Tax Court: A Corporate Offer-in-Compromise Can Cap the Owner's Trust Fund Penalty

Business owners in a cash crunch often make the same choice: keep the crew paid, keep the unions satisfied, keep the doors open, and deal with the IRS later. A recent Tax Court decision, Amodio v. Commissioner, T.C. Memo. 2026-96 (Sept. 28, 2026), confirms that this choice still makes the owner personally liable for the trust fund recovery penalty. But the decision also contains welcome news for responsible persons: once the IRS accepted the corporation's offer-in-compromise, the court held that the IRS could not collect more from the owner than the corporation still owed after the compromise.

The Facts

Thomas Amodio, a former carpenter, organized Creative Solutions, Inc. ("Creative") in 2002 to provide construction services focused on retail display cases and millwork installation. Creative was a union shop. It owed union-scale wages and union benefits for employees who belonged to trade unions in the New York/New Jersey area.

In 2015 and 2016, a slow-paying major client and union demands created a cash-flow problem. To ease it, Creative's office manager and its third-party payroll company stopped paying over the employment taxes. Amodio did not make that decision, and he learned about the failure only afterward.

The IRS assessed trust fund recovery penalties (TFRPs) against Amodio for the quarters ended December 31, 2015, and June 30, September 30, and December 31, 2016. Some of those periods had been paid, so only the quarters ended December 31, 2015, and December 31, 2016, were still before the court.

On July 28, 2020, Creative and the IRS entered into an offer-in-compromise. It satisfied Creative's employment tax liabilities, in whole or in part, for several periods, including the two quarters at issue. Even so, the IRS issued a Notice of Determination on April 4, 2022, sustaining a levy to collect Amodio's remaining TFRPs. Amodio then filed a collection due process (CDP) petition under section 6330(d).

Issue One: Willfulness

Section 6672(a) imposes a penalty on any person who is required to collect, truthfully account for, and pay over tax and who "willfully fails" to do so.[^7] Amodio admitted he was a responsible "person." He argued only that he had not acted willfully.[^8] Because this was a CDP case in which he challenged the underlying liability, the court reviewed the issue de novo and placed the burden of proof on Amodio.

The court applied the familiar standard: willfulness is "a voluntary, conscious and intentional failure" to collect, account for, and pay over employment taxes. It is shown when a responsible person, after learning of unpaid employment taxes, uses unencumbered corporate funds for other purposes.

Amodio's facts met that standard. After he learned of the delinquencies, he kept Creative operating and paid other creditors, including employees' net wages and union benefits, instead of the overdue taxes. The court accepted that the pressure was real. If Creative had missed wage or benefit payments, the unions would have pulled their members off its jobsites. The court still rejected the defense, quoting the Second Circuit: "an employee to whom the corporate employer owes wages is simply another creditor."

It did not help Amodio that the original decision not to pay over the taxes was made by his office manager and payroll provider. His liability came from what he did after he found out.

Issue Two: The Corporation's Offer-in-Compromise

The second issue is the more significant one. The court described the TFRP as "derivative" of the employer's failure to pay. It treated the employer's employment tax liability and the responsible person's TFRP as joint and several, much like the liability on a married couple's joint income tax return. From that, the court drew a basic rule: the IRS may decide which jointly liable party to collect from, but it can collect a joint and several liability only once.

The record was "less than clear," but it appeared that Creative's offer-in-compromise had satisfied or extinguished its employment tax liabilities for the two quarters. If so, the court said, "common sense suggests" that Amodio's derivative TFRP liabilities for those quarters had been satisfied or extinguished too.

The IRS disagreed. It argued that it could still levy on the difference between Amodio's TFRP and Creative's liability as reduced by the offer. For support, it relied on the Internal Revenue Manual. IRM 5.8.4.22.1(2) (May 10, 2013), the version in effect during the periods at issue, provides that settling a corporation's liability through an offer-in-compromise does not eliminate a responsible person's TFRP, which may still be collected from that person. The current version, IRM 5.8.4.21.1(2) (Apr. 25, 2025), states that "[i]f the IRS enters into a compromise with an employer for a portion of the trust fund tax liability, the remainder of the trust fund taxes may still be collected from a responsible person."

The court was not persuaded. It noted that the parties agreed there was "scant authority" on the issue. It also rejected the IRS's argument that Mason v. Commissioner had "favorably" endorsed the IRM position. Mason mentioned the provision only in a footnote, after saying that the IRS's handling of the offers had "no direct bearing" on that case, and it described the IRM as IRS "policy," not legal authority. The court then held:

"There might be circumstances that 'may' support respondent's decision to collect from a responsible person a TFRP liability that exceeds a corporation's related employment tax liability that has been adjusted by an offer-in-compromise, but in the absence of a specific reason for doing so in this case we are more persuaded to proceed by applying common sense and the general principles that govern joint and several federal tax liabilities."

Under that holding, the IRS may proceed with the levy, but "only in amounts that do not exceed the amount of Creative's employment tax liability for each period in dispute, as adjusted by the offer-in-compromise."[^20] The record did not show how much of Creative's liability, if any, remained for each quarter, so the court ordered that decision be entered under Rule 155.

Practical Takeaways

1. Paying employees first is still willful. Amodio is another case holding that a responsible person who knows about unpaid trust fund taxes acts willfully by paying wages, union benefits, or other creditors with available funds. Good motives, union pressure, and keeping the business alive are not defenses. An owner who learns of a payroll tax problem should stop paying other creditors ahead of the IRS right away and get advice.

2. Delegation protects you only until you know. An office manager or payroll company may cause the first missed deposits. Once the owner learns of them, every later decision to pay someone else can be willful.

3. A corporate offer-in-compromise may now limit the owner's TFRP. Responsible persons, and their CDP representatives, should check whether the employer has an accepted offer covering the same periods. If it does, they should argue that the TFRP cannot be collected beyond the employer's liability as adjusted by the offer, and they should request a period-by-period reconciliation.

4. Note the limits of the holding. Amodio is a memorandum opinion by a Special Trial Judge. It is not binding precedent. The court also expressly left room for the IRS to collect more where it gives a "specific reason" for doing so. The IRM's position that an employer's offer reflects only what can be collected from the employer is a likely source of such reasons. The IRS may also reconsider how it frames future offers and TFRP determinations. Practitioners should expect the IRS to raise these issues in later cases.

5. Plan corporate and individual resolutions together. When negotiating an employer's offer, consider at the same time the TFRP exposure of every potentially responsible person. Document how the offer affects each tax period. Amodio ended in a Rule 155 computation partly because the record could not show the employer's remaining liability by period.

6. Use CDP to contest the liability when it is available. Amodio challenged the TFRP in his CDP case, and the court reviewed it de novo. It also found that the required supervisory approval under section 6751(b) had been obtained before assessment. Representatives should review that approval in every TFRP case.

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This post is for general information only and is not legal or tax advice. The application of these rules depends on the specific facts. Please contact us to discuss your situation.

Sources:

1. : Amodio v. Commissioner, T.C. Memo. 2026-96, slip op. at 4 (Sept. 28, 2026), available via Thomson Reuters Checkpoint; see also U.S. Tax Court docket no. 9959-22L (docket entry 50).
2. I.R.C. § 6672(a), 26 U.S.C. § 6672 (Cornell LII); Amodio, slip op. at 1 (citing Kalb v. United States, 505 F.2d 506, 510–11 (2d Cir. 1974), and Mason v. Commissioner, 132 T.C. 301, 321 (2009)).
3. IRM 5.8.4.21.1(2) (Apr. 25, 2025), Internal Revenue Service; Amodio, slip op. at 5 n.4.