Fund Handbook page 1
Revenue Manual - Part 5. Collecting
5.7.1 Federal Tax Deposit Alerts
Federal Tax Deposit (FTD) Alerts
FTD Alerts are used to
determine an employer’s compliance with employment
tax deposit requirements for the quarter of Alert
issuance, and for subsequent quarters until the
taxpayer is brought into full compliance.
The FTD Alert process
identifies, at an early stage (i.e., before the
return is due), taxpayers who have fallen behind in
Criteria for FTD Alert Issuance
FTD Alerts are issued on
taxpayers who are classified as semiweekly
depositors and who have not made FTDs during the
current quarter or who have made them in
substantially reduced amounts. They may be
identified by the presence of TC 971 AC 046 on a tax
There are two levels of
Alert issuance, both of which are assigned for field
contact. They are identified by the following
systemically generated codes:
identified by an Alert priority code of
"A" .The taxpayer had an unresolved
account in notice status in each of the prior two
identified by an Alert priority code of
"B" .The taxpayer is considered to be
likely to owe without intervention based on our
identification and selection process.
Process for Alert Issuance
Master File conducts the
analysis cycle for FTD Alerts in the twelfth week of
each calendar quarter. This will be in March, June,
September, and December.
Receipt of FTD Alerts
FTD Alerts are sent directly
from Master File to the Integrated Collection System
(ICS) for direct assignment to the field.
Contact the taxpayer within
15 calendar days of receipt of the Alert. If timely
contact is not possible, notify the group manager.
The group manager will decide if reassignment of the
Alert is appropriate. If contact is delayed for more
than 15 calendar days, note the reason for the delay
in the case history.
Pre-Contact Research and Analysis
If the pre-contact research
and analysis reveal:
the taxpayer is not liable
for deposits, close the Alert. Final return
information may have posted after the Alert
the taxpayer is assigned to
. Determine the account’s status. If
indicates that the taxpayer is current or no longer
liable for employment taxes, close the Alert. If
this information is unavailable, work the Alert and
transfer the account.
the taxpayer is in
bankruptcy, verify that Insolvency is monitoring the
taxpayer’s compliance. Request input of TC 136 and
close the Alert. A TC 136 prevents future Alerts
from generating. It is reversed with a TC 137.
Follow the procedures in
5.1.10, Taxpayer Contacts.
Explain the reason for the
visit. Recognize that Alerts generate based on the
probability that the taxpayer has fallen behind in
Provide the taxpayer with
Publication 1, Your Rights as a Taxpayer.
If the taxpayer provides
documentation or other substantiating information
that he or she is in full compliance, close the
If the taxpayer is no longer
required to deposit (i.e., out-of-business, no
employees), promptly request input of TC 591 and
close the Alert.
If the taxpayer is in
compliance and due to sporadic or seasonal payrolls
the Alert analysis is unable to predict deposit
compliance, request input of TC 136 and close the
Alert. During the contact, briefly review Federal
Tax Deposit requirements with the taxpayer and
provide Notice 931, Deposit Requirements, or other
document outlining the deposit rules to help explain
the requirements. This may help to ensure the
taxpayer remains in compliance.
Taxpayer Not in Compliance
FTD Alerts on delinquent
taxpayers provide an early opportunity to assist
taxpayers before their liability pyramids and the
growing debt becomes more difficult to resolve.
Review Federal Tax Deposit
requirements with the taxpayer. Give the taxpayer
Notice 931, Deposit Requirements, or other document
outlining the deposit rules to help explain the
Discuss the cost for failing
to deposit taxes on time. Explain the FTD penalty to
the taxpayer. Consider illustrating the cost to the
taxpayer by showing the taxpayer the penalties
incurred in the Alert quarter as well as prior
Ensure that the taxpayer
understands the consequences of continued
noncompliance. Discuss levy and seizure provisions;
discuss monthly filing and the special bank deposit
provisions found in IRC 7512; and when applicable,
discuss the provisions for the Trust Fund Recovery
Monitor the taxpayer’s
compliance with deposits for the Alert quarter and
subsequent quarters until the account is resolved.
If the taxpayer cannot satisfy past due deposits
while meeting current deposits, encourage the
taxpayer to make current deposits first while
working to resolve past due deposits.
When discussing Federal Tax Deposits
with the taxpayer, explain and recommend the
Electronic Federal Tax Payment System (EFTPS).
Input a record of FTDs made
by the taxpayer as a result of FTD Alert contacts
using the <F3> DEPOSIT application within the
ICS FTD Alert module. All FTDs (TC 650 only) made by
the taxpayer for the Alert quarter from the point of
initial contact until the Alert is closed should be
input to the module using this application. These
inputs do not upload to IDRS and are for tracking
Alert Closing Procedures
Secure the 941 return for
the Alert quarter. Use the appropriate closing code
with TC 599 for the return secured.
If full payment of tax,
penalty, and interest is not received with the
return, take pre-assessment action to resolve the
If resolution of the account
is not imminent, consider prompt assessment action.
Close the Alert when the
taxpayer is brought into full compliance or when the
prompt assessment, Bal Due, or Del Ret is received.
