Trust fund taxes are unique, especially in that the IRS has the ability to personally assess responsible individuals for their collection. In addition to the civil issues, criminal exposure exists for the same conduct.

1. S
Understanding, and
Protecting Your Client
Against, Civil and
Criminal Liability for
Trust Taxes
Kevan P. McLaughlin, Esq., LL.M

2. Introduction
oWhat are trust taxes?
oExamples

3. Civil Liability
What to look for:
• Unsophisticated taxpayer
• Financially distressed companies
• Embezzlement from those in
financial control

4. IRC § 6672
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. No penalty shall be imposed under
section 6653 or part II of subchapter A of chapter
68 for any offense to which this section is

5. Calculating Trust Fund Amount
 Unpaid income taxes
withheld, plus
 Employee’s portion of withheld
Federal Insurance Contribution
Act (“FICA”) taxes.

6. TFRP Elements
oResponsibility
oWillfulness

7. Indicators of Responsibility
o Authority to sign checks
o Control financial affairs of business
o Officer, director, shareholder
o Authorized in by-laws
o Ability to hire and fire employees
o Sign 941’s
o Make EFTPS payments

8. Investigating Civil Liability

9. McLaughlin Legal

11. Defense Strategies
o Full pay
o Lack of knowledge
o No duty or authority
o Following orders
o Establish negligence
o Reasonable causes
o (In)ability to pay
o Directed payments to
TFRP amount
o In-Business Installment
Agreement
o Statute of limitations

12. McLaughlin Legal
Federal Tax Deposit Alert
Assigned to Revenue Officer
1. Compliance
2. TFRP Investigation
Summons bank signature cards
4180 interview
4183 Recommendation1153(DO) Letter
AppealRefund
Appeals Conference
Refund
1 Employee, 1Quarter ($100)
Form 843
Judicial Appeal
(6 mon. or Notice of Disallowance)
U.S. District Court
Court of Federal Claims
Bankruptcy Court
Collections
1. OIC DATL
2. CDP

13. Criminal Liability
IRC § 7202
Any person required under this title to collect,
account for, and pay over any tax imposed by this
title who willfully fails to collect or truthfully
account for and pay over such tax shall, in
addition to other penalties provided by law, be
guilty of a felony and, upon conviction thereof,
shall be fined not more than $10,000, or
imprisoned not more than 5 years, or both,

14. Criminal Elements
• Duty to collect, and/or to truthfully
account for, and/or pay over a tax;
• Failure to collect, or truthfully
account for, and/or pay over the tax;
and
• Willfulness

15. Duty
“the authority required to exercise significant control over the
corporation's financial affairs, regardless of whether [the
individual] exercised such control in fact.”
U.S. v. Jones, 33 F.3d 1137 (9th Cir. 1994)
the "persons" who are "responsible" for the payment of
withholding taxes are those who "had the final word as to what
bills should or should not be paid, and when.”
Purcell v. U.S., 1F.3d 932 (9th Cir. 1993)