Surveys · Trust Fund Recovery Penalty

The Trust Fund Recovery Penalty, circuit by circuit

Every federal circuit applies the same two elements under IRC § 6672 — responsible person and willfulness — but they do not agree on the defenses. Find your state to see the rule that applies to you.

By Tongzhou Li, Attorney & CPA, former IRS Appeals Officer · Updated November 7, 2026

What is the Trust Fund Recovery Penalty?

When a business pays wages, it withholds income tax and the employee’s share of Social Security and Medicare from each paycheck. That money is not the company’s: the law treats it as held in trust for the United States (IRC § 7501). These are “trust fund” taxes.

If the business does not pay them over, IRC § 6672 lets the IRS assess a penalty equal to 100% of the unpaid trust fund taxes against any responsible person who willfully failed to pay. The penalty is personal — it is assessed against you as an individual, so closing the business does not end it. The employer’s own matching share of payroll taxes is not included.

Notice first: Before assessing the penalty, the IRS must send written notice (Letter 1153) at least 60 days before it demands payment (§ 6672(b)). That window is the chance to protest and take the case to IRS Appeals.
Going to court: The penalty can be split by employee and quarter. You can pay the tax for one employee for one quarter, file a refund claim, and then sue for a refund in federal district court. Ronald Muck, in the Tenth Circuit brief below, paid $589 — one employee’s withholding for one quarter — and sued; the government counterclaimed for the rest, as it usually does.
Sharing the bill: A person who pays more than his or her share can sue other responsible persons for contribution, in a separate case (§ 6672(d)).
Volunteer board members: Unpaid volunteer board members of tax-exempt organizations who are not involved in day-to-day finances are generally protected (§ 6672(e)).

Find your circuit

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How it works

Twelve circuits, twelve sets of rules

Circuit law generally follows the taxpayer's home state, because that is where an appeal would be heard. Point to a state to see how its circuit answers the four questions below.

The two elements, in brief

Responsible person. Someone with the duty and authority to collect, account for and pay over withheld payroll taxes — usually an owner, officer or check signer. Responsibility turns on status, duty and authority, not job title.
Willfulness. Knowing the taxes were unpaid (or recklessly disregarding that risk) and paying other creditors instead. No bad motive is required.
Where the circuits differ: whether unexercised authority counts, whether "reasonable cause" can excuse willfulness, and whether funds legally owed to a senior creditor are "encumbered" and off-limits.

