SOL on trust fund recovery assessments.

• Author: Hudson, Boyd D.
• Position: Statute of limitations - Brief Article

An employer is required to deposit with the Federal government the taxes withheld from its employees' wages. Should the employer fail to pay over such taxes, the IRS has the right, under Sec. 6672, to assess a penalty equal to the amount of taxes due against all persons considered responsible for the withholding and payment of taxes. This penalty is often called the"Trust Fund Recovery Penalty" or the "100% Penalty Tax."

The issue occasionally arises in cases under Sec. 6672 as to the application of the statute of limitations (SOL) for an assessment of the Trust Fund Recovery Penalty. The Service has consistently argued that neither the general SOL: under Sec. 6501(a) (i.e., three years from the filing date of the return) nor any other SOL applies to Sec. 6672 assessments. The IRS's rationale is that the general period of limitations is only triggered by the filing of a return reporting the tax to be assessed and to be paid by the filer. Since the Sec. 6672 penalty does not appear on a return, the Service would argue that the general three-year limitations period contained in Sec. 6501 (a) does not apply.

Fortunately for potential responsible parties, the IRS's position will no longer be asserted. The Third Circuit recently joined the Fifth, Sixth, Seventh, Ninth and Federal Circuits in holding that the Sec. 6672 responsible person...