Trust Fund Recovery Penalty Appeals – a Recent TIGTA Report

The U.S. Treasury houses “TIGTA” – the Treasury Inspector General for Tax Administration. TIGTA, being outside of the IRS, acts somewhat as an “Internal Affairs” for the IRS. It also works hard to maintain the integrity of the tax system. TIGTA has both law enforcement and general audit/review functions. They regularly review aspects of how the IRS operates.

Recently, TIGTA completed a report (Reference Number 2020-10-042) on how the IRS handles trust fund penalty appeals. As a reminder, the trust fund penalty can be applied to persons who willfully and, as a responsible person, failed to collect or remit to the U.S. Treasury employee withholdings. There are many factors that can indicate whether someone was a responsible person and if they willfully failed to collect and remit the payroll taxes. If the person being assessed a penalty disagrees with the assessment, they are given certain appeal rights with the IRS’s Independent Office of Appeals. The TIGTA report looked at how Appeals handled these appeals.

In summary, they found that in approximately 25% of the cases analyzed, the IRS did not follow the law and proper procedures. This included improperly dealing with taxpayer representatives without proper authority to act for the taxpayer, thus disclosing confidential information without authorization, and also contacting the taxpayer directly when there was a proper authorized representative who should have been contacted instead (a violation of taxpayer rights).

In some cases, appeals failed to properly document the file as to the basis of the Appeals decision (Appeals Case Memorandum). This includes, when applicable, explaining hazards of litigation when it is part of the reason to reduce the amount of the penalty.

Finally, and perhaps the item for taxpayers and practitioners to be most aware of, is the requirement that the protest (appeal) be signed under penalties of perjury. Failure to sign under penalties of perjury could result in an appeal deemed defective.

It is important that the appropriate penalties of perjury statement be signed for a valid appeal and it is imperative that the facts stated under penalties of perjury are accurate as it can be criminal if the “facts” are later found to be materially false. As I have often said to clients, “do not turn a civil case criminal”.

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