The civil penalty: four questions, twelve circuits

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Circuit	Significant control is enough	Reckless disregard is willful	Reasonable-cause defense	Encumbered-funds defense
First CircuitMaine, Massachusetts, New Hampshire, Rhode Island	Limited Significant, not exclusive, control suffices, but Vinick requires actual, exercised authority; unexercised power alone is insufficient.	Yes Reckless disregard of known or obvious risks that trust fund taxes go unpaid establishes willfulness.	No Harrington held a reasonable-cause or justifiable-excuse element has no part in § 6672 willfulness.	Yes Narrowly: funds legally obligated to a creditor with interests superior to the IRS are encumbered (Schiffmann).
Second CircuitConnecticut, New York, Vermont	Limited Significant, not final, control is enough, but the person must actually have exercised it; titular authority alone isn’t.	Yes Willfulness includes reckless disregard of obvious and known risks, or failing to investigate after notice of nonpayment.	Yes Narrowly. A reasonable belief that the taxes were being paid negates willfulness (the Kalb ’reasonable cause’ exception).	Unsettled No Second Circuit precedent recognizes, rejects or discusses an encumbered-funds defense by name.
Third CircuitDelaware, New Jersey, Pennsylvania	Yes Significant (not exclusive or final-word) control based on status, duty, or authority suffices; knowledge is not required.	Yes Paying other creditors with reckless disregard of whether trust fund taxes were paid is willful.	Unsettled No precedential Third Circuit opinion recognizes or rejects a reasonable-cause defense by name.	Limited Not squarely decided. Vespe assumes third-party control of funds could matter but puts the burden on the taxpayer.
Fourth CircuitMaryland, North Carolina, South Carolina, Virginia, West Virginia	Yes Significant but not exclusive authority suffices, and the person need not have actually used it.	Yes Willfulness means knowledge of nonpayment or reckless disregard of whether payments were made; negligence is not enough.	Limited Left open. Erwin assumed without deciding that the defense exists; at most it covers circumstances beyond the taxpayer’s control.	Limited Mentioned, not decided: duty reaches only unencumbered funds; Erwin noted superior security interests; no case applied the defense.
Fifth CircuitLouisiana, Mississippi, Texas	Yes Significant, non-exclusive authority suffices; it need not have been exercised.	Yes Reckless disregard of the risk that taxes will not be remitted satisfies willfulness.	Yes Conceptually, but exceedingly limited; unavailable to a responsible person who knowingly paid other creditors.	Yes Narrowly: only funds restricted by a creditor with a superior interest that precludes paying the taxes; taxpayer bears burden.
Sixth CircuitKentucky, Michigan, Ohio, Tennessee	Yes Significant, not absolute or final-word, control suffices; status, duty, and authority count even if powers were not always exercised.	Yes Reckless disregard of obvious or known risks that trust fund taxes are unpaid, plus failure to investigate, is willful.	Yes Narrowly. Byrne adopted the Second Circuit’s reasonable-cause exception: a reasonable belief taxes were being paid negates willfulness.	Yes Huizinga recognized encumbered funds (Michigan Builders Trust Fund Act trust funds); Byrne restated the narrow rule.
Seventh CircuitIllinois, Indiana, Wisconsin	Yes Significant, not exclusive or final-word, control suffices; authority to prevent the default, not its exercise, is the test.	Yes Reckless disregard of a known risk that trust fund taxes are going unpaid satisfies willfulness.	No Seventh Circuit excludes reasonable cause and justifiable excuse from willfulness; good faith does not negate willfulness.	Yes Narrowly. Kim adopts Honey: funds encumbered only by a legal obligation superior to the IRS’s interest; taxpayer bears burden.
Eighth CircuitArkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, South Dakota	Yes Significant, not exclusive, authority suffices; choosing not to exercise it, or delegating it, does not avoid liability.	Yes Reckless disregard of a known or obvious risk that trust funds may not be remitted is willful.	No Keller holds reasonable-cause excuses, such as reliance on an attorney or fear of lawsuits, do not negate willfulness.	Yes Honey: funds are encumbered only if legally owed to a creditor with an interest superior to the IRS’s.
Ninth CircuitAlaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington	Yes Authority to exercise significant control over financial affairs suffices, whether or not that control is actually exercised.	Yes Reckless disregard of whether trust fund taxes are being paid over may establish willfulness.	Limited Generally no (Davis, Phillips); Gray Line (1956) excused good-faith reliance on counsel and IRS advice that no tax was due.	Yes Narrowly. Funds are encumbered only when there is a superior legal obligation to use them otherwise (Nakano, adopting Honey).
Tenth CircuitColorado, Kansas, New Mexico, Oklahoma, Utah, Wyoming	Yes Significant, not exclusive, authority suffices, and its existence controls whether or not actually exercised (Denbo; Muck).	Yes Reckless disregard of a known or obvious risk that trust funds may not be remitted satisfies willfulness.	Yes Narrowly: reasonable efforts to protect trust funds frustrated by circumstances outside the taxpayer’s control (Finley, en banc).	Limited Not squarely decided. Tenth Circuit frames the duty as paying from ’unencumbered’ funds but has not expressly adopted the defense.
Eleventh CircuitAlabama, Florida, Georgia	Yes Significant control over disbursements suffices; no final word needed; status, duty and authority, not exercise, controls.	Yes Actual knowledge or reckless disregard of a known or obvious risk of nonpayment satisfies willfulness (Malloy).	Limited Left open. Thosteson declined to decide; any defense is ’exceedingly limited’ and unavailable to someone who knowingly preferred other creditors.	Limited Implicitly allowed but never applied. Only ’unencumbered funds’ must be used; no published case upholds an encumbered-funds defense.
D.C. CircuitDistrict of Columbia	Unsettled No D.C. Circuit precedent defines the degree of control needed for responsible-person status.	Unsettled The D.C. Circuit has not addressed whether reckless disregard satisfies § 6672 willfulness.	Unsettled No D.C. Circuit authority on a reasonable-cause defense to § 6672 willfulness.	Unsettled No D.C. Circuit authority on the encumbered-funds defense; Slodov’s secured-creditor discussion is the only binding guidance.

