You Paid the Trust Fund Penalty. Your Partner Did Not. The Right of Contribution

When the IRS assesses the Trust Fund Recovery Penalty against several people for the same quarters, it does not care who pays, as long as someone does. IRS guidance in IRM 5.17.7.2 says the IRS collects trust fund taxes only once, from the business, from one or more responsible persons, or from some combination.

That is fair to the government. It is not always fair among the people involved. The partner who moved to another state with no assets may never pay a dollar. The partner with a W-2 job and a house may pay it all.

Before 1996, the paying partner had limited recourse. Then Congress added subsection (d) to section 6672.

What the Statute Says

IRC 6672(d), titled "Right of contribution where more than 1 person liable for penalty," provides that if more than one person is liable for the penalty with respect to any tax, each person who paid the penalty is entitled to recover from other persons who are liable for the penalty an amount equal to the excess of the amount paid by that person over that person's proportionate share of the penalty.

The statutory notes show that subsection (d) was added by section 903 of Public Law 104-168, the Taxpayer Bill of Rights 2, and applies to penalties assessed after July 30, 1996.

Three ideas are packed into that sentence.

1. More than one person must be liable. The right runs only against "other persons who are liable for such penalty."
2. You must have paid. The right belongs to "each person who paid such penalty."
3. You recover the excess over your proportionate share. Not everything you paid. Only what you paid beyond your share.

The Separate-Proceeding Rule

Section 6672(d) also controls where the claim cannot be brought. It says a claim for contribution may be made only in a proceeding that is separate from, and not joined or consolidated with:

• an action for collection of the penalty brought by the United States; or
• a proceeding in which the United States files a counterclaim or third-party complaint for collection of the penalty.

The point is to keep the government's collection case clean. If the United States sues you, or counterclaims in your refund suit, you cannot drag your co-owner into that case for contribution. You bring a separate action.

That matters for timing and strategy. If you are contesting your liability in a refund suit, a contribution claim against your partner is a different lawsuit, on a different track. Our guide to TFRP refund claims and refund suits explains how the government's counterclaim works.

What "Liable" Means for the Other Person

The right runs against persons who are "liable for such penalty." The statute does not expressly require that the IRS have assessed them. In practice, the strongest contribution cases involve people the IRS also found responsible and assessed, because the IRS's own file supports their liability. If the IRS decided not to assess someone, you may still argue that person was liable, but you will be building that case yourself.

Gather the same evidence the IRS uses. IRM 5.7.4.2.7 lists the core items: Form 4180 interviews, articles of incorporation, bank signature cards or electronic access records, and checks or statements showing who paid other creditors. Your own records, emails and the business's books will often say more about who was really making decisions.

What "Proportionate Share" Means

Section 6672(d) does not define proportionate share. It does not say equal shares, ownership percentages, or relative fault. That gap is where contribution litigation is fought. Possible approaches include dividing equally among all liable persons, dividing by ownership, or allocating based on each person's role and the periods for which each was liable.

Two factors complicate the math:

• Different periods. IRS guidance in IRM 5.7.7.6.1 notes that responsible persons are not always assessed the same amount for the same quarters. Shares may need to be computed quarter by quarter.
• Interest. IRM 5.7.7.4 says a TFRP taxpayer remains liable for interest on the TFRP assessment unless the business fully paid interest. What one person paid may include interest that another person never incurred.

Getting the Information You Need

To pursue contribution, you need to know who else was assessed and what they paid. Federal tax information is confidential under IRC 6103, but there is a specific exception for this situation. IRM 5.7.7.4.1 explains that section 902 of Taxpayer Bill of Rights 2 added IRC 6103(e)(9), which provides for disclosure to each person assessed the TFRP of certain limited information regarding other persons assessed the penalty for the same underlying tax. IRM 5.1.22.5 governs what can be disclosed and how.

Ask for it. It tells you who the IRS assessed and gives you the starting point for your claim.

Contribution Does Not Stop the IRS

A contribution claim is between you and the other responsible persons. It does not change what you owe the IRS or slow its collection. The IRS can continue to collect from you until the trust fund taxes are paid, regardless of whether your partner owes you money.

And once the taxes are paid in full, any overcollection is a refund question with the IRS, not a contribution question. IRM 5.17.7.2.9 says that if the amount collected from responsible persons exceeds the amount the corporation failed to pay, the excess may be refunded, within the applicable statutory period, to the person or persons who caused the excess payment.

Contracts Can Matter Too

Section 6672(d) is a statutory right. It is not the only possible source of recovery. Shareholder agreements, operating agreements, purchase agreements and personal guarantees sometimes contain indemnification provisions. If a buyer agreed to assume the company's tax obligations, or a co-owner agreed to indemnify the others for liabilities arising from his management, those contract rights may give you claims beyond the statutory share. Have those documents reviewed.

Three Common Fact Patterns

The departed partner. Two owners ran the company together. One left the state when the business closed and has no reachable assets. The IRS collects the full penalty from the other through a wage levy. The paying owner's contribution claim is legally straightforward but may be hard to collect.

The uneven assessment. The president was assessed for eight quarters, the CFO for the last three after he joined. Both paid toward the last three quarters. Shares for those overlapping quarters look very different from shares for the earlier five, where only the president was liable.

The unassessed insider. The IRS assessed two officers but did not assess a third owner who, according to the two, made the payment decisions. A contribution claim against the third owner requires proving that person was liable for the penalty, using evidence the IRS never developed.

Each pattern points to the same lesson: build your record while the facts are fresh.

A Practical Sequence

1. Resolve your own liability first. Contest it if you have a defense. A successful protest or refund suit may make contribution unnecessary. See our protest guide.
2. Document every payment you make. Contribution requires proof of what you paid. Keep the designations, receipts and account transcripts.
3. Request the 6103(e)(9) information about others assessed for the same tax.
4. Assess collectability. A judgment against a co-owner with no assets is a piece of paper. Know who you are suing.
5. Keep the claim separate from any proceeding where the United States is seeking to collect the penalty, as section 6672(d) requires.

Prevention Beats Contribution

The best contribution claim is the one you never need to bring. When the business can pay the trust fund portion, a designated payment protects every responsible person at once. Our guide to designating payments to trust fund taxes explains how. And our guide on multiple responsible persons explains how the IRS credits payments among the people it assesses.

The firm's main site describes more of its payroll tax work.

The IRS will collect from whoever is easiest. Section 6672(d) lets the person who paid even things out. If that person is you, call (813) 229-7100. Let's talk.