The following options are
available to close an Alert:
Return Secured: The taxpayer
was not in compliance with FTDs and the revenue
officer secured a balance due return for the Alert
quarter. The revenue officer should close the FTD
Alert, create a pre-assessed or prompt-assessed Bal
Due on ICS, and pursue collection.
TP is in Compliance: The
taxpayer was required to deposit and was fully
current in doing so at the time of initial contact
on the Alert.
Not Required to Deposit: The
taxpayer was not required to deposit for the Alert
TP is Sporadic/Seasonal: The
taxpayer is either a sporadic or seasonal employer
with a fluctuating payroll. If the Alert analysis
would be unable to predict the taxpayer's deposit
compliance, the revenue officer should close the
Alert and manually request input of TC 136 to
suppress future Alerts.
Brought into Compliance: The
revenue officer ensured the taxpayer made all
required deposits and secured the return for the
Alert quarter. The taxpayer is fully current at the
time of closure, and there are no additional
Received: The revenue officer received another
module by which to control the case. FTD Alerts
should be closed and the subcode changed to
"000" when there is an open Bal Due or Del
Ret on the account.
If a new FTD Alert is issued
while an Alert from a prior quarter is still open in
inventory, the old Alert will be closed systemically
and replaced with the new Alert.
Transfer of FTD Alerts
If the taxpayer is in
another area, the FTD Alert can be transferred
without a prior Courtesy Investigation.
Due to the time-sensitive
nature of FTD Alert contacts, call and advise the
receiving office of the transfer.
Transfer FTD Alerts only if
the business itself, not merely one or more officers
or partners, is located in the transferee area.
Monthly Filing and Special Deposits
Letter 903 (DO)
Letter 903 (DO) alerts
taxpayers to the provisions of I.R.C. § 7512,
Separate Accounting for Certain Collected Taxes and
I.R.C. § 7215, Offenses With Respect to Collected
These procedures should only be used in
the most egregious cases of noncompliance and where
the collection procedures have already been
unproductive or would be futile to stop or reduce
trust fund pyramiding.
After issuance of Letter
903(DO), subsequent delinquencies by the taxpayer
will be accelerated to the field for prompt
Issuance of Letter 903(DO)
is required before a taxpayer can be recommended for
monthly filing and special bank deposits.
Issuing Letter 903 (DO):
The taxpayer is a in-business trust fund violator.
Consider issuing Letter 903(DO).
You believe a levy upon property of the business or its
responsible persons would be ineffective to
reduce pyramiding behavior.
Timely consideration of Letter 903(DO) procedures is important.
You are recommending issuance of Letter 903(DO)
Submit the case file and letter with one copy to the group
manager for review and approval.
The manager does not approve the recommendation
Note the reason in the case file.
When the Letter 903(DO) is
Hand deliver Letter 903(DO)
and Notice 931, Deposit Requirements for Employment
Taxes, to the taxpayer. If the taxpayer is not
available, the letter and notice may be left at the
place of business.
Prepare Form 4844, Request
for Terminal Action, to request input of TC 148–9.
This provides for systemic control and subsequent
follow-up. If a subsequent
RET, or FTD Alert, is issued it will be coded with
an "L" and it will be accelerated.
Associate the copy of Letter
903(DO) with the case file.
The basis for the $100,000 figure used
in the Letter 903(DO) is as follows:
I.R.C. § 7215 violations
are punishable by up to one year of imprisonment;
Under federal sentencing
guidelines, offenses punishable by one year or less,
but more than six months are Class A misdemeanors
(18 U.S.C.§ 3559(a)(6));
Under federal sentencing
guidelines, Class A misdemeanors not resulting in
death are punishable against individuals by fines of
not more than $100,000 (18 U.S.C. § 3571(b)(5)).
If the taxpayer has
previously abandoned other business ventures,
leaving unpaid and uncollectible tax liabilities, it
may not be necessary or appropriate to place the
taxpayer on monthly filing or special deposit
requirements before seeking a civil injunction to
stop further pyramiding. Consult with local Counsel
when dealing with this situation.
Revenue Officer Follow-up After Letter 903(DO)
For cases received in the
Collection Field function coded "L"
indicating that the taxpayer previously was issued
Letter 903(DO), take firmer actions, as described
If the taxpayer is not in
compliance with filing and payment requirements,
place the taxpayer on both:
Monthly filing (See Treas.
Special bank deposit
requirements (See I.R.C. § 7512)
The case should be monitored
for ongoing compliance. The revenue officer should
make a documented contact with the taxpayer at least
once each month to remind the taxpayer of trust fund
Document the case history
with the reason for not proceeding with any or all
of the above.
If the taxpayer is in
compliance, request input of TC 149 to reverse the
Monthly Filing and Special Deposit Procedures
administrative collection procedures should be taken
before initiating Trust Fund Compliance procedures.
For instance, appropriate levies and liens should
first have been considered and appropriate trust
fund recovery penalty investigations should have
been pursued. With approval from local counsel, it
may also be appropriate to use monthly filing and
special deposit procedures while a taxpayer is
exercising its collection due process hearing and
appeal rights under I.R.C. § 6320 or 6330.