Hover a column heading for the full question. "Limited" means the circuit has left the question open, applies it narrowly, or attaches conditions. "Unsettled" means no published ruling on point.

Where the circuits split

Unexercised authority. Most circuits hold that authority alone is enough, whether or not it was used. The First Circuit (Vinick) and Second Circuit look for authority the person actually exercised; a title alone is not enough.
Reckless disregard. No split: every numbered circuit treats reckless disregard of a known or obvious risk as willful. Negligence is not enough.
Reasonable cause. The sharpest split. The Second, Sixth and Tenth Circuits recognize a narrow exception (in the Fifth, it exists in concept but is exceedingly limited). The First, Seventh and Eighth Circuits reject it, and the Ninth generally does. The Fourth and Eleventh have left it open.
Encumbered funds. The First, Fifth, Sixth, Seventh, Eighth and Ninth Circuits recognize a narrow defense when a creditor with an interest superior to the IRS legally restricts the funds (the Honey rule). The taxpayer bears the burden, and a lender's security interest alone usually is not enough.
California and the West. The Ninth Circuit follows the majority on control and recklessness, generally rejects reasonable cause, and recognizes the encumbered-funds defense narrowly (Nakano, 2014).

The leading case in each circuit

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For each circuit, the most-cited published decision that controls the two elements, briefed: the facts, what the court held, how it came out, and the sentence courts quote most. The D.C. Circuit has no published § 6672 decision, so its entry is the Supreme Court’s.

First Circuit

Maine, Massachusetts, New Hampshire, Rhode Island

Harrington v. United States

504 F.2d 1306 (1st Cir. 1974)

Bottom lineEveryone with the authority to prevent the default can be liable. Leaving the finances to a co-owner is no defense, and “reasonable cause” plays no part in the willfulness test.

“a ‘reasonable cause’ or ‘justifiable excuse’ element has no part in this definition.”
504 F.2d 1306

Facts: D & H Building Wreckers did not pay over income and Social Security taxes withheld in the first half of 1963. The IRS assessed $22,585.84 against both its president and treasurer, Francis Davis (an 85% owner), and its vice president, Harold Harrington (15%). While $10,515.01 of the taxes went unpaid, the company received $35,471.50 from a redevelopment agency, and Davis chose which creditors to pay.
Holdings: Liability reaches everyone with the responsibility and authority to avoid the default, not only the officer who signs the checks. More than one person can be liable, and delegating the job to someone else is no excuse.
Willful means a voluntary, conscious and intentional decision to prefer other creditors over the United States. No bad motive is required.
Reasonable cause or justifiable excuse is not part of the willfulness test.
Result: Jury verdicts for the United States, on the refund claims and its counterclaims, affirmed.

Also important in this circuit

Caterino v. United States, 794 F.2d 1 (1st Cir. 1986)
Vinick v. United States, 205 F.3d 1 (1st Cir. 2000)
Stuart v. United States, 337 F.3d 31 (1st Cir. 2003)
Schiffmann v. United States, 811 F.3d 519 (1st Cir. 2016)
Thomsen v. United States, 887 F.2d 12 (1st Cir. 1989)

Second Circuit

Connecticut, New York, Vermont

United States v. Rem

38 F.3d 634 (2d Cir. 1994)

Bottom lineThe test is real control over the company’s money, judged on the whole picture. A reasonable belief that the taxes were being paid defeats willfulness; an unreasonable one does not.

