Office of Audit


Revisions to Trust Fund Recovery Penalty Procedures are Warranted

Final Report issued on June 30, 2016

Highlights of Reference Number:  2016-30-046 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.



The Trust Fund Recovery Penalty (TFRP) is a penalty against any responsible person whose duty, status, and authority within a company or business requires them to collect, or to account for, and to pay over taxes held in trust for the benefit of the U.S. Government and who willfully fails to perform any of these activities.  The IRS must prove that the responsible individual was aware of the outstanding taxes and either deliberately chose not to pay the taxes or recklessly disregarded an obvious risk that the taxes would not be paid.  Because the TFRP can have significant economic consequences on those deemed responsible, it is essential that the IRS follow all required investigative and administrative procedures when making such determinations.



This audit was initiated based on concerns identified in a prior TIGTA review about the delay in assignment of TFRP cases.  The overall objective of this review was to determine whether the Collection function is taking effective and timely actions to assess and collect the TFRP.  This review focused on timeliness of assigning TFRP cases, Notice of Federal Tax Lien (NFTL) filings for TFRP cases, and control of TFRP cases that were appealed.



TIGTA reviewed two statistical samples of individuals with outstanding TFRP assessment liabilities (100 cases that were assigned and 100 cases that were unassigned).  The IRS took an average of more than 15 months to assign cases to a revenue officer for collection action.  Furthermore, only 20 (34 percent) of the 59 TFRP Field Collection cases were assigned to the same revenue officer who worked the business trust fund case.  In addition, 72 (36 percent) of the 200 cases reviewed did not have NFTLs filed.  TIGTA also reviewed a statistical sample of appealed TFRP assessments and found that they were not always timely sent to Appeals and that the inventory of cases sent to Appeals was not properly monitored.



TIGTA recommended that the IRS:  1) require, when possible, the prompt assignment of the respective individual taxpayer account(s) to the same revenue officer working the business trust fund case; 2) clarify and emphasize the use of the NFTL in pyramiding trust fund cases; 3) require the revenue officer proposing the TFRP assessment to make a lien determination after the required notice period and update the Automated Trust Fund Recovery (ATFR) system to notify staff when an NFTL should be filed; 4) consider requiring revenue officers to complete a TFRP completeness checklist prior to sending cases to the Control Point Monitoring Advisory function to forward to Appeals; and 5) determine if it is feasible to systemically notify the Collection function when Appeals has made a determination.


In response to the report, IRS officials agreed with four of our five recommendations.  IRS officials plan to:  1) emphasize prompt assignment of the individual taxpayer account to the same revenue officer when possible; 2) emphasize the use of the NFTL in pyramiding trust fund cases; 3) require group managers to ensure that a TFRP completeness checklist is used; and 4) determine if an interface between the Appeals Centralized Database System and the ATFR system is feasible.


The IRS also agreed to require the revenue officer proposing the TFRP assessment to make a lien determination; however, due to resource limitations, the IRS does not plan on updating the ATFR system to notify staff when an NFTL should be filed.  TIGTA believes the IRS should identify an alternate method to ensure that NFTLs are filed timely.



To view the report, including the scope, methodology, and full IRS response, go to:


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