The Section 6672(c) Bond: Pay a Little, Post Security, Stop the Levies

Once the Trust Fund Recovery Penalty is assessed, the IRS can file liens and levy. If you believe you were not responsible, the standard path is the refund route: pay the divisible portion, file Form 843, and sue if the claim is denied. Our refund claim guide explains that path.

The problem is what happens in the meantime. A refund claim can sit for months. Section 6672(c) addresses that gap. If you act fast and post a bond, the IRS has to stand down on the rest of the penalty until the dispute is resolved.

The Three Things You Must Do in 30 Days

Section 6672(c)(1) says that if, within 30 days after the day notice and demand for the penalty is made against you, you:

1. pay an amount not less than the minimum amount required to commence a proceeding in court with respect to your liability for the penalty;
2. file a claim for refund of the amount paid; and
3. furnish a bond meeting the requirements of paragraph (3),

then no levy or proceeding in court for collection of the remainder of the penalty may be made, begun or prosecuted until a final resolution of the court proceeding described in paragraph (2).

IRM 5.7.7.5.2 restates the same three steps in plain terms: make the required payment, submit Form 843, and furnish a bond for an amount equal to one and one-half times the unpaid portion of the TFRP.

All three. Within 30 days of notice and demand. Missing any piece means the statutory stay does not attach.

The Payment

The statute ties the payment to the minimum needed to start a court proceeding. In TFRP practice, the IRS describes the required refund-claim payment in IRM 5.7.7.5 as the portion of the penalty attributable to one employee for each tax period, when the penalty is based on employment taxes. Pay that amount for every quarter you intend to contest, and file a separate Form 843 for each.

The Bond

Section 6672(c)(3) says the bond must be in the form and with the sureties the Secretary prescribes by regulation, in an amount equal to one and one-half times the excess of the penalty assessed over the payment you made. IRM 5.7.7.5.2 points IRS employees to IRM 5.6.1, Collateral Agreements and Security Type Collateral, for handling it.

That is the hard part. For a large penalty, a bond of 150 percent of the unpaid balance is a serious financial commitment. Lining up a surety willing to write a bond of that size, on terms you can meet, takes time. Start that conversation the day notice and demand arrives, not on day 25.

What the Stay Does

Once the three steps are complete, section 6672(c)(1) bars any levy or court proceeding to collect the remainder of the penalty until the litigation is finally resolved. The statute goes further than most collection protections: notwithstanding the Anti-Injunction Act in section 7421(a), the beginning of a prohibited levy or proceeding may be enjoined by the proper court.

IRM 5.7.7.5.2 tells the IRS to input a transaction code delaying collection until final resolution of the court proceedings and your claim.

The statute also preserves the government's ability to counterclaim. Section 6672(c)(1) says nothing in the paragraph prohibits a counterclaim for the remainder of the penalty in the court proceeding. So the whole liability will still be decided. You are buying time and peace while that happens, not a smaller case.

And under section 6672(c)(4), the collection statute of limitations under section 6502 is suspended while the IRS is barred from collecting. The IRS does not lose time by honoring the stay.

You Must Then Actually Sue

The stay is conditioned on litigation. Section 6672(c)(2) says that if, within 30 days after the day your refund claim is denied, you fail to begin a proceeding in the appropriate United States district court or the Court of Federal Claims to determine your liability, the stay ends, effective the day after that 30-day period closes.

IRM 5.7.7.5.5 describes the IRS side. When a claim is denied in a bond case, the IRS sends Letter 3783 by certified mail, notifying you of the 30-day period to bring suit under section 6672(c)(2) to stop collection. If suit is not filed in time, the IRM says the bond or other collateral will be converted to satisfy the TFRP liability, and the collection hold is reversed.

Note the difference from an ordinary denied claim. Without a bond, IRC 6532 generally gives you two years from the mailed notice of disallowance to sue. With a bond, you have 30 days if you want the stay to continue. Calendar both.

The IRM also notes that the IRS must continue to refrain from levy and court collection if you file suit within 30 days of the denial letter.

The Jeopardy Exception

Section 6672(c)(5) says that if the IRS finds collection of the penalty is in jeopardy, nothing in subsection (c) prevents immediate collection. IRM 5.7.7.5.2 says the same. Jeopardy findings are unusual, but if the IRS believes assets are about to disappear, the bond may not protect you.

Bond Versus the Section 6331(i) Protection

There is another levy restriction worth comparing. IRC 6331(i) bars new levies for the unpaid portion of a divisible tax, which includes the TFRP, while a proceeding you brought in a proper federal trial court to recover a paid portion is pending, if the decision would bind the parties as to the unpaid portion. It requires no bond.

The difference is timing and scope. Section 6331(i) begins when the suit is pending. Section 6672(c) can begin within 30 days of notice and demand, covering the months while your administrative claim is under review, which is often exactly when levies hurt most. Section 6331(i) also excludes levies first made before the proceeding began, refund offsets, written waivers and jeopardy. Each tool has its place.

When the Bond Makes Sense

• Strong liability defense. The bond is a bet on winning. If your responsibility or willfulness case is weak, you are tying up money to delay the inevitable.
• Significant assets exposed to levy. If the IRS can reach bank accounts, receivables or wages that you need to live on or run a new business, freezing collection has real value.
• Ability to post security. You need a surety willing to write the bond, or other acceptable collateral.
• Readiness to litigate. The stay only lasts if you sue promptly after denial.

If those pieces do not line up, other routes may fit better: a Collection Due Process hearing with a collection alternative, an installment agreement, or an offer. IRM 5.7.7.2 also notes that when the business is in an installment agreement after the TFRP is assessed, the IRS may consider withholding collection on the TFRP accounts, and one factor it weighs is whether the responsible person will provide a bond, other collateral or adequate protection. See our guides to CDP hearings and offers in compromise.

Day-One Checklist After Notice and Demand

1. Note the date of notice and demand. Count 30 days.
2. Compute the one-employee payment for each quarter you will contest.
3. Prepare a Form 843 for each quarter with a full explanation.
4. Contact a surety about a bond equal to one and one-half times the unpaid balance after your payments.
5. File the payment, claims and bond together, with proof of delivery.
6. Prepare the complaint so you can file within 30 days of any denial.

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Section 6672(c) is one of the few places in the Code where the taxpayer can force the IRS to wait. It is expensive and it is fast. If it fits your case, every day of the 30 counts. Call (813) 229-7100. Let's talk.