Form 2674, Report of Trust
Fund Violators, is used to recommend the number of
months the taxpayer must file monthly or
semimonthly. The taxpayer will remain on a monthly
or semimonthly filing schedule for six months unless
it is determined a longer period is appropriate.
If the taxpayer is required
to file Form 941–M, a return must be filed for
each month in the quarter. If the taxpayer is
required to file Form 720, recommend monthly or
semimonthly filing based on the taxpayer’s Federal
tax deposit requirements.
If the taxpayer is required to make
semimonthly tax deposits with Form 720, recommend
If you are recommending a
monthly return, you will:
Complete a Form 2674.
Prepare a notification
letter to the taxpayer. (See Exhibit 5.7.2–1
Submit the Form 2674 and
notification letter to the group manager for
Retain a copy of the letter
in the case file.
Deliver the notification
letter to the taxpayer personally.
Request acknowledgment of
receipt of the original letter; if the taxpayer
declines to acknowledge receipt, leave the letter
with the taxpayer.
Give the taxpayer Form
941–M and/or Form 720, with your mailing address
for filing the returns.
Explain monthly and/or
semimonthly filing requirements.
Begin the period covered by the first
monthly or semi-monthly return on the first day of
the first month of the calendar quarter.
Explain Special Deposit of
Taxes requirements and issuance of Form 2481. (See
Inform the taxpayer that
failure to comply may result in:
Prompt assessment of unpaid
Assessment of monthly
liabilities based upon a return executed under I.R.C.
Prompt enforcement action
prior to the end of the calendar quarter.
More stringent requirements
authorized by I.R.C. § 7512(b), and possible civil
or criminal referral.
Change the taxpayer’s Form
941 filing requirement from 1 to 10. Request input
TC–136 to suppress FTD Alerts, if not previously
I.R.C. § 7512(b) applies to
withheld employment taxes, backup withholding, and
certain withheld and collected excise taxes (i.e.,
local telephone service, toll telephone service,
teletypewriter exchange service, and air
transportation). It requires the creation of a
separate bank account and deposit therein of such
taxes. Deposits to the separate bank account are
paid over the government when a return for the
deposit period is due, instead of through the FTD
system, which is one reason that monthly or
semi-monthly return requirements are ordinarily
established at the same time that I.R.C.§ 7512
requirements are imposed.
Failure to comply with
provisions of I.R.C. § 7512(b) subjects the
taxpayer to criminal prosecution under I.R.C. §
Pursue cases that do not
meet LEM 5, Section 4.1.(2) criteria (or where
criminal prosecution will otherwise not be sought)
for a potential civil injunction.
Form 2674, Section II,
provides for revenue officer recommendation for
issuance of Form 2481 under civil or criminal
Monitoring Compliance with Monthly Filing
When monitoring taxpayer
Form 941–M and/or Form
720, with return envelope, is mailed to monthly
filers between the 25th and 28th of each month.
Form 720 is mailed to
semimonthly filers between 10 and 12 days before the
due date of the return.
Form 940 is sent with the
Form 941–M between the 25th and 28th of December.
Upon receipt from the
taxpayer of the completed form, you will:
Review the return for
accuracy and compliance with deposit and paying
Ensure that a received date
is present on the return.
Use Form 2482, Record of
Trust Fund Compliance Program Case, sections I and
, to monitor Special Deposit of Taxes and filing
Retain the case in active
inventory for a full filing quarterly period.
Thereafter, local management may determine other
appropriate means of monitoring such cases.
If the taxpayer has moved after receipt
of the notification letter, then issue a Courtesy
Investigation to monitor compliance.
Processing Monthly Forms 941–M and/or Monthly or
Semimonthly Forms 720
To process the Forms 941–M
and/or Form 720 follow the procedures below:
If Collection of the tax
is not at risk
Associate all returns for the three months of the quarter. 1.
Prepare a composite Form 941 or Form 720 no later than the end of
the month following the close of the quarter. 2.
Annotate the lower right hand corner of the Form 941–M and or
Form 720 with the eight digit employee number. 3.
Attach all Forms 941–M or 720 to the composite quarterly
Process routinely. See
5.1.11, Delinquent Return Accounts. 5.
is at risk
Prompt assess any monthly or semimonthly returns for that same
quarter to avoid duplicate assessments. 1.
Prepare Form 2859, Request for Quick or Prompt Assessment, with
appropriate penalties and interest. 2.
Attach returns to corresponding Form 2859 and process. 3.
Retain photocopies in the file of all returns to be prompt
Annotate the lower right hand corner of Form 941–M and/or 720
with the eight digit employee number. 5.
If the first month’s
return for the quarter was not prompt assessed, but
the second month's return will be prompt assessed,
combine both returns on one Form 2859 and process.
The third month's return for that quarter must also
be prompt assessed on a separate Form 2859 with a
note under "remarks" to the service center
to associate this return with months 1 and 2 for
If the returns are received
by another office, the receiving office will:
Complete a Form 2482 showing
the taxpayer's name, address, type of return, period
covered, date received, amount required to be paid
under I.R.C. § 7512(b), and the amount paid.
