When a taxpayer makes a voluntary payment to the IRS, the taxpayer has the option to designate the application of the payment to certain periods and/or taxes. For example, if a corporation owes federal employment taxes and the corporation desires to make a partial payment towards the past due employment taxes, the corporation or an authorized individual may designate the payment towards the “trust fund portion” of employment taxes due. In this manner, the payment reduces not only the employment taxes owed, but also the potential liability for persons who may have been liable or may be subsequently found to be liable for so-called trust fund recovery penalties (“TFRPs”) under Section 6672 of the Code.
On July 23, 2021, IRS Chief Counsel released a Chief Counsel Advice Memorandum on this issue, and it serves as an important reminder to tax professionals and taxpayers regarding the option to designate payments and also the requirements taxpayers must follow to do so.
Trust Fund Recovery Penalties Generally