“The determinative question ‘is whether the individual has significant control over the enterprise’s finances.’”
38 F.3d 634

Facts: Princeton Industries, a textile manufacturer, failed to remit withheld taxes. Gerard Rem joined as a computer consultant, bought 20% of the stock, and over time served as secretary, director and, at times, treasurer and president; he also negotiated the company’s credit. The IRS assessed him $550,000.08, and the trial court entered a $1,875,179.41 judgment with interest. Rem testified that after a 1980 fire his mother, who he said ran the company, overruled his recommendation to pay the taxes.
Holdings: The question is whether the person had significant control over the company’s finances, under the totality of the circumstances. Factors include office, ownership, day-to-day management, hiring and firing, deciding which creditors get paid, and control of bank accounts and checks. A title alone is not enough.
More than one person can be responsible, and none needs the final word on which creditors are paid.
Willfulness means knowing the taxes were owed and that company funds were going elsewhere. It requires more than negligence but no evil motive. A reasonable belief that the taxes were being paid negates willfulness; fear of being fired does not.
The person assessed must prove, by a preponderance of the evidence, that he was not responsible or not willful.
Result: Summary judgment vacated and the case sent back for trial on responsibility and on willfulness before the fire. If Rem was responsible after the fire, his own testimony made him willful for that period.

Also important in this circuit

Winter v. United States, 196 F.3d 339 (2d Cir. 1999)
United States v. Landau, 155 F.3d 93 (2d Cir. 1998)
Hochstein v. United States, 900 F.2d 543 (2d Cir. 1990)

Third Circuit

Delaware, New Jersey, Pennsylvania

United States v. Vespe

868 F.2d 1328 (3d Cir. 1989)

Bottom lineA responsible person who learns of unpaid taxes and keeps paying other creditors is willful. Recklessly ignoring a grave, easily checked risk counts too.

“A responsible person acts willfully if he pays other creditors in preference to the IRS when he knows taxes are due.”
868 F.2d at 1334

Facts: The government assessed Basil Vespe, president of a related contracting company, for unpaid employment taxes of two affiliated companies — Vespe the Versatile/Southern Division (1975–76) and Environmental Contracting (1976–78). A jury found him liable for most Vespe the Versatile quarters but not for Environmental or the second quarter of 1975. The trial judge overrode the jury on both and entered judgment for the government.
Holdings: A responsible person needs significant, though not necessarily exclusive, control over the employer’s finances. Formal corporate office is not required.
Once the IRS assessment is in evidence it is presumed correct, and the taxpayer must prove he was not responsible or did not act willfully.
Paying other creditors while knowing taxes are due is willful — including when the person learns later that earlier quarters went unpaid.
Reckless disregard is also willful: the person clearly ought to have known of a grave risk the taxes were not being paid and could have found out very easily.
Result: The jury’s verdict for Vespe on Environmental’s taxes was reinstated; his liability for Vespe the Versatile, including the second quarter of 1975, was affirmed.

Also important in this circuit

Greenberg v. United States, 46 F.3d 239 (3d Cir. 1994)
United States v. Carrigan, 31 F.3d 130 (3d Cir. 1994)
Ruscitto v. United States, 629 F. App'x 429 (3d Cir. 2015) (not precedential)

Fourth Circuit

Maryland, North Carolina, South Carolina, Virginia, West Virginia

Erwin v. United States

591 F.3d 313 (4th Cir. 2010)

Bottom lineHanding payroll to managers does not protect an owner who has the power to pay. Once you learn of a shortfall, every available dollar must go to the back taxes before other creditors.