Clearly mark Form 2482
“Return Received by (indicate office)” and
Promptly forward it to the
proper office so the information may be recorded on
the taxpayer's control record.
When removing a taxpayer
from Monthly filing requirements (Form 941–M), do
Ensure the release coincides
with the end of the calendar quarter.
Prepare a letter to the
taxpayer rescinding monthly filing requirements. See
Exhibit 5.7.2–2, Letter 2216(P)).
Submit the letter to the
group manager for signature approval.
Send the letter to the
taxpayer by regular mail.
Update the taxpayer’s
filing requirement from 10 to 1.
Request input TC 137 for
future FTD Alert issuance.
Request input of TC 149 to
reverse the TC 148–9.
Approval and Issuance of Form 2481
The Compliance Area Director
is authorized by Treasury Regulation
Require a taxpayer to comply
with the provisions of I.R.C. § 7512(b).
Relieve a taxpayer from
compliance with I.R.C. § 7512(b).
A Compliance Territory
Manager has the authority to approve and issue Form
2481 cases which meet the following criteria:
Provisions of LEM 5, Section
4.1.(2), are met.
Criminal prosecution of the
taxpayer is contemplated if the taxpayer does not
The Compliance Territory
Manager and the Criminal Investigation (CI) Special
Agent in Charge are in agreement.
Revenue officer group
managers approve and issue Form 2481 in cases which
do not meet the criteria of Lem 5, Section 4.1.(2)a,
and where no criminal prosecution of the taxpayer is
The Compliance Territory
Manager has the authority to relieve a taxpayer from
compliance with I.R.C. § 7512(b) where potential
criminal prosecution was contemplated if the
taxpayer had failed to comply, while group managers
have that authority when a potential civil
injunction was contemplated if the taxpayer had
failed to comply.
Follow the procedures below
for approval and issuance of the forms.
The taxpayer is pyramiding trust fund taxes, and the seizure of
the business would not yield net proceeds
Use I.R.C. § 7512(b) procedures before pursuing an injunction
against the taxpayer under I.R.C. § 7402(a).
Prepare Form 2674 and Form 2481. 1.
Submit forms and any related documents to the group manager for
review and final approval of strickly civil
The criteria in LEM 5, Section 4.1.(2) are met and criminal
sanctions are contemplated.
Follow steps 1 and 2 above. 1.
Note: The Compliance Territory Manager and the CI Special Agent
in Charge will jointly review the case, and if
all criteria are met, will sign Form 2674.
The Compliance Territory Manager and the CI Special Agent in
Charge cannot reach agreement on whether to
issue Form 2481.
The matter will be referred to the Compliance Area Director and
Director, Field Operations Criminal
Investigation for resolution.
A recommendation to issue Form 2481 is disapproved by the
Compliance Area Director and Director, Field
The Compliance Area Director and Director, Field Operations will
notate the Form 2674 and return it through
channels to the originating revenue officer
for association with the case file.
The Compliance Area Director and Director, Field Operations
approve the recommendations that a notice be
issued, he/she will sign Form 2674 and both
copies of Form 2481.
The approved forms will be returned through the group manager to
the originating revenue officer.
Hand deliver the Form 2481
to the taxpayer per I.R.C. § 7512(a)(2).
Request an acknowledged
receipt of the original notice in the blank space
below the "Certificate of Delivery" on the
reverse of the duplicate Form 2481.
An acknowledgment, although desirable,
is not essential to the validity of the document. If
the person declines to acknowledge receipt of the
notice, leave the original with him/her.
Request the taxpayer to
insert the following: "Receipt of original
acknowledged" followed by signature, title, and
"Certificate of Delivery" on the reverse
of duplicate Form 2481, regardless of whether an
acknowledgment is secured, and retain it with the
Explain the provisions of
the notice so the taxpayer will fully understand the
requirement which must be met.
Update the information
previously recorded on Form 2482.
Advise the taxpayer that
failure to comply with special deposit requirements
could subject him/her to civil and criminal
Obtain the name of the bank
where the taxpayer intends to open the special trust
Request a copy of the bank
signature cards after the account is opened, for
association with the case file.
I.R.C. § 7512 Case Control
Revenue officers will
monitor taxpayer compliance on Form 2482. The
following actions should be recorded on Form 2482:
Due date for first monthly
Date Form 2481 was delivered
and to whom.
Fact of mailing required
Fact of filing and paying in
accordance with Form 2481
On Form 4844, Request for
Terminal Action, request that the taxpayer’s
filing requirement for Form 941 and/or Form 720 be
"1" to "9" or "10"
(criminal or civil filers, respectively).
Request input of TC 136, if
not already input, to suppress FTD Alerts, when the
taxpayer’s quarterly liability meets the dollar
criterion for alert issuance.
If the taxpayer moves, issue
a Courtesy Investigation to monitor compliance.
