Congress enacted the Trust Fund Recovery Penalty Statute to encourage prompt payment of withheld and other collected payroll taxes by allowing the Internal Revenue Service to assert a liability against responsible third parties [IRC 6672]. The amount of the penalty imposed by the statute for failure to comply with its provisions is measured by the payroll taxes required to be collected or collected and not paid over. That is why the liability is referred to as a "100% Penalty." The penalty is civil in nature, not criminal.
Congress clearly restricted the provisions of IRC 6672 to "Trust Fund" taxes as defined in IRC 7501. In other words, the penalty only applies to collected or withheld payroll taxes that are imposed on persons other than the party who collects payroll taxes, accounts for payroll taxes, and pays over such payroll taxes.
There are two major tests to determine if someone is subject to the provisions of IRC 6672. They are primarily questions of fact and may be stated as follows: (1) Whether the party against whom the penalty is proposed had the duty to account for payroll taxes, collect payroll taxes, and turn over trust fund payroll taxes; and (2) Whether he or she willful failed to perform this duty relating to the trust fund payroll taxes.
In general, the IRS has the right to pursue any person who meets the tests, even if he was not an officer or employee of the corporation which originally collected the payroll tax problem.
The penalty can be assessed against more than one person. It is not unusual for the IRS to assess the penalty for payroll tax problem against several responsible persons. In the event that the IRS assesses several persons for trust fund payroll taxes, it may collect the entire liability from any of those persons.
When a corporation fails to pay payroll taxes, the IRS may proceed against the persons responsible for the nonpayment of such payroll taxes. IRC 6672 provides statutory authority for imposing a Trust Fund Recovery Penalty on "any person required to collect payroll taxes, truthfully account for payroll taxes, and pay over collected payroll taxes" who willfully fails to collect such payroll taxes or willfully attempts in any manner to evade or defeat such payroll taxes or payment thereof. Generally, two conditions must be met in order to assess and collect the Trust Fund Recovery Penalty tax: (1) The taxpayer must be a responsible person for such payroll taxes, and (2) The taxpayer's conduct must be willful in relation to the mishandling of such payroll taxes
The key to liability for payroll taxes under Section 6672 is control of finances within the employer corporation: the power to control the decision-making process by which the employer corporation allocates funds to other creditors in preference to its withholding payroll taxes obligations. Liability attaches to those with power and responsibility within the corporate structure for seeing that the taxes withheld from various sources are remitted to the Government. This duty is generally found in high corporate officials charged with general control over corporate business affairs who participate in decisions concerning payment of creditors and disbursal of funds.
The IRS must prove and establish a second element for liability under the Trust Fund Recover Penalty for payroll taxes. That element is "willfulness." A responsible person need not have failed to pay the payroll taxes with a fraudulent or evil purpose. That person must merely be shown to have knowingly and intentionally disregarded the duty to pay trust fund payroll taxes to the IRS. "Willfulness" can be defined as "an act is willful if it is voluntary, conscious, and intentional. A responsible person acted willfully if he 'knowingly' used available funds to prefer other creditors to the IRS