Assessment of 100-Percent Penalties against Responsible Corporate Officials for Willful Nonpayment of Taxes Withheld from Employees' Wages and Certain Excise Taxes

A survey was conducted of the Internal Revenue Service's (IRS) policies, procedures, and practices in assessing 100-percent penalties against responsible officials of corporations for willful nonpayment of taxes witheld from employees' wages and certain excise taxes. Sixty-one recommended penalty assessments involving 33 corporate cases handled by the Chicago District Office were reviewed, as well as 69 delinquent cases where the penalty was not used and 29 decisions rendered by federal district courts which dealt with 100-percent penalties.

The survey in the Chicago district disclosed no major deficiencies in the use of the 100-percent penalty. The penalty is an infrequently used collection tool of last resort. The justifications for using the penalty were adequately supported in almost all cases, and persons recommended for assessment were generally informed of their appeal rights. The appeal system appears to objectively serve those who have legitimate arguments against the use of the penalty. There was no indication that IRS failed to assess the penalty when it should have. The study did indicate a need to study how IRS can quickly identify and take collection action against employers who fail to deposit withholding taxes.