreement or Offer in Compromise. If that had happened at that point in time, they would be done with their IRS tax problem today.
The IRS “sent Nakano a Form 1058, Final Notice—Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice). The levy notice reflected respondent’s intent to levy on Nakano’s property and rights to property to collect the TFRPs assessed against him.”
- This is where the IRS made their procedural mistake that cost them the case. They then filed the Tax Lien. If you have received a certified Final Notice of Intent to Levy, you need to take action and begin the appeals process to keep the IRS away from your bank account and other assets.
“Nakano and Conway timely requested CDP hearings on June 16 and July 3, 2006, respectively, to contest the proposed levy and NFTL filing. At the request of petitioners’ counsel, they received a joint CDP hearing. In their CDP hearing requests, petitioners claimed the following: (1) The TFRP assessments were invalid and (2) respondent failed to issue notice and demand for payment within 60 days of the assessments, thus precluding him from collecting the TFRP assessments via lien and levy.6 ”
- Two things here:
- 1.) They received a joint hearing. If you are being personally assessed and you want to fight these together, you can. Sometimes we get hired because one corporate officer or owner has hung the others out to dry. In that scenario, the person who gets representation first usually gets the IRS’ favorable ruling. If you get tax help, it does not automatically mean the other owners/officers get the same help. Make sure you representation understands what you want.
- 2.) No Final Determination of Willful and Responsible parties was sent out. The next quote is straight from the Internal Revenue Manual: “After Letter 1153(DO) and Form 2751, Proposed Assessment of Trust Fund Recovery Penalty, have been properly delivered (IRM 22.214.171.124), the responsible party has 60 days (75 if the letter was addressed outside of the United States) from the date of the mailing of the notice or the date of personal delivery to respond.”
- Irs.gov link: http://www.irs.gov/irm/part5/irm_05-007-006.html
If you owe back trust fund taxes to the IRS, the corporate veil has been pierced, and the Revenue Officer is seeking to personally assess you with the Trust Fund Recover Penalty, your attorney’s primary responsibility is to monitor the proceedings and capitalize on errors made; at all times, keeping their eye on the ultimate goal of settling the IRS tax debt. However, it appears in this scenario that all parties got involved in the fight and lost sight of what was best both for the government and the taxpayer.