Two recent decisions of the United States Supreme Court examined section 6672 of the Internal Revenue Code. In Slodov v. United States, the Court expressed its views on the personal liability of business managers for unpaid taxes on employee wages. Discharging such liability because of the personal bankruptcy of the business manager was considered in United States v. Sotelo. The focal point of these cases—section 6672 of the Internal Revenue Code—provides for the potential liability of business managers for the employees’ share of taxes on wages (hereinafter trust fund taxes).
Although Slodov and Sotelo are helpful in understanding the scope and effect of section 6672, they do not lessen its hidden-trap character. The problem of tax deficiencies for unpaid taxes on employee wages is of enormous magnitude. In fiscal year 1976, there were 28,599 businesses delinquent in such taxes in the Chicago district of the IRSA. This statistic translated into $88.9 million of unpaid trust fund taxes which resulted in section 6672 penalty assessments against individuals connected with 535 of those businesses. Whether the exceptional remedy given the government under section 6672 to pursue individuals for the unpaid trust fund taxes is necessary to protect federal revenues cannot be answered without an examination of the applications of section 6672 and possible defenses to such penalty assessments. This article will examine these issues and comment on what should be done to reconcile the need to protect federal revenues with the need to be fair to individuals responsible for collecting and paying over trust fund taxes. Part I examines the question of who can be liable under section n6672, Part II examines the concept of “willfulness” which is a prerequisite for liability, and Part III examines possible reforms.