Monitoring Compliance With 2481 Requirements
Monitor taxpayer compliance
with the provisions of I.R.C. § 7512(b) for both
civil and criminal filers by taking the following
Verify on the dates
specified in LEM 5, Section 4.1.(5) the following:
Special trust account was
Trust funds deposited were
in the correct amounts, as verified through payroll
records, and were deposited within two banking days
following their collection or withholding.
If verification by field visitation
cannot be made on the dates specified in LEM 5,
Section 4.1.(5), you and your group manager will
confer to determine the earliest possible date
thereafter when taxpayer contact can be made.
Monitor the taxpayer at
least monthly to verify that:
Special deposits continue to
be made on a timely basis and in the correct
Trust funds remain in the
special trust account until payment with Form
941–M or Form 720
Minimize the time spent
monitoring compliance by requesting taxpayers to
provide copies of deposit receipt slips.
Although Form 2481 demands full payment
of the taxes shown to be due on the monthly and
semimonthly returns, I.R.C. §
7512(b) requires the taxpayer
to deposit only withheld or collected taxes.
To determine partial or
A monthly or semimonthly return is received accompanied by a
The amount to be entered in the "Amount Due" column of
Form 2482 is the amount required to be paid
under I.R.C. § 7512(b), that is, the withheld
or collected taxes.
The amount entered does not compare with the amount deposited.
Determine whether the taxpayer has violated the provisions of
I.R.C. § 7512(b) and is subject to
prosecution under I.R.C. § 7215 or 7402
Take the following actions
DUEs when a Form 2481 has been delivered:
Secure a collection
Secure an installment
agreement representing the taxpayer’s maximum
ability to pay
sufficient funds for the taxpayer to comply with the
special deposit requirements.
Retain the approved
installment agreement in your inventory for manual
If an installment agreement
cannot be secured, document the reasons why in the
If the taxpayer is complying
with the requirements of the Form 2481 and there is
no installment agreement, a levy will not be made
It will not materially
impair the taxpayer’s ability to comply with the
requirements of Form 2481.
It has been determined the
case no longer has criminal or civil prosecution
It is in the best interest
of the government.
Notices of Federal Tax Lien
may be filed and a levy may be made only upon the
concurrence of the CI Special Agent in Charge if
potential criminal prosecution may be considered for
a taxpayer's non-compliance with I.R.C. § 7512. .
If the Special Agent in Charge does not agree with a
proposed civil action, the matter should be referred
to the Compliance Area Director and Director, Field
Operations for resolution of the disagreement.
Normal collection activity may be resumed for
taxpayers upon notification from the Special Agent
in Charge that the criminal aspects of the case are
concluded or the case is not being accepted for
prosecution, and if no civil injunction will be
If only potential civil
injunction is contemplated for a taxpayer's
non-compliance with I.R.C. § 7512 requirements,
then appropriate Notices of Federal Tax Lien may be
filed and the taxpayer may be given the appropriate
collection due process notices that follow the lien
filing and precede the making of a levy. However,
making a levy while a taxpayer's compliance is being
monitored under I.R.C. § 7512 will ordinarily be
inappropriate. If you want to levy, consult with
local counsel and discuss the impact a levy may have
on a potential civil injunction case..
Referrals For Civil Enforcement
Taxpayers who do not meet
the criteria in LEM 5, Section 4.1.(2), may be
recommended for civil injunction action for failure
to comply with the provisions of I.R.C. § 7512.
This action is
normally appropriate for taxpayers with minimal or
no equity, or where seizure may not resolve the
Prepare a report to
Associate Area Counsel through your group manager
addressing the facts of the case. Refer to the Legal
5.17, Chapter 4 "Suit by the United
States" for guidelines.
Recommend in the report that
Associate Area Counsel consider instituting civil
proceedings under I.R.C. § 7401 and 7402 requesting
an injunction against the taxpayer to prohibit the
incurrence of future unpaid trust fund tax
Include copies of pertinent
material, (e.g. Form 2674, Report of Trust Fund Tax
Violations) from the case file.
Forward to the group manager
for review and approval, then submit to Technical
Support Function for technical review before it is
forwarded to Associate Area Counsel.
Referrals For Criminal Enforcement
When a taxpayer fails to
comply with the provisions of I.R.C. § 7512 and the
criteria in LEM 5, Section 4.1.(2), have been met;
do the following:
Consult your group manager
as to the appropriate course of action, which may
include a referral to Criminal Investigation.
If a criminal referral is
appropriate, then prepare form 2797, Referral Report
of Potential Fraud Cases, submit the report through
appropriate channels to the Area Fraud Coordinator.
If the referral is accepted
by Criminal Investigation, the special agent
assigned to the case will contact the revenue
From the time of referral to
the Special Agent in Charge, until the criminal
aspects of the case are concluded, the Compliance
Area Director believes that suspension of the civil
aspects will imperil ultimate collection of civil
liabilities, then bring the matter to the attention
of Associate Area Counsel (SB/SE). Local SB/Se
Counsel will coordinate with local Criminal Tax
Counsel for the POD.
