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I was assessed an IRS Trust Fund Recovery Penalty, so was my Business Partner. I paid, he didn’t. Can I sue him for his share of the debt?

Posted by Michael S. Anderson | Sep 05, 2013 | 0 Comments

 Yes, you can try to recover from another person who was assessed an IRS Trust Fund Recovery Penalty under IRC Section 6672….but who didn't pay their share.

Some more explanation is in order, but first some background:

Trust Funds?

The simplest way to understand what a Trust Fund Tax is would be to look at a paycheck.  The Employer collects certain taxes from the Employee's pay and is responsible to make sure that those amounts collected are forwarded to the IRS.  Those amounts are all listed on the typical paycheck.

The taxes collected by the Employer from the check include Income Tax, Social Security Tax, and Medicare Tax.

The Employer matches the Social Security and Medicare Tax and sends the whole pot in.


Only the portion of the entire amount sent in that belonged to the Employee and was held in Trust by the Employer, is considered “Trust Fund Tax”.  It is called this because the Employer is responsible to hold it in Trust for the employee.

The IRS is very determined to collect these when they aren't paid by the business.  It will go after the business of course, but it can also go after individuals for payment and will do so aggressively.

Who Can The IRS Go After?

The IRS can't just send a bill for these Trust Fund amounts to anyone it wants.  It has to “assess” the Trust Fund amount against the person it thinks was responsible for collection and payment of the amount in some way.

26 USC Section 6672 allows the Internal Revenue Service to recover the Trust Fund amount from any individual who:

1.  Was required to collect, truthfully account for, and pay over any tax imposed, and who;

2.  Willfully failed to collect such tax, or truthfully account for and pay over such tax, or willfully attempted in any manner to evade or defeat any such tax or the payment thereof.

That's a mouthful.


In order for the “willfulness” part of the rule to be satisfied, the IRS must show that the Person was or should have been aware that the tax was owed and either intentionally ignored it or was indifferent to the consequences that might occur.  Lack of Money isn't a defense to this, nor is the fact that you may have been just obeying the “Boss' Orders”. (see Hochstein v. United States)

Who Can You Go After?

You probably noticed above that I mentioned that those assessed with this Penalty are joint and severally liable.  This means that if the debt is $50,000.00, everyone assessed the penalty is 100% liable for the full amount.  If one party pays the entire amount off, the IRS is satisfied and considers the penalty paid as to everyone else.

What does the person do though… who is jointly liable with several others and who ends up paying most of the debt…like you?

26 USC Section 6672(d) says:

Right of contribution where more than 1 person liable for penalty

“If more than 1 person is liable for the penalty under subsection (a) with respect to any tax, each person who paid such penalty shall be entitled to recover from other persons who are liable for such penalty an amount equal to the excess of the amount paid by such person over such person's proportionate share of the penalty….”

Another mouthful.

The Code allows you to sue the other parties to the Penalty in US District Court for their share that you paid.  If there were two of you and the debt is $50,000.00, than he should have paid $25,000.00 and you should have paid $25,000.00.  If you paid the entire $50,000.00 you can sue him for $25,000.00.

It is important to remember that the IRS won't do this for you.  The IRS doesn't care and isn't required to care.  The Trust Fund Rules are set up so that the “responsible” parties have to fight amongst themselves about payment issues.

Michael Anderson, Tax Lawyer In Arizona Michael Anderson, Tax Lawyer In Arizona Written By:

Anderson Tax Law 2158 N. Gilbert Rd. Ste 101 Mesa, Arizona 85203

Phone: (480) 507-5985 Fax: (480) 507-5988 Email: [email protected] Website:

About the Author

Michael S. Anderson

Michael Anderson has been representing Arizona clients with tax debt problems for two decades and has helped his clients eliminate millions of dollars in tax debt. His tax debt practice is limited to helping individuals and the self-employed who have serious IRS problems.


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