Trust Fund Recovery Penalty
Letter 1153
The United States Tax Court in Mohammad A. Kazmi v. Comm’r of Internal Revenue, T.C. Memo 2022-13 filed March 1, 2022, ruled in favor of the IRS that a properly served and received Letter 1153 constitutes a prior opportunity to challenge the underlying liability and therefore a failure to appeal it prohibits the same challenge at a Collection Due Process hearing (CDP hearing). The taxpayer was issued a Letter 1153, Proposed Trust Fund Recovery Penalty, after interview by a Revenue Officer in his capacity as part-time hourly bookkeeper for his employer who had failed to pay over employment taxes. A taxpayer has 60 days to challenge a Letter 1153 by submitting a written appeal. Taxpayer did not make any effort to appeal and as such the IRS assessed him with the penalty. After issuance of a Notice of Federal Tax Lien, taxpayer filed a timely CDP request and attempted to argue that he should not be held liable for the trust fund recovery penalty. The settlement officer determined the taxpayer was prohibited from challenging the underlying liability in the CDP hearing. Taxpayer argued that a Letter 1153 does not constitute a prior opportunity to address the liability because there is no ability to seek judicial review before the Tax Court if appeals would deny the requested relief. The Court agreed that it is correct there is no opportunity to seek Tax Court relief in this instance, but under the law, the taxpayer could get judicial review by paying the tax and seeking review in the Federal District Court. As such, this does constitute a prior opportunity to seek judicial review. Lesson – always seek Appeal review after issuance of Letter 1153 if there are arguments to be made for relief from assessment.
IRC Section 6672
The United States Court of Appeals for the Fifth Circuit ruled in United States of America v. Charles I. Williams, DDS, as Executor of Mary C. Williams, at Case No. 20-10433 filed July 6, 2021 that Charles I. Williams, acted “willfully” within the meaning of the statute and that the district court’s ruling indicating the same was affirmed. As such, Mr. Williams was held personally liable for the trust fund recovery penalties under section 6672(a) of the Internal Revenue Code. Mr. Williams owned and operated several dentistry practices. After not paying employment taxes, the government pursued collections. The central issue in the case was whether Williams acted willfully to allow for personal liability under the statute. Personal liability against responsible persons can attach under the statute when the person is a responsible person who willfully fails to turn over the withheld taxes. Willfulness requires only a voluntary, conscious, and intentional act, not a bad motive or evil intent. The Court explained that evidence showed that the responsible person had knowledge of payments to other creditors after he was aware of the failure to pay withholding tax is sufficient to show willfulness. Mr. Williams had argued that he was in a mental fog and could not have willfully spurned his tax obligations. Further he argued that he had turned over his businesses’ tax duties to his bookkeeper and another individual. The Court ruled that he was in fact willful because he knew of the unpaid payroll taxes and yet decided to pay private creditors instead of the IRS.
I.R.C. section 6672
This is a hard fought case on a narrow issue that ultimately went in favor of the IRS. The Tax Court in Scott T. Blackburn v. Comm’r,
150 T.C. No. 9, filed April 9, 2018, was asked to review the
verification of compliance rule of I.R.C. section 6751(b), as required
by sections 6330(c)(1) and (3)(A). The Appeals officer must “obtain
verification from the Secretary that the requirements of any applicable
law or administrative procedure have been met.” Sec. 6330(c)(1). The
Petitioner did not argue or contest the liability issue relating to
assessment of the Trust Fund Recovery Penalty against him. The Revenue
Officer in this instance has recommended assessment and said assessment
was approved by the Revenue Officer’s manager using Form 4183. The name
of the manager was listed on the form, but no signature was present. The
taxpayer argued that in creating section 6751(b), Congress could not
have meant to require a meaningless, supervisory “rubber stamped”
signature. Petitioner asked the IRS many times to provide some evidence
that the supervisor’s review was meaningful. Petitioner relies on the
Internal Revenue Manual to suggest an argument that the signature of a
supervisor in support of a penalty is not in itself a sufficient showing
to comply with section 6751(b). The Court indicated that caselaw review
applying these code sections has only required the officer to review
the administrative steps taken before assessment of the underlying
liability. To impose the requirement of a substantive review on the
officer would allow the taxpayer to avoid the limitations of pursuing
the underlying liability in a review under section 6330 and apply a
level of detail in the verification process that has never been
previously required, the Court explained.
Caraker Law Firm, P.C. 