“A responsible person’s intentional preference for creditors other than the United States establishes willfulness as a matter of law”
591 F.3d at 325

Facts: GC Affordable Dining ran five Golden Corral restaurants. Charles Erwin owned at least a third of it, served as vice president, secretary, treasurer and director, and negotiated and personally guaranteed its loans; hired managers handled payroll and accounting. The government sought $264,579 in trust fund taxes for late 1998 through the third quarter of 1999.
Holdings: Substance controls over form. Courts weigh six factors — office, payroll control, deciding which creditors get paid, day-to-day management, hiring and firing, and check-writing — and no single factor decides.
Erwin was responsible as a matter of law even without check-signing authority during the tax periods, because he had the effective power to pay.
The taxpayer bears the burden of proof on both elements.
Willfulness requires knowledge or reckless disregard. Before Erwin learned of the problem he may have been merely negligent; after he learned in August 1999, continuing to rely on the managers while directing payments to other creditors was willful.
A responsible person who learns of unpaid past quarters must use all current and future unencumbered funds to pay them. Financial distress and paying rent and suppliers would not be reasonable cause, even if such a defense exists.
Result: Judgment for the government affirmed.

Also important in this circuit

Plett v. United States, 185 F.3d 216 (4th Cir. 1999)
Johnson v. United States, 734 F.3d 352 (4th Cir. 2013)

Fifth Circuit

Louisiana, Mississippi, Texas

Mazo v. United States

591 F.2d 1151 (5th Cir. 1979)

Bottom lineOnce you know the taxes are unpaid, you must pay them before any other creditor — you cannot hand the problem back to a subordinate. (Also binding in the Eleventh Circuit.)

“once they were aware of the liability to the government, they were under a duty to ensure that the taxes were paid before any payments were made to other creditors.”
591 F.2d at 1157

Facts: Savannah Inn & Country Club withheld taxes in 1969 but did not pay over $78,719.71 for the second and third quarters. Its officer-directors and its general manager were assessed. The officers said they had relied on the controller, who prepared checks but could not sign them, and first learned of the problem at an October 1969 meeting with an IRS agent; afterward, the company paid other creditors.
Holdings: Responsibility is a matter of status, duty and authority, not knowledge.
After notice, responsible officers must see that the taxes are paid before any other creditor. Delegating the task again to a subordinate does not excuse them.
Evidence that the person knew of payments to other creditors after learning of the unpaid taxes supports summary judgment on willfulness.
Reasonable cause may excuse nonpayment in principle, but mere delegation is not reasonable cause. Once responsibility is shown, the taxpayer must prove the failure was not willful.
Responsible persons are jointly and severally liable; the government’s policy is to collect the tax only once.
Result: Summary judgment for the United States affirmed.

Also important in this circuit

Logal v. United States, 195 F.3d 229 (5th Cir. 1999)
Barnett v. IRS, 988 F.2d 1449 (5th Cir. 1993)
Conway v. United States, 647 F.3d 228 (5th Cir. 2011)

Sixth Circuit

Kentucky, Michigan, Ohio, Tennessee

Gephart v. United States

818 F.2d 469 (6th Cir. 1987)

Bottom lineAn employee who is not an owner or officer can still be liable. A general manager with real control over which bills get paid is responsible, even if others had more authority.

“It is not necessary that an individual have the final word as to which creditors should be paid in order to be subject to liability under this section.”
818 F.2d 469

Facts: Richard Gephart was general manager of The Computer Place, a Michigan computer company, from June to December 1979. He was never a shareholder, director or officer. The IRS assessed $52,842.16 for three quarters of 1979; he paid $692.38, sued for a refund, and the government counterclaimed for the balance.
Holdings: The test is functional: the person’s influence and control over the company’s finances, disbursements and the order in which creditors are paid.
The person need not have the final word on which creditors are paid; significant control over disbursements is enough.
Willfulness requires more than negligence, but reckless disregard of obvious or known risks can qualify. Knowing the taxes were unpaid and continuing to sign checks to other creditors is willful.
A responsible person who follows a superior’s order not to pay the taxes does so at his peril.
Result: Judgment for the government affirmed.

Later treatmentLater Sixth Circuit decisions (Clouse, 1989; McMillan, 1995) apply Gephart’s test but distinguish it where the employee had less authority.

