Protesting a Proposed Trust Fund Recovery Penalty to IRS Appeals

When Letter 1153 arrives, the Revenue Officer has already made up their mind. A group manager has already signed off. The question is no longer whether the Revenue Officer can be persuaded. The question is whether someone outside Collection will look at the file with fresh eyes.

That someone is the IRS Independent Office of Appeals. You get there by filing a protest. File it late, or file it badly, and you lose the best forum you will ever have for a Trust Fund Recovery Penalty case.

Two Kinds of Protest, One Deadline

IRM 5.7.6.4 sets out the rule. The kind of appeal depends on the amount proposed for each period.

Amount proposed	Type of appeal
$25,000 or less for each period and in total	Small Case Request
More than $25,000 for any one period, or more than $25,000 in total	Formal Written Protest

You can contest every period listed on Form 2751 in a single protest. But if any one quarter, or the sum of all the quarters, exceeds $25,000, the IRM says the responsible person must submit a Formal Written Protest.

Either way, the deadline is the same: 60 days from the date Letter 1153 was mailed or personally delivered, or 75 days if it was addressed to you outside the United States. Our Letter 1153 guide explains how to count those days and how to prove you mailed on time.

What a Small Case Request Must Include

IRM 5.7.6.5 says a Small Case Request should be submitted in duplicate and include:

• A copy of Letter 1153, or your name, address, Social Security number and other identifying information;
• A statement that you want an Appeals conference; and
• A list of the issues you disagree with and an explanation of why.

That is a low bar. Do not treat it as a ceiling. Appeals officers read what you give them. A one-paragraph request that says "I was not responsible" is technically a protest. It is not much of an argument.

What a Formal Written Protest Must Include

IRM 5.7.6.6 lists the required contents of a Formal Written Protest, also submitted in duplicate:

1. Your name, address and Social Security number.
2. A copy of Letter 1153, or the date and number of the letter.
3. A statement that you want a conference.
4. The tax periods involved, taken from Form 2751.
5. A list of the issues you disagree with and an explanation of why you disagree.
6. If applicable, the law or other authority you rely on, with an explanation of what it says and how it applies.

It also needs a penalties of perjury declaration. The IRM gives the language: "Under penalties of perjury, I declare that I have examined the facts presented in this statement and any accompanying information, and, to the best of my knowledge and belief, they are true, correct, and complete."

If your representative prepares and signs the protest, the representative substitutes a declaration stating that they submitted the protest and accompanying documents and whether they know personally that the facts stated are true and correct. The IRM also notes that the representative must be authorized to represent you, the individual, not just the business. A power of attorney for the corporation does not cover your personal penalty case.

Timely Beats Perfect

Here is a rule people do not expect. IRM 5.7.6.7 says a protest filed within the time frame is considered timely even if it is incomplete. The Revenue Officer is supposed to contact you to cure defects. And Appeals will accept jurisdiction of a TFRP protest even if every listed element is not included.

The same section says a timely protest signed by a representative who failed to submit a power of attorney, or submitted a defective one, is still considered timely.

So if you are on day 55 and the full protest is not ready, file what you have, on time, and supplement. Missing the deadline is the unforgivable mistake. Under IRM 5.7.6.7, an untimely protest means no Appeals review. The Revenue Officer completes the assessment, and you are told you can file Form 843 once the penalty is assessed. That path requires payment first.

What Happens After You File

The protest goes back to the Revenue Officer first, not straight to Appeals. Under IRM 5.7.6.7.1, the Revenue Officer reviews it to decide whether it contains new information, meaning information that was not previously discussed with you, raised by you, or investigated and documented by the Revenue Officer.

The IRM gives examples. If you told the Revenue Officer in your Form 4180 interview that you did not sign checks, and the bank records show you did, repeating that claim in your protest is not new information. If you argue you were not willful because the company had no money, but the file already shows you paid other creditors, that is not new information either. But if you were out of the country for an extended period during the quarters at issue and never mentioned it, that is new information that may require more investigation.

