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25.1.8.2
(08-17-2007)
Trust Fund Violations
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A substantial part of Collection Field function's work involves unpaid payroll taxes, underreported payroll taxes, and delinquent
Form 941 returns. Many of these cases involve prior quarters and current quarter pyramiding, multiple business entities, or
a string of similar defunct businesses. When initial indications of fraud are identified, the Collection Field function employee
will discuss the case with the group manager. If the group manager concurs with the fraud potential, the Collection Field
function employee should contact the fraud technical advisor (FTA).
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When a taxpayer's noncompliance exceeds the criminal criteria set in the Law Enforcement Manual (LEM), revenue officers should
consider the potential for:
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Implementing IRC 7512, Separate Accounting for Certain Collected Taxes, Etc.;
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Implementing Treas. Reg. 31.6011(a)-5, Monthly Filing rules;
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Pursuit of IRC 7202, Willful Failure to Collect or Pay Over Tax;
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Pursuit of IRC 7201, Attempt to Evade or Defeat Tax;
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Pursuit of IRC 7206(1), False Tax Return, and
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Civil Injunction
Note:
Issuance of the Letter 903 is critical when pursuing any of the remedies listed above. Letter 903 should be issued early in
the development of any employment tax case where an indication of fraud is present.
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Since IRC 7201,
IRC 7202, and IRC 7206(1) prosecutions require the government to establish that responsible persons knew of their tax responsibilities and willfully
failed to perform them, Letter 903 should be issued early in the development of the case. Although Letter 903 is primarily
a warning of the potential for additional enforcement actions, it also provides specific instructions and a notice of personal
responsibility to the potentially responsible individuals.
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Collection Field function employees are responsible for making recommendations involving the special deposit rules authorized
under IRC 7512 and the monthly filing procedures contained in Treas. Reg. 31.6011(a)-5. Letter 903 is issued to notify taxpayers
that continued failure to comply with standard deposit and filing rules may result in imposition of the special rules and
warns of the potential for criminal prosecution for failure to make special deposits in accordance with IRC 7512.
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Implementation of the IRC 7512 special deposit rules requires written concurrence from CI if criminal prosecution may be considered
for a violation. Use Form 2674, Report of Trust Fund Tax Violations, to request necessary approvals from Collection management
and CI. In cases where only civil sanctions (e.g., an injunction) are contemplated, a revenue officer group manager may approve
implementation of IRC 7512 procedures. See IRM 5.7.2.2.3.
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Form 2481, Notice to Make Special Deposit of Taxes, is provided for the purpose of informing taxpayers that the special deposit
requirements are being invoked. The taxpayer should be afforded a reasonable opportunity to comply with Letter 903 before
Form 2481 is hand delivered to the taxpayer, compelling the taxpayer to comply with IRC 7512(b).
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The Collection Field function employee will advise the group manager and follow guidelines for making a criminal referral
(IRM 25.1.3) or civil referral when taxpayers fail to comply with provisions of IRC 7512.
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Collection Field function employees will monitor the taxpayer's actions and keep the group manager and CI informed while the
case is in fraud referral status.
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If the taxpayer has previously abandoned other business ventures, leaving unpaid and uncollectible tax liabilities, it may
not be necessary or appropriate to place the taxpayer on monthly filing or special deposit requirements before seeking a civil
injunction to stop further pyramiding. Consult with the FTA and local SBSE Counsel when dealing with this situation.
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