Cancellation of I.R.C. § 7512(b) Requirements
When you determine that a
cancellation of I.R.C. § 7512(b) requirements is in
Prepare in duplicate the
cancellation notice referring to the original notice
and paraphrase the language in I.R.C. § 7512(c).
Have the cancellation become effective
as of the end of a quarter. This benefits the
taxpayer and the Service.
Prepare a cover memorandum
setting forth the reasons for canceling the
Forward to your group
manager for signature in civil cases, and to the
Compliance Territory Manager or Area Director, as
appropriate, in criminal cases.
The signed cancellation
notice will be returned to you, through the
Compliance Territory Manager and your group manager.
Deliver or mail to the
taxpayer the signed cancellation notice, along with
a copy of Notice 931.
Review deposit requirements
and when to start the deposits with the taxpayer,
either in person or by phone.
Prepare Form 4844, Request
for Terminal Action, to request the Filing
Requirement Code be changed from "9" or
"10" to "1" and TC 137 be input
for future FTD Alert issuance.
Request input of TC 149 to
reverse the TC 148–9.
Establishing Responsibility and Willfulness for the
Trust Fund Recovery Penalty (TFRP)
The TFRP is based on IRC Section
6672 and is used to:
Facilitate the collection of
tax and enhance voluntary compliance
Serve as an alternative
means of collecting unpaid trust fund taxes when
taxes are not fully collectible from the
company/business that failed to pay the taxes
To administer the TFRP and
for additional guidance, refer to:
Policy Statement P–5–60
Section 7 of
5.17, Legal Reference Guide for Revenue Officers
The TFRP is a penalty
provided by IRC 6672 against any person required to
collect, account for, and pay over taxes held in
trust who willfully fails to perform any of these
activities. The penalty is equal to the total amount
of tax evaded, not collected, or not accounted for
and paid over. Assessments of the TFRP are possible
based on liabilities for the following tax forms:
941, Employer's Quarterly
Federal Tax Return
720, Quarterly Federal
Excise Tax Return (see
CT-1, Employer's Annual
Railroad Retirement and Unemployment Return
942, Employer's Quarterly
Federal Tax Return for Household Employees
943, Employer's Annual Tax
Return for Agricultural Employees
1042, Annual Withholding Tax
Return for U.S. Source Income of Foreign Persons
945, Annual Return of
Withheld Income Tax
TFRP assessments against
individuals are assessed on the Individual Master
File (IMF) using Master File Tax Account Code (MFT)
55 and reference number 618.
The TFRP may be imposed,
with respect to the taxes described in (3) above
Willful failure to collect tax
Willful failure to account for and pay over tax
Willful attempt in any manner to evade or defeat tax or the payment thereof
Although the TFRP is
normally applied to employment tax returns for
withheld income tax, withheld Social Security tax,
or withheld Railroad Retirement Tax, the TFRP
provided by IRC 6672 also applies to those excise
taxes which are commonly referred to as
"collected excise taxes" . Collected
excise taxes (see
22.214.171.124.1) are those which are imposed on persons
other than the person who is required by law to
collect the tax and pay it over to the Government (a
The revenue officer will
explore the possibility of asserting the TFRP
against the collecting agency’s responsible
persons and will follow the same procedures for
investigation and recommendation of the TFRP on
employment taxes or collected excise taxes.
The full unpaid trust fund
amount will be collected only once in a particular
case, whether it is collected from the
employer/collecting agency, from one or more of its
responsible persons, or from a combination of the
employer/collecting agency and one or more of its
TFRP For Collected Excise Taxes
A determination must be made
on a case-by-case basis whether a
"collected" excise tax is, in fact,
collected. Only the following excise taxes are taxes
which may be subject to the TFRP:
Tax on certain communication
services (IRC 4251)
Tax on certain
transportation by air (IRC 4261 or 4271)
Tax on crude oil windfall
profit (IRC 4986 — repealed
, but subject to the TFRP for liabilities incurred
prior to that date)
Excise taxes which are not
imposed on the person paying for the product, for
example, on the manufacturer, producer, importer, or
wholesaler, are not collected excise taxes under the
meaning of IRC 6672. Gasoline, diesel fuel, and
aviation fuel tax under IRC 4081 and 4091 are
examples of excise taxes which are not collected
and, therefore, do not fall within the meaning of
IRC Section 6672 and are not subject to the TFRP
Personal Liability for Excise Taxes
The personal liability for
excise tax (IRC 4103) is a tool to be used to
collect from responsible persons certain excise
taxes reported on Form 720 by the business taxpayer.
The main difference between the TFRP for collected
excise taxes and the personal liability for excise
taxes is that the TFRP is an assessment of a civil
penalty under Master File Transaction (MFT) code 55,
while the personal liability for excise taxes is an
assessment of the actual unpaid tax as either
transaction code (TC) 150 or 290 under the
responsible person's Social Security number.
