OK, what we're talking about here is the The trust fund recovery penalty (“TFRP”) ... which is set forth in IRC § 6672.
It serves as an ALTERNATIVE
means of collecting unpaid trust fund taxes when taxes are not fully collectible from the company or business that failed to pay the taxes.
So if he is the owner now and willing to assume the responsibility, that should be the first point of contact, as IRS wants the BUSINESS to pay the taxes.
Congress enacted IRC § 6672 to encourage prompt payment of withheld and other collected taxes and to ensure the ultimate collection
of the taxes from a secondary source. Historically, it is also referred to as the 100% Penalty because the person responsible is liable for 100% of the trust fund withheld amount.
YOUR case will simply be (IF you are contacted) to show that this was done without your knowledge.
Because the trust fund penalty (they call it that because there is essentially a trust created - a virtual trust - for the funds that should be collected and paid-in) an only be applied when there was a WILLFUL failure to collect and pay-in.
Here's what the law
The TFRP is imposed on any person required to collect, account for, and pay over taxes held in trust who willfully fails to perform any of these activities.
The TFRP may be imposed for:
*Willful failure to collect tax,
*Willful failure to account for and pay tax, or
*Willful attempt in any manner to evade or defeat tax or the payment thereof.
If he, as the responsible party for the S-Corp contacts and makes arrangements to pay, this will be his issue.
Essentially they will go after anyone until it's been collected.
They define responsible party as any of the following:
a responsible person may be one or more of the following:
*an officer or employee of a corporation
*a member or employee of a partnership
*a corporate director or shareholder
*a related controlling corporation
*a lender, a surety, or any other person with sufficient control over funds to direct disbursement of the funds, or in some cases
*a person assuming control after accrual of the liability.
Now, here's the kinds of things they'll ask to make a determination:
Did the person have responsibility and did so willfully to withhold funds as tax and use those funds to pay operating expenses of the business are willful.
Were the person’s explicit or implicit directions willful to a degree sufficient to make the person liable for the trust fund recovery penalty.
does not need to show that a responsible person had any evil intent or desire to defraud the Government of the withheld taxes.
The Appeals Officer has responsibility to thoroughly investigate the matter. This is the client’s opportunity to present his or her case in detail. I.R.M. 18.104.22.168.2 (10-19-2007)
Is the person responsible and if so was the person willful in failing to collect and pay over the trust fund amount. IRM 22.214.171.124.1 (11-12-2010)
Now, here's the key for YOU...
To show willfulness, the government generally must demonstrate that a responsible person was aware, or should have been aware, of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements.
But again, lighting a fire under him by building a case,(and making him aware that you understand the law here and are documenting that you are not the responsible party) may be the best first move.
If he contacts and takes responsibility they will have HIM (appropriately) on their radar screen.
Have they contact you? Him? Both?