Two paths follow:

• No new information. The Revenue Officer documents receipt, makes no commentary on the merits, and forwards the case through the manager to Appeals.
• New information. The Revenue Officer investigates it, within the 30-day processing window. If the investigation leads the Revenue Officer to concede some or all of the penalty, the case can be resolved without Appeals. If not, it goes to Appeals.

There is a strategy point buried here. Your strongest new facts may get you a concession from Collection before the case ever reaches Appeals. But the same facts, if they hold up, will also be in front of Appeals. Lay them out clearly, with documents.

The Ex Parte Wall

Once your protest is in, the Revenue Officer is restricted in what they can say to Appeals about your case. IRM 5.7.6.7.2 cites Revenue Procedure 2012-18 on ex parte communications and tells Revenue Officers not to put commentary about the merits of the protest in the case history or write a memo arguing for the original recommendation.

That is why IRM 5.7.4.5 and 5.7.4.6 push Revenue Officers and their managers to make sure the file is fully documented before Letter 1153 goes out. They cannot shore it up later with a rebuttal memo. What is in the file is, for the most part, what Appeals sees from the government's side.

For you, that means the file is fixed and your protest is not. You can add evidence. Use that advantage.

What to Argue

IRM 5.7.6.4 observes that appeals of penalty cases usually involve responsibility, willfulness, or how the penalty was calculated. Those are your three doors.

Responsibility

Responsibility is about status, duty and authority. Titles alone do not settle it. The IRS's own manual, at IRM 5.7.3.4.1.1, says owning stock or holding an office cannot be the sole basis for a responsibility finding, and that signing checks does not, in and of itself, establish responsibility. Show who actually decided which creditors got paid. Our guide on non-owner employees and bookkeepers covers the ministerial-acts rule in detail.

Willfulness

Willfulness does not require bad intent, but it does require knowledge or reckless disregard. Dates matter. When did you learn the deposits were not being made? What did you do next? See willfulness under IRC 6672.

The amount

Check whether deposits and payments were applied correctly, whether voluntary payments were designated to trust fund taxes, and whether the computation includes periods before you arrived or after you left. A successful amount argument may not beat the penalty, but it can shrink it.

The Appeals Conference

At the conference, you or your representative walk an Appeals Officer through the file and your evidence. IRM 8.25 governs how Appeals works Trust Fund Recovery Penalty cases, and the Appeals manual points its officers to hazards of litigation settlements, meaning a realistic assessment of the chance the government would lose if the case went to court.

Think in quarters, not in all-or-nothing terms. IRM 5.7.4.5 requires the Revenue Officer to state whether each person is responsible for all periods or only some. That same structure gives you room to concede the quarters when you clearly controlled the checkbook and fight the quarters after you lost control. When a TFRP case is resolved by agreement in Appeals, IRS guidance refers to Form 2751-AD, Trust Fund Recovery Penalty-Offer of Agreement to Assessment and Collection.

Your Timely Protest Also Controls the Statute

Under IRC 6672(b)(3), when Letter 1153 is properly issued while the assessment period is still open and you file a timely protest, the assessment period will not expire before 30 days after Appeals makes its final administrative determination. That is the trade. You get independent review. The IRS gets the time to finish it.

And if you filed a timely protest but the IRS assessed anyway, without giving you the Appeals hearing you asked for, IRM 8.22.8 states the IRS must abate that TFRP assessment. Keep your certified mail receipt. It may be worth a lot.

Practical Checklist

• Calendar day 60 from the mailing or delivery date. File by certified mail well before it.
• Use the Formal Written Protest format unless every period and the total are $25,000 or less.
• Include the perjury declaration, or your representative's substitute declaration.
• Attach documents: bylaws, minutes, signature cards, emails, payroll processor records, resignation letters.
• Address responsibility, willfulness and amount separately, period by period.
• Make sure your Form 2848 covers you individually for the Trust Fund Recovery Penalty.

Want the broader picture of how payroll tax problems unfold for a business? The firm's main site has an overview of IRS payroll tax help.

A protest is not a form you fill out. It is the first draft of your defense. Write it that way. If you want help with yours, call (813) 229-7100. Let's talk.