Taxes reported on Form 720
that are not subject to the TFRP but are subject to
assessments of personal liability are identified on
the return as the "
Numbers" listed below. These abstract numbers
apply to taxes imposed at the source and not to the
end user of the product. As such, the
tax is not subject to the Trust Fund Recovery
060 — Diesel fuel
071 — Dyed diesel fuel
used in trains
078 — Dyed diesel fuel
used in certain intercity or local buses
035 — Kerosene
062 — Gasoline
058 — Gasoline removed or
entered for production of 10% gasohol
073 — Gasoline removed or
entered for production of 7.7% gasohol
074 — Gasoline removed or
entered for production of 5.7% gasohol
059 — 10% gasohol
075 — 7.7% gasohol
076 — 5.7% gasohol
069 — Aviation fuel
014 — Aviation gasoline
077 — Aviation fuel for
use in commercial aviation (other than foreign
Responsible and willful
persons can become jointly liable with the business
taxpayer for the excise taxes listed above which the
business has reported on BMF Form 720, Quarterly
Federal Excise Tax Return. When assessed against an
individual, he/she will owe the same tax liability
as the business taxpayer who filed the Form 720. The
responsible person will also be liable for interest
and certain penalties from the same date as the
The following procedures
should be followed for investigating both TFRP and
personal liability for excise tax cases:
Establishing willfulness —
Form 4180 Interview —
126.96.36.199 through 188.8.131.52 contains the procedures for establishing the
personal assessment of excise taxes, information on
the assessment statute expiration date, and the
forms that should be used when proposing these types
Automated Trust Fund Recovery (ATFR) Program
The Automated Trust Fund
Recovery (ATFR) program is a National Standard
Application used to control TFRP case inventories.
Revenue officers use the
Systemically download from
IDRS the business master file name, address, and tax
period data to establish a case
Calculate the trust fund
Monitor assessment statute
expiration dates (ASED) and determination dates
regarding assertion and non-assertion of the penalty
Systemically generate and
control managerial approvals
Generate required forms and
The application is divided
into the following components:
Area Office Application (ATFR-AO)
Control Point Monitoring (ATFR-CPM)
Cases must be worked on the
ATFR system whenever possible. This ensures that the
correct means of calculation and the current
procedures have been followed in case processing,
and that systemic records are created of the
determination and assessment.
Only cases that
cannot be processed on ATFR may be prepared
Monitoring TFRP Cases
The ATFR system is used by
the revenue officer to:
Review cases for imminent
Help ensure the TFRP
determination is made within the six month time
Complete timely follow-up
actions on the case and monitor follow-up dates to
Letter 1153(DO) issuance
Update the TFRP calculation
The group manager uses the
ATFR system to:
Monitor the six month
Determine if imminent
statute cases have been addressed
Periodically review TFRP
cases to ensure timely investigation and
recommendation of the Trust Fund Recovery Penalty
Approve revenue officer
CPM and the advisory units
use the ATFR system to:
Track and monitor trust fund
cases received from the field
Release the 2749 to the
Monitor cases assigned to
Input pertinent bankruptcy
Set the final case
Basis for Liability Under IRC 6672
The revenue officer must
establish responsibility and willfulness when
determining whether to proceed with assertion of the
TFRP. A person is liable for the TFRP if the two
statutory requirements below are met:
The person against whom the
penalty is assessed must be "responsible"
The responsible person must
have " willfully" failed to collect or pay
over trust fund taxes to the government (
Unpaid withholding taxes may
also be pursued under the provisions of:
Performance Bond Provisions
of the Miller Act (
IRC 3505 (
Responsibility is a matter
duty, and authority. A determination of
responsibility is dependent on the facts and
circumstances of each case.
Officer or employee of a
Partner or employee of a
Corporate director or
Employee of a sole
Other person or entity
outside the delinquent business organization
A responsible person has:
Duty to perform
Power to direct the act of
collecting trust fund taxes
Accountability for and
authority to pay trust fund taxes
Authority to determine which
creditors will or will not be paid
To determine whether a
person has the status, duty and authority to ensure
that the trust fund taxes are paid, consider the
duties of the officers as set forth in the corporate
by-laws as well as the ability of the individual(s)
to sign checks. In addition, determine the identity
of the individuals who:
Are officers, directors, or
shareholders of the corporation
Hire and fire employees
Exercise authority to
determine which creditors to pay
Sign and file the excise tax
or employment tax returns, such as Form 941,
Employer’s Quarterly Federal Tax Return
Control the corporation’s
Make federal tax deposits
The TFRP is available and
may be appropriately asserted when the taxpayer is
organized as a Limited Liability Company (LLC). The
need for a TFRP investigation is based on how the
LLC is classified for tax purposes.
When the LLC is a
disregarded entity, the TFRP is not needed to
establish liability against the single member owner
as the single member owner is already the taxpayer
for employment tax purposes and is fully liable for
all employment taxes, not just the trust fund
The TFRP may be asserted against other
responsible persons involved in the operations of
the disregarded LLC, such as bookkeepers and
When the LLC is classified
as a corporation or partnership for tax purposes,
the usual procedures for determining responsibility
and willfulness apply.
The TFRP determination must be made on
an LLC classified as a partnership. Under state law
the members of an LLC classified as a partnership
are not liable for the debts of the partnership.
