Hastings Business Law Journal


T. Keith Fogg


The "tax gap" represents the difference between the amount of tax owed by taxpayers and the amount that is actually voluntarily and timely paid. As of September 30, 2007, the IRS had $282 billion of unpaid assessments on its books of which 20 percent represented the unpaid payroll taxes due from employers. IRC Section 6672 gives the government a powerful tool to mitigate the tax gap, as it gives it the right to pierce the corporate veil in pursuit of the collection of unpaid payroll taxes. However, 6672 suffers from a near fatal flaw which results in failure to incentivize taxpayers to pay employment taxes when owed. In this paper, the author explains the operation of 6672, explores the purpose of 6672 and addresses the specific problem of the treatment of interest under 6672 by examining the mechanics of the interest provisions, the misalignment with similar statutes and the problems created for the IRS by the current statutory construction. The author then recommends a solution-to remove 6672 from the assessable penalty provisions and make it clear in the statute that interest charges against the individuals responsible accrue from the due date of the corporate return.