The IRS refers to the responsible person assessment (RPA) as a Trust Fund Recovery Penalty (TFRP). It is not really a penalty at all (even through it is referred to as an assessable penalty under the Tax Code).
It really represents the unpaid tax that a person was responsible to collect on behalf of the government (withholding and FICA tax for the IRS and withholding and sales tax for New York State), but failed to either collect it or pay it over.
Generally, when a corporation owes past due payroll taxes (Form 941), the IRS will attempt to make a RPA against the person the IRS believes was responsible for collecting the tax and willfully failed to pay it over.
The IRS will ask persons at the company that are in certain positions (corporate officers, directors, shareholders, managers, and so forth) questions they believe establish responsibility or control at the company. For example, does the potential responsible person hire and fire employees, direct payments, sign tax returns and sign checks?
Once a potential responsible person has been identified, the IRS will try to show that this person acted willfully in not paying the taxes. Generally, the IRS must show that the responsible person knew, or should have known, that the taxes were not paid and took no action to get them paid. Many times, knowledge of the liability and preferring another creditor (like paying rent, net payroll, utilities and so forth) is enough for the IRS to propose the TFRP against the responsible person.
Under New York law, a responsible person that acts willfully in not paying over New York State withholding taxes can be, and usually will be, pursued for a responsible person assessment, much like the IRS.
New York sales tax law has no willfulness requirement. Responsible persons are liable for unpaid sales tax. There are appeal rights associated with the responsible person assessment process with both the IRS and New York State. Particular strategies and defenses are available that are effective in dealing with these issues.
Make sure you call the Winspear Law Group for a consultation if you have been targeted for this type of assessment. Your rights to challenge these types of assessments, before they are made, are time sensitive and expire quickly (usually within 60 days). Make that call today before your rights expire.