Late Better Never

In CCM 200532046, the Office of Chief Counsel opined that the assessment of a penalty under Code Section 6672(a) against a "a responsible person is subject to the same assessment period under section 6501 as applies to the employer's return, even where the exceptions under section 6501(c) apply to the employer's return."

The general rule under Section 6501(a) is that a "tax must be assessed within three years after the return was filed, whether or not such return was filed on or after the date prescribed." This general rule is subject to a number of exceptions set forth in Section 6501(c) such as fraud. Most significantly, Section 6501(c)(3) provides that if a return is required and not filed, the tax may be assessed at any time. In other words, the statute of limitations never begins to run until a return is filed.

Citing a case that is not officially reported (Lauckner v. U.S., 1994 WL 837464 (D.N.J. 1994)) the Chief Counsel reasoned that "the penalty imposed on the responsible person is simply an enforcement mechanism for collecting the employment tax liability imposed on the employer and is based on the employment tax return."

Well, yes and no.

Liability under Section 6672 is only triggered if the person against whom the penalty is proposed is both a responsible person and willfully fails to pay over the withheld trust fund taxes. In other words, even if there is a finding that there is employment tax due, two additional determinations most be made to support an assessment.

While a penalty can be assessed against more than one individual, the tax due can only be collected once. Thus, if a penalty is assessed against several individuals, but the total tax due is collected from one of them (or from some collateral source), the penalty against the others will be deemed to be satisfied. In this regard, Section 6672 does operate as an enforcement, rather than a punitive, mechanism.

However, an individual can be the subject of a Section 6672 assessment even if he or she has no obligation or authority to file the employment tax return. In such cases, it is inequitable to allow a tolling of the statute of limitations under Section 6672 because, for instance, other individuals associated with the business failed to file the requisite returns.