Also important in this circuit

Calderone v. United States, 799 F.2d 254 (6th Cir. 1986)
Byrne v. United States, 857 F.3d 319 (6th Cir. 2017)
Kinnie v. United States, 994 F.2d 279 (6th Cir. 1993)
Huizinga v. United States, 68 F.3d 139 (6th Cir. 1995)

Seventh Circuit

Illinois, Indiana, Wisconsin

Monday v. United States

421 F.2d 1210 (7th Cir. 1970)

Bottom lineWillfulness means a deliberate choice not to pay. No bad motive is needed, and “reasonable cause” is not a defense.

“Liability does not depend upon the presence of bad motive or the specific intent to defraud the Government or deprive it of revenue.”
421 F.2d at 1216

Facts: P.C. Monday Tea Company, with 55 employees, withheld but did not pay over $6,619.53 and $5,764.48 for the last two quarters of 1960. The IRS assessed its president, Robert Monday ($12,384.01), and its vice president and secretary, John Monday ($11,948.17). A jury found both responsible but not willful.
Holdings: Corporate office alone does not create the duty. Liability rests on those with the power and responsibility to see that the taxes are paid; they need not be the disbursing officer, and another officer’s duty does not cancel theirs.
Willful means a voluntary, conscious and intentional — not accidental — decision not to pay over withheld funds. Reckless disregard of obvious or known risks may also qualify.
Bad motive is not required, and lack of reasonable cause or justifiable excuse is not part of the test; the jury instruction saying otherwise was wrong.
John admitted writing checks to other creditors while knowing the taxes were due — willful as a matter of law.
Result: Reversed: judgment for the United States against John, and a new trial on willfulness for Robert.

Also important in this circuit

Bowlen v. United States, 956 F.2d 723 (7th Cir. 1992)
Thomas v. United States, 41 F.3d 1109 (7th Cir. 1994)
Jefferson v. United States, 546 F.3d 477 (7th Cir. 2008)
United States v. Kim, 111 F.3d 1351 (7th Cir. 1997)
Purdy Co. of Illinois v. United States, 814 F.2d 1183 (7th Cir. 1987)

Eighth Circuit

Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, South Dakota

Hartman v. United States

538 F.2d 1336 (8th Cir. 1976)

Bottom lineA self-described “figurehead” president who keeps co-signing checks while knowing the taxes are unpaid can be liable. Hoping the business will recover is no excuse.

“It is sufficient if the person acts or fails to act consciously and voluntarily and with knowledge or intent that as a result of his action or inaction trust funds belonging to the government will not be paid over but will be used for other purposes.”
538 F.2d at 1341

Facts: Archway Erection Company, a Missouri corporation, did not pay over about $31,000 withheld in the first half of 1970. George Hartman, its president and treasurer and a 20% owner, was assessed along with the 60% owner, who held no office. Hartman co-signed a $20,000 check to the IRS but left it with the majority owner, who never mailed it, and continued co-signing checks on the general account.
Holdings: A responsible person has significant, though not necessarily exclusive, authority over corporate decisions about taxes. He need not be the disbursing officer, and there can be more than one. The jury could reject Hartman’s claim that he was only a figurehead.
Willfulness requires acting, or failing to act, consciously and voluntarily, knowing that trust funds will be used for other purposes. Evil intent is not required; negligence is not enough.
Hoping the company’s fortunes would improve enough to catch up on the taxes does not matter.
Result: Jury verdict for the government affirmed.

Also important in this circuit

Keller v. United States, 46 F.3d 851 (8th Cir. 1995)
Olsen v. United States, 952 F.2d 236 (8th Cir. 1991)
Honey v. United States, 963 F.2d 1083 (8th Cir. 1992)

Ninth Circuit

Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington

Purcell v. United States

1 F.3d 932 (9th Cir. 1993)

Bottom lineAuthority you never used still makes you responsible, and the duty cannot be delegated — even to a CFO who turns out to be an embezzler.