Indicators of Responsibility
The full scope of authority
and responsibility is contingent upon whether the
person had the ability to exercise independent
judgment with respect to the financial affairs of
If a person is an officer or
owns stock in the corporation, this cannot be the
sole basis for a responsibility determination.
If a person has the
authority to sign checks, the exercise of that
authority does not, in and of itself, establish
Signatory authority may be merely a
Persons with ultimate
authority over financial affairs may generally not
avoid responsibility by delegating that authority to
someone else. If a potentially responsible person
asserts that the duty to pay taxes or otherwise
handle the financial affairs of the business was
delegated to an employee:
Evaluate the facts and
circumstances of the case
Determine whether the
delegation rendered the person (delegator) powerless
to disburse funds or dictate fiscal policy
Delegation may be relevant when
Persons serving as
volunteers solely in an honorary capacity as
directors and trustees of tax exempt organizations
will generally not be considered responsible persons
unless they participated in the day-to-day or
financial operations of the organization and they
had actual knowledge of the failure to withhold or
pay over the trust fund taxes. This does not apply
if it would result in there being no person
responsible for the TFRP. Refer to IRC section
Policy Statement P-5–60 (
184.108.40.206.14) states that individuals performing
ministerial acts without exercising independent
judgment will not be deemed responsible. In general,
non-owner employees who act solely under the
dominion and control of others, and who are not in a
position to make independent decisions on behalf of
the business entity, will not be assessed the TFRP.
Non-owner employees are those who do not own any
stock, interest, or other entrepreneurial stake in
the company that employs them.
Ministerial acts are
performed under the supervision of someone else and
do not require independent judgment or
The bookkeeper of a company is not an
owner and is not related to an owner. She has check
signing authority and she pays all of the bills that
the treasurer gives her. She is not permitted to pay
any other bills, and when there are not sufficient
funds in the bank account to pay all of the bills,
she must ask the treasurer which bills to pay. The
bookkeeper is performing a ministerial act and
should generally not be held responsible for the
A person is
"responsible" for purposes of the TFRP if
that person has "significant control" over
the company's finances. "Significant
control" means more than having the mere
mechanical duty of signing checks or preparing tax
returns or having a title that appears to have
authority. However, a responsible person need not
have the final word in the company regarding the
payment of creditors. Officers and higher level
employees of a company who are non-owners may still
be required to sacrifice their jobs (i.e., quit) to
avoid being responsible for the TFRP, rather than
obey the orders of an owner to pay other creditors
but not to pay current federal trust fund taxes as
they become due. See Brounstein
v. United States, 979 F.2d 952, 956 (3rd
A non-owner employee is
generally not a "responsible person " if
the employee's function was solely to pay the bills
as directed by a superior, rather than to determine
which creditors would or would not be paid. However,
if a non-owner employee, such as an officer, has
significant control over making the company's other
financial decisions about who to pay or has the
ability to obtain financing for the company, then
such an employee cannot avoid being responsible for
the TFRP by merely showing that an owner or a lender
limited his discretion on the specific matter of
paying taxes that the company owed. See the examples
A non-owner employee works as a clerical
secretary in the office. She signs checks and tax
returns at the direction of and for the convenience
of the owner or a supervisor who is a non-owner. She
is directed to pay other vendors, even though
payroll taxes are unpaid. The secretary is not a
responsible person for the TFRP because she works
under the dominion and control of the owner or of a
supervisor who is a non-owner and she is not
permitted to exercise independent judgment.
The long-time controller of a company
was never a shareholder, director, or officer of the
company, but he was responsible for overseeing the
finances of the company, including the preparation
of the payroll and filing the company's federal
employment tax returns. He had the authority to sign
checks in any amount and he dealt with the company's
lender on a regular basis when the company
experienced financial troubles, though he did not
arrange or sign the lending agreement on the
company's behalf. When the lender directed the
company to pursue an orderly liquidation of its
assets, the controller requested funds from the
lender to make full payroll and pay the taxes due on
the remaining employees, but the lender forwarded
only enough funds for the company to make net
payrolls. The controller made out net payroll checks
to the remaining employees and paid none of the
taxes due, rather than prorate the funds available
to the company between payroll and taxes. The
controller could be a responsible person for the
TFRP. See Hochstein v.
United States, 900 F.2d 543 (2nd Cir.
An experienced businessman was never a
shareholder, director, or officer of a new company,
but he served as the general manager of the new
company during a seven month period. As general
manager, he signed most of the company's checks to
creditors, as well as signing net payroll checks to
employees, and there was no monetary limit placed on
his check signing authority. He told the bookkeeper
which bills to pay. When the company was
experiencing cash flow problems, he spoke to one of
the owners about the company's delinquent payroll
taxes. The owner told the general manager that these
unpaid taxes were none of the general manager's
business and he should not worry about paying the
company's net payroll and missing its tax payments.
Both the general manager and the owner believed that
the general manager could not be held liable for the
TFRP because he was not an owner or officer of the
company; the general manager turned down an offer to
become the company's president specifically because
he was worried about the company's tax situation.
The general manager could be a responsible person
for the TFRP. See Gephardt
v. United States , 818 F.2d 469 (6th Cir.