Trust Fund Recovery Penalty for an Office Manager Who Signed the Checks
Brightline Services owes $84,000 in payroll taxes for the first three quarters of 2023. The owner, Richard, controlled the company. Dana was the office manager: she hired and fired staff, signed payroll checks, decided which bills to pay, and signed eight checks to vendors after receiving an IRS notice about unpaid withholding. She says Richard told her not to pay the IRS and that she had no authority. She never signed the returns; the CPA did. She is not an officer or shareholder. The trust fund portion is $62,000. Dana asks why she should be personally liable when Richard made the decisions.
1. Apply the responsible person and willfulness tests to Dana.
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Responsible person status under §6672 is not limited to officers or shareholders. It turns on duty and authority: who controlled the funds, signed checks, decided which creditors to pay, and could have paid the withholding. Dana hired and fired staff, signed payroll checks, and chose which bills to pay. Those facts strongly support responsible person status even though she was not an officer.
Willfulness means knowledge of the unpaid taxes and a voluntary decision to use available funds for other creditors. Dana received an IRS notice and signed eight checks to vendors afterward. That supports willfulness. 'Richard told me not to pay' is not a defense if she knew of the obligation and had the ability to pay. Following orders does not erase the duty to pay trust fund taxes. Her lack of authority claim is weakened by her check-signing and bill-paying role. She may still request an interview and present evidence that she was truly powerless, but the current facts point toward assertion.
2. What is the correct penalty amount, and how does it work when more than one person is responsible?
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The trust fund recovery penalty is limited to the unpaid trust fund portion: the employee's withheld income tax and the employee's share of FICA, plus statutory additions. Here that is $62,000, not the full $84,000. The employer's share of FICA and other non-trust-fund amounts are not part of the penalty. The penalty can be assessed against more than one responsible person. It is not joint liability in the sense of splitting the amount; each responsible person can be liable for 100% of the trust fund portion, but the IRS cannot collect more than the total once. Payments by Richard or Dana reduce the unpaid balance. Document the trust fund computation and any credits. Explain that Dana may have appeal rights and that she can request a conference.
3. What defenses or documentation should you evaluate before asserting the penalty?
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Evaluate whether Dana had actual authority to pay the taxes and whether she knew they were unpaid. Request the payroll records, bank statements, check images, board or management documents, and the IRS notice. Interview her about the eight checks: what bills they paid, when she learned of the withholding debt, and whether any funds remained. Consider whether Richard controlled the bank account so completely that she could not pay. Consider reasonable cause only if the facts support it; reliance on an owner's instruction is generally not enough when the responsible person knew of the obligation. Document Richard's role and the basis for asserting against both individuals. Do not assert the penalty on the employer's share. Do not treat the CPA's signing of the returns as eliminating Dana's responsibility if she controlled payments.