CTRS Tax Liens and Levies — Advanced Strategies Flashcards

What is the Trust Fund Recovery Penalty (TFRP) and who can be held personally liable?

Answer: A 100% penalty equal to the unpaid trust fund taxes assessed against any 'responsible person' who willfully failed to collect or pay over payroll taxes

The TFRP under IRC §6672 is a 100% penalty equal to the unpaid trust fund portion of payroll taxes, assessed personally against any 'responsible person' who willfully failed to ensure the taxes were paid.

What is the two-part test for TFRP liability (responsible person + willfulness)?

Answer: A responsible person is someone with authority to direct the payment of funds; willfulness means intentionally disregarding a known legal duty to pay the taxes

TFRP requires proving both elements: the person had authority over company finances (responsibility) and deliberately chose not to pay the trust fund taxes when they had knowledge of the obligation (willfulness).

How can the IRS's determination to assess the TFRP be challenged?

Answer: The proposed responsible person has 60 days to request an appeals conference after receiving Letter 1153, before the TFRP is formally assessed

Upon receipt of Letter 1153 (proposed TFRP assessment), the proposed responsible person has 60 days to protest through the IRS Office of Appeals before the penalty is formally assessed.

What is an 'alter ego' theory in IRS collection and when does the IRS apply it?

Answer: The IRS asserts that a new entity is merely the alter ego of the delinquent taxpayer and can therefore be held responsible for the original entity's tax debts

The alter ego theory allows the IRS to pursue a new or related entity for a taxpayer's tax debts when the new entity is functionally identical to the delinquent entity with no real separation.

What is the 'deposit order rule' for payroll tax deposits and why does it matter for TFRP analysis?

Answer: The IRS designates the order in which payroll deposits are applied to different tax periods, and the TFRP only applies to the trust fund portion (employee withholdings)

The IRS applies payroll deposits using a specific internal order, and understanding that only the trust fund portion (withheld income taxes and employee FICA) is subject to TFRP is critical because the employer's share of FICA is not recoverable via the TFRP.

What is the IRS's National Standards allowance and how is it used in levy calculations?

Answer: A set of IRS-published expense allowances for food, clothing, and household items used to determine the non-exempt portion of income subject to levy

National Standards are IRS-published expense allowances based on Bureau of Labor Statistics data that set limits on how much of a taxpayer's income is protected from levy for basic living expenses.