Enforcement of The Trust Fund Recovery Penalty (TFRP) is a source of potential government revenue that, according to the Treasury Inspector General for Tax Administration (TIGTA), needs to be revamped to become more efficient. Under existing law, employers are required to withhold from their employees’ salaries amounts to cover Federal income, Social Security, and Medicare taxes. These are referred to as “trust fund taxes.” When the employer fails to pay these taxes, the IRS can collect them from “responsible persons,” who have willfully failed to pay them. In determining who is a responsible person, the critical test is whether the person has the effective power to pay the taxes owed.
As the taxes get older, the possibility of collection by the IRS continues to decrease. As of June 2012, employers owed the United States government approximately $14.1 billion in delinquent employment taxes. That’s one big employment tax problem! In their study of 265 statistically valid cases, TIGTA found that TFRP actions were not always timely or adequate in 99 cases. Sixty-five cases had untimely TFRP actions, twenty cases had TFRPs that could not be assessed because assessment statutes had expired, ten did not have adequate support for collectability determinations when the TFRP was not assessed, and nine cases with incomplete TFRP investigations were closed with an installment agreement or considered “currently not collectible” before determining whether a TFRP should be assessed.
TIGTA set forth a list of recommendations for the IRS with respect to the TFRP, which were all accepted and agreed to be implemented in the coming year. Many of the suggestions emphasized the responsibility of the group managers; for example, one recommendation was to emphasize to managers their responsibility to use the Automated Trust Fund Recovery System (ATFR) monthly and to increase the level of training offered.
There are also a number of technical improvements that TIGTA recommended. For example, components would be added to review and measure the timeliness of actions, systemic messages will be used to remind revenue officers about functions already in place to facilitate timely TFRP actions, and there will be an updated checklist box for installment agreements. TIGTA also encouraged an increased amount of cooperation between different groups. For example, revenue officers and managers were encouraged to work more closely with the IRS Information Technology organization to ensure the completion and adequacy of the improvements listed above. Also, revenue officers should coordinate with Collection Policy to revise the Internal Revenue Manual (IRM), to hold group managers more accountable.
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