“The authority that permits control carries with it a nondelegable duty to ensure that withholding taxes are duly collected and paid over to the government”
1 F.3d at 937

Facts: Joseph Purcell was president and sole shareholder of Purcell Temporaries. He hired a CFO and turned the finances over to him; the CFO embezzled more than $450,000 using a stamp of Purcell’s signature and did not pay the taxes withheld in the first half of 1981. After the CFO left, Purcell took back control, learned of the unpaid taxes, and paid other creditors. The company also fell short in 1982 and filed for bankruptcy in 1983.
Holdings: A person is responsible if he had the authority to exercise significant control over the company’s finances, whether or not he actually used it. That authority carries a nondelegable duty to see the taxes are paid.
Paying other creditors after learning of the unpaid taxes was willful as a matter of law.
The Slodov exception for new management does not help someone who was responsible both before and after the taxes went unpaid; he must use unencumbered funds acquired later to pay them.
The person assessed must prove that all potentially available funds were encumbered. Purcell did not.
Result: Directed verdict for the government affirmed.

Later treatmentRykoff v. United States (1994) applies Purcell’s definition of willfulness but distinguishes it on the facts.

Also important in this circuit

Davis v. United States, 961 F.2d 867 (9th Cir. 1992)
Phillips v. United States, 73 F.3d 939 (9th Cir. 1996)
Gray Line Co. v. Granquist, 237 F.2d 390 (9th Cir. 1956)
Nakano v. United States, 742 F.3d 1208 (9th Cir. 2014)

Tenth Circuit

Colorado, Kansas, New Mexico, Oklahoma, Utah, Wyoming

Muck v. United States

3 F.3d 1378 (10th Cir. 1993)

Bottom lineAuthority alone decides responsibility, even if a manager ran the business day to day. Knowingly paying other creditors is willful.

“The existence of such authority, irrespective of whether that authority is actually exercised, is determinative.”
3 F.3d 1378

Facts: Graystone Castle, Ltd. operated a hotel in Thornton, Colorado, and failed to pay withheld taxes for the fourth quarter of 1988 and the first half of 1989. Ronald Muck, its president and sole shareholder, paid $589 — one employee’s withholding for one quarter — and sued for a refund. The government counterclaimed and won a judgment of about $95,000 plus interest.
Holdings: A responsible person has significant, though not necessarily exclusive, authority over general management and fiscal decisions. Having that authority is decisive whether or not it is used, and liability is not limited to the person with the most control.
Willfulness is a voluntary, conscious and intentional decision to prefer other creditors over the government. Bad motive is not required. Paying creditors after learning taxes were owed was willful, even for quarters that had already passed.
The responsible person bears the burden of showing he did not act willfully.
The court did not decide whether a reasonable-cause defense exists; an agreement with the IRS that did not cover Muck’s personal liability would not qualify anyway.
Result: Summary judgment for the United States affirmed.

Later treatmentIn Finley v. United States, 123 F.3d 1342 (10th Cir. 1997) (en banc), the court called Muck’s reasonable-cause remarks dicta and recognized a narrow reasonable-cause exception.

Also important in this circuit

Denbo v. United States, 988 F.2d 1029 (10th Cir. 1993)
Finley v. United States, 123 F.3d 1342 (10th Cir. 1997) (en banc)
Howell v. United States, No. 97-4014 (10th Cir. Dec. 1998) (published)
Bradshaw v. United States, 83 F.3d 1175 (10th Cir. 1996)

Eleventh Circuit

Alabama, Florida, Georgia

Thibodeau v. United States

828 F.2d 1499 (11th Cir. 1987)

Bottom lineA company president who keeps paying wages and suppliers while knowing the taxes are behind is willful as a matter of law — even if someone above him calls the shots. Former Fifth Circuit cases such as Mazo also bind this circuit.

