According to Law360
a recent U.S. Tax Court case illustrates how aggressive the Internal Revenue Service (IRS) has become in using the trust fund recovery penalty (TFRP) to collect trust fund taxes.
In Fitzpatrick v. Commissioner, T.C. Memo. 2016-199
, the taxpayer was the wife of a passive investor in the employer corporation. At the request of her husband in early 2005, she performed certain ministerial duties in connection with the formation of the employer corporation, including opening a bank account and being a person authorized to sign checks on the account.
She was not an officer of the employer corporation, did not control its financial affairs, had no ownership interest, had no authority to hire and fire employees, and otherwise had little or no decision-making power beyond ministerial duties.
The IRS contended that the taxpayer possessed all the recognized indicia of a responsible person. It asserted the taxpayer exercised substantial financial control over the employer, was a de facto officer because she opened two bank accounts, had signatory authority over both accounts, and signed checks on behalf of the employer.
Moreover, she had no duty to, and did not, oversee the employees, collect payroll information, compile payroll information, or remit payroll information to the payroll service company. These were the duties of the general manager.
The Tax Court disagreed. It found by a preponderance of the evidence that:
- The taxpayer’s role was ministerial.
- She lacked authority to control the financial affairs of the employer or to exercise any significant authority over the disbursement of funds.
- She had no involvement in the day-to-day affairs of the employer (except for a few weeks during its pre-opening phase).
- She was not an officer, director, owner or employee of the employer at any time
- She had no authority to hire and fire employees
- She had no responsibility to oversee or ensure the payment of payroll taxes.
- She was not its bookkeeper or accountant and
- She did not reconcile the bank statements.
While the facts in this case may not fairly represent the IRS’s general approach to assessing the TFRP, it is clear that the IRS will vigorously pursue the TFRP when trust fund taxes are collected and not paid over to the government.
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