"In Employers We Trust": The Federal Right of Contribution under Internal Revenue Code Section 6672

Article excerpt

The secret wealth of commerce, and the precarious profits of art or labour, are susceptible only of a discretionary valuation, which is seldom disadvantageous to the interest of the treasury; and as the person of the trader supplies the want of a visible and permanent security, the payment of the imposition, which, in the case of a land-tax, may be obtained by the seizure of property, can rarely be extorted by any other means than those of corporal punishments.1

INTRODUCTION

The Internal Revenue Code2 (hereinafter I.R.C.) requires employers to withhold various taxes from the pay of their employees and to pay over the same to the Government.3 Pending actual transfer of the collected taxes to the government, the monies thus collected are considered to be held in "a special fund in trust for the United States."4 Those individuals having the duty or power to collect and remit such taxes may be personally liable for amounts not in fact properly collected or remitted.5 The personal liability imposed upon the individual taxpayer by I.R.C. § 6672 is "separate and distinct" from the employer entity's liability.6

The funds are thus commonly known as "trust funds"7 and the individual officers or employees of the employer who are responsible for collecting and remitting the taxes are commonly referred to as "responsible persons"8 or "responsible individuals"9 by the courts, and the IRS and tax practitioners.10 Many states have similar or substantially verbatim statutes,11 which are construed by the respective state courts according to the Federal courts' constructions of Federal trust fund statutes.12

The list of who may be a "responsible person" under I.R.C. § 6672 (and the state statutes) is broadly inclusive.13 There may be more than one "responsible person," and the existence of other responsible persons does not absolve a responsible person of his or her trust fund liability for the entire amount of taxes in question.14 Though not directly specified in the statute, the total trust fund liability is collected only once, whether from the employer entity itself or one or more responsible persons; to the extent that any one responsible person pays trust fund liability, the liability of all others is accordingly discharged.15

The Internal Revenue Service ("IRS") may choose the responsible person or persons from whom it will collect, and may proceed against any or all such responsible persons in any order of its choosing until the entire amount due is collected.16 The availability of other responsible persons having collectable assets does not impose upon the IRS any duty to pursue or refrain from pursuing any particular responsible person.17

In 1996, as part of the Taxpayer Bill of Rights 2 (hereinafter referred to as "TBOR2"), Congress enacted a statutory right of contribution in favor of responsible persons who actually pay more than their proportionate share of trust fund penalties against other responsible persons.18 This article will discuss the right of contribution under I.R.C. § 6672.

I. HISTORY OF THE TRUST FUND STATUTE AND THE RIGHT OF CONTRIBUTION

A. Statutory Background

The prospect of tax collectors misappropriating sovereign property by commingling it with personal property was apparently a royal concern in the days of King Hammurabi.19 While the Temple stood in Jerusalem, such commingling of the shekels collected from the populace and earmarked for sacerdotal purposes was discouraged not only through fear of the Almighty Himself, but also through surveillances done by mortal humans.20 Serious penalties for not remitting collected taxes to the government were decreed in the days of the Roman Empire.21 Following such a rich and ancient tradition of holding the tax collectors and agents accountable for the tax funds they collect and handle, the Revenue Act of 1918 articulated the current American statutory scheme of imposing a personal monetary penalty separate and apart from, but equal to, unremitted thirdparty tax collections. …