“Irrespective of whether a responsible person disburses the withheld taxes to a creditor other than the government before or after the due date, the behavior is considered willful.”
828 F.2d at 1505

Facts: Thibodeau Corporation did not pay over $42,976.97 withheld in the first half of 1973. John Thibodeau, its vice president and then, from January 1973 until bankruptcy in April, its president, director and resident agent, signed or co-signed checks for more than $400,000 in net wages and more than $53,000 to creditors, including himself. He sued to recover $1,843.25, and a jury found in his favor.
Holdings: Responsibility is a matter of status, duty and authority, not knowledge. Signs include corporate office, control over finances, authority to disburse funds, stock ownership and the power to hire and fire. More than one person can be responsible.
Reporting to, and serving at the will of, a controlling owner does not remove the duty; neither does an instruction not to pay.
Once responsibility is shown, the taxpayer must prove he was not willful. Willfulness is shown by knowingly paying other creditors after learning the taxes were unpaid, or by reckless disregard of a known or obvious risk — whether the funds are diverted before or after the due date.
Slodov did not help: the company had funds to pay the taxes during his tenure.
Result: Reversed: judgment for the government on both elements.

Also important in this circuit

Thosteson v. United States, 331 F.3d 1294 (11th Cir. 2003)
Malloy v. United States, 17 F.3d 329 (11th Cir. 1994)
Neckles v. United States, 579 F.2d 938 (5th Cir. 1978) (binding under Bonner)
Roth v. United States, 779 F.2d 1567 (11th Cir. 1986)
Newsome v. United States, 431 F.2d 742 (5th Cir. 1970) (binding under Bonner)
Mazo v. United States, 591 F.2d 1151 (5th Cir. 1979) (binding under Bonner)

D.C. Circuit

District of Columbia

Slodov v. United States

436 U.S. 238 (1978)

Supreme Court

The D.C. Circuit has no published decision on § 6672. The Supreme Court’s decision in Slodov is the binding authority.

Bottom lineThe penalty is not liability without fault. A new owner who takes over after the withheld money is already gone is not liable for using new revenue to keep the business running — but is liable if trust funds were on hand when he took control.

“The fact that the provision imposes a ‘penalty’ and is violated only by a ‘willful failure’ is itself strong evidence that it was not intended to impose liability without personal fault.”
436 U.S. at 254

Facts: Slodov bought and took control of three related catering and vending corporations on January 31, 1969. They owed $250,000 in taxes, including withheld employee taxes, but had no liquid assets: earlier management had spent the withheld money. During his tenure the companies paid $249,212 in current taxes but nothing for earlier periods, and they filed for bankruptcy that July.
Holdings: The penalty reaches the employer’s officials responsible for its decisions about withholding and paying the taxes.
A new responsible person can be liable for taxes withheld before he took control if the company still held funds impressed with the trust when he took over.
Section 7501 does not impress a trust on funds acquired later. Using later-generated funds that cannot be traced to collected taxes for other purposes is not a violation.
Because § 6672 imposes a “penalty” for a “willful” failure, it does not impose liability without personal fault.
Result: Reversed as to taxes withheld before January 31, 1969. Slodov conceded liability for taxes withheld during his own tenure.

Case research checked against the court opinions, as of November 7, 2026.

Criminal statutes

Separate from the civil penalty, these Internal Revenue Code sections carry prison terms.

IRC § 7202: Willful failure to collect, or truthfully account for and pay over, tax — felony, up to 5 years in prison.
IRC § 7201: Attempt to evade or defeat tax — felony, up to 5 years.
IRC § 7206(1): Willfully making a false return or statement under penalty of perjury — felony, up to 3 years.
IRC § 7203: Willful failure to file a return or pay tax — misdemeanor, up to 1 year.
IRC § 7215: Failure to deposit withheld taxes in a special trust account after IRS notice under § 7512 — misdemeanor, up to 1 year.

About this survey

Covers published decisions of the twelve regional federal courts of appeals, as of October 30, 2026. Unpublished decisions are noted only where no published authority exists.
Which circuit's law applies depends on where an appeal would be heard — generally the taxpayer's home state. Refund suits in the Court of Federal Claims follow the Federal Circuit, which this survey does not cover.
Statutes: IRC §§ 6672 and 7501.

General information only. This survey is not legal or tax advice and does not create an attorney-client relationship. Courts apply these rules to specific facts, and the law changes. Received Letter 1153 or a request for a Form 4180 interview? See how I help or request a consultation.