Bookkeepers, Controllers and Office Managers: When Non-Owners Face the TFRP

The Trust Fund Recovery Penalty is not limited to owners. Section 6672 applies to "any person required to collect, truthfully account for, and pay over" the tax. IRS guidance lists officers, employees, LLC members and managers, and even employees of a sole proprietorship among the people who can be responsible.

That list scares bookkeepers, controllers, office managers and payroll clerks. Sometimes it should. Often it should not. The difference is control.

The IRS's Own Policy: Ministerial Acts

The starting point is Policy Statement 5-14, formerly P-5-60, found at IRM 1.2.1.6.3. IRM 5.7.3.4.1.2 summarizes it: individuals performing ministerial acts without exercising independent judgment will not be deemed responsible.

The same section explains that, in general, non-owner employees who act solely under the dominion and control of others, and who are not in a position to make independent decisions on behalf of the business, will not be assessed the TFRP. The IRM defines non-owner employees as those who do not own any stock, interest, or other entrepreneurial stake in the company.

And it defines ministerial acts: acts performed under the supervision of someone else that do not require independent judgment or decision-making ability.

That is the IRS talking, not a defense lawyer. Quote it.

The IRS's Own Examples

IRM 5.7.3.4.1.2 does not leave this abstract. It gives examples, and they track real life closely.

The bookkeeper who pays only what she is told

The IRM describes a bookkeeper who is not an owner and not related to one. She has check-signing authority and pays the bills the treasurer gives her. She is not permitted to pay any other bills. When there is not enough money, she must ask the treasurer which bills to pay. The IRM's conclusion: she is performing a ministerial act and should generally not be held responsible.

The clerical secretary

Another example describes a secretary who signs checks and tax returns at the direction of, and for the convenience of, the owner or a supervisor. She is told to pay other vendors even though payroll taxes are unpaid. The IRM says she is not a responsible person because she works under the dominion and control of others and is not permitted to exercise independent judgment.

The controller with real authority

The IRM then shows the other side. A long-time controller, never a shareholder, director or officer, oversaw the finances, prepared payroll, filed the employment tax returns, could sign checks in any amount, and dealt regularly with the lender. When the lender sent only enough money for net payroll, the controller paid net wages and none of the taxes instead of prorating the funds. The IRM says this controller could be responsible.

The general manager without a title

Finally, the IRM describes an experienced general manager, not an owner or officer, who signed most checks to creditors and payroll with no monetary limit, told the bookkeeper which bills to pay, and discussed the delinquent payroll taxes with an owner who told him it was none of his business. The IRM says he could be responsible, despite believing that his lack of ownership or title protected him.

Where the Line Falls

Read those four examples together and a test emerges. IRM 5.7.3.4.1.2 states it directly: a person is responsible if they have "significant control" over the company's finances. Significant control means more than the mechanical duty of signing checks or preparing tax returns, or having a title that appears to carry authority. But a responsible person need not have the final word on which creditors get paid.

The IRM adds that a non-owner employee is generally not responsible if the employee's function was solely to pay bills as directed by a superior, rather than to determine which creditors would or would not be paid. But a non-owner who has significant control over the company's other financial decisions, or who can obtain financing for the company, cannot escape responsibility just by showing that an owner or lender limited their discretion on the specific question of paying taxes.

There is also a hard sentence in the IRM. It says officers and higher-level non-owner employees may be required to quit their jobs, rather than obey an owner's order to pay other creditors instead of current trust fund taxes, to avoid being responsible. The IRM cites federal appellate authority for that proposition. It is the IRS's position, and you should assume a Revenue Officer will raise it if your role was senior.

Signature Authority Is Not the Test

Revenue Officers start with bank signature cards because they are easy to get. But IRM 5.7.3.4.1.1 says that if a person has authority to sign checks, the exercise of that authority does not, in and of itself, establish responsibility, and it adds that signatory authority may be merely a convenience. The same section says being an officer or owning stock cannot be the sole basis for a responsibility determination.

IRM 5.17.7.2.1 goes further on titles: even an officer of the business will not be a responsible person if they are an officer in title only and have no substantive duties with the business.

What to Show the IRS

A ministerial-acts defense lives or dies on proof that someone else made the decisions. Useful evidence includes:

• Written instructions. Emails, texts or notes from the owner or treasurer listing which bills to pay.
• Approval workflows. Accounting software or bank portals that required someone else's approval before payments went out.
• Your job description and pay level. Hourly or clerical roles tell a different story than a CFO title.
• Your lack of ownership. No stock, no profit interest, no family relationship to an owner. The IRM bookkeeper example specifically notes she was not related to an owner.
• Who dealt with lenders, vendors and the IRS. If the owner negotiated with creditors and you processed what he decided, say so.
• Who knew. If you raised the unpaid taxes with the owner and were told to pay others, that cuts both ways. It shows the decision was not yours, but it also shows knowledge. Context matters.

The Form 4180 Interview Is Where This Is Won or Lost

Non-owner employees often know where the records are, so expect the Revenue Officer to want to talk with you. It is easy to overstate your own role in that conversation by saying "I handled the payroll" or "I paid the bills" when they mean they pushed the buttons. The IRS writes that down.

Before your interview, read our guide to preparing for the Form 4180 interview. Be precise about the difference between doing and deciding.

Also expect the Revenue Officer to interview you as a witness about others. IRM 5.17.7.2.5 says interviews of non-responsible employees who know the business and its decision-making can be extremely helpful in identifying who is responsible and willful. You may receive Form 4181, the IRS questionnaire for third-party witnesses, rather than Form 4180. Our guide to third-party contacts explains that process.

If You Get Letter 1153 Anyway

It happens. A Revenue Officer sees your name on the signature card and the Form 941 and proposes the penalty. That is when the protest matters. IRM 5.7.4.5 requires the Revenue Officer's recommendation to address each person with specific facts on responsibility and willfulness, and says that an officer "should have known" plus check-signing authority is not adequate support. Point Appeals to the ministerial-acts policy, the IRM examples, and your evidence. Our guide to protesting a proposed TFRP walks through the format.

If you are a non-owner with a TFRP problem and want to know how the firm approaches these cases, the main site's payroll tax page is a good starting point.

The law does not make the person who pushed the button pay for the person who made the decision. But you have to prove which one you were. Call (813) 229-7100. Let's talk.