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Lack of final administrative determination invalidates trust-fund-recovery penalty assessment

U.S. Tax Court

The U.S. Tax Court on May 21, 2019, held that the requirement under Code section 6672(b)(3)(B) that the IRS make a final administrative determination in response to a timely protest before it can assess a trust-fund-recovery penalty is one of the “requirements of any applicable law or administrative procedure” within the meaning of section 6330(c)(1). As a result, the failure to meet that requirement means the penalty assessment was invalid, and the IRS cannot proceed with its collection action.


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The case is: Romano-Murphy v. Commissioner, 152 T.C. No. 16 (May 21, 2019). Read the Tax Court’s opinion [PDF 306 KB]


The IRS in July 2016 mailed a Letter 1153, Trust Fund Recovery Penalty Letter, notifying the taxpayer that she would be subject to the assessment of a penalty under section 6672(a) that imposes a penalty on any person who is responsible for withholding amounts of federal tax and paying them over to the United States and who willfully fails to fulfill these obligations (“trust-fund-recovery penalty”).

The taxpayer sent the IRS a timely protest and requested a conference with the IRS Office of Appeals. The IRS did not take any action in response to the taxpayer’s protest. In October 2007, the IRS assessed the trust-fund-recovery penalty, and in August 2008 the IRS sent the taxpayer a notice of intent to levy and shortly thereafter filed a notice of lien on her property. 

The taxpayer requested a collection-review hearing under section 6330, and at the hearing the IRS Office of Appeals determined that she was liable for the trust-fund-recovery penalty.  The taxpayer petitioned the Office of Appeals’ determination to the Tax Court, which in 2012 agreed the taxpayer was liable for the penalty and held that the IRS was not required to make a final administrative determination regarding the taxpayer’s protest (filed in response to the Letter 1153) before assessing the trust-fund-recovery penalty against her.

The taxpayer appealed the Tax Court’s decision to the U.S. Court of Appeals for the Eleventh Circuit. In 2016, the Eleventh Circuit held that section 6672(b)(3)(B) requires the IRS to make a final administrative determination in response to a timely protest before the IRS can assess the trust-fund-recovery penalty. The Eleventh Circuit further held that requirement was violated in this case because the IRS assessed the penalty against the taxpayer without making a final administrative determination in response to her timely protest of the Letter 1153. The Eleventh Circuit remanded to the Tax Court to decide what action should be taken to remedy the IRS’s error in assessing the penalty against the taxpayer before making a final administrative determination as required by section 6672(b)(3)(B).  

The Tax Court on May 21, 2019, held that:

  • The requirement under section 6672(b)(3)(B) to make a final administrative determination as identified by the Eleventh Circuit was one of the “requirements of any applicable law or administrative procedure,” compliance with which must be verified by the Office of Appeals in a section 6330 collection-review hearing.
  • The IRS’s failure to meet this requirement means that the assessment of the trust-fund-recovery penalty was invalid and that the Office of Appeals erred in upholding the IRS’s actions to collect the penalty.

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