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T. Keith Fogg, Leaving Money on the Table and Providing an Incentive Not to Pay, 5 Hastings Bus. L.J. 1 (2009).


Abstract: As of September 30, 2007, the IRS had $282 billion of unpaid assessments on its books. Of that amount $58 billion, over 20%, represents the unpaid payroll taxes due from employers. The majority of payroll taxes due from employers results from income and social security taxes collected by the employer and held in trust for the Government. Internal Revenue Code section 6672 gives the Government the right to pierce the corporate veil to pursue collection of these payroll taxes collected for the Government but not paid. Because it creates personal liability, 6672 can serve as a powerful tool in the fight against the growing tax gap. Unfortunately, 6672 is flawed in the way it operates due to its position in the Code as an assessable penalty. The interest charged under 6672 only runs from the date of the actual assessment against the individual and does not relate back to the due date of the corporate employment tax return. The flaw allows those responsible for failing to pay over payroll, and other, taxes collected for the Government to avoid paying interest for two years or more. Additionally, the flaw provides an incentive for those responsible to withhold payment and delay assessment. Those studying the causes of the IRS tax collection gap uniformly identify the creation of incentives to pay and removal of delayed collection attempts as keys to successful collection and reduction of the gap. Using the model provided by the tax gap literature, this paper identifies the source of the problem with 6672 and recommends a solution. The sources of the problem are rooted in the history of the statute. It grew from a criminal provision to one of civil penalty. When the codification effort took place in 1954, 6672 was placed with the assessable penalties even though everyone, including the Supreme Court, agrees that it is a collection device and not a penal provision. The solution is to remove 6672 from the assessable penalty provisions and make clear in the statute that interest charges against the individuals responsible accrue from the due date of the corporate return. Moving the statute will not only remove the impediment caused by the disconnect on the charging of interest but will provide an opportunity to craft a statute that creates incentives to pay rather than disincentives.