Trust Fund Recovery Penalty - Section 6672 of the Code - reponsible person

Ronald C. Savona, Plaintiff v. United States of America, Defendant; United States of America, Counterclaim Plaintiff v. Ronald C. Savona and Keith M. Christian, Counterclaim Defendants.

U.S. District Court, So. Dist. Calif.; 06CV1365 IEG (WMc), October 15, 2007.

[ Code Sec. 6672]

Trust fund recovery penalties: Assessment of penalties: Validity: Statute of limitations: Unpaid withholding taxes: Willfulness: Responsible person. --
Trust fund recovery penalties assessed against two corporate officers for their failure to collect, account for and pay over the corporation's withheld income and FICA taxes were valid and timely. The IRS made the assessments within thirty days of the final administrative determination regarding their protest to the proposed assessments. Moreover, the chairman was a responsible person who willfully failed to pay the corporation's withheld income and employment taxes. The IRS's evidence showed that he had the ability to sign checks, to hire and fire employees, signed the corporation's tax returns, owned stock in the corporation, was ultimately responsible for making financial decisions, and paid the corporation's creditors. In addition, despite knowledge of the corporation's unpaid employment taxes, he failed to pay the taxes before any other creditor was paid. However, genuine issue of material fact existed as to whether the CEO had sufficient authority over the corporation's financial affairs to be considered a responsible person for the trust fund recovery penalties.




ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT/COUNTERCLAIM PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT. (Doc. No. 20, 21, 23, 28, 29, 30)


GONZALEZ, Chief Judge, United States District Court: Presently before the Court is Defendant/Counterclaim Plaintiff's motion for summary judgment. For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Defendant/Counterclaim Plaintiff's motion.


BACKGROUND




A. Factual Background

This matter involves the assessment of civil tax penalties against Ronald C. Savona and Keith M. Christian pursuant to 26 U.S.C. § 6672.

In December 1992, Keith Christian was one of four shareholders that founded Eco Building Systems, Inc. ("Eco"). Eco operated out of Chula Vista, California from approximately 1999 until at least December 2002, manufacturing and selling prefabricated modular buildings, some of which could be used as school classrooms for public school districts and private colleges and universities.

Christian was an employee of the company and a shareholder until December 2002, serving as Chairman of the Board of Directors and President from 1999 until December 2002. He also served as the CEO from 1999 until December 2001. (Gov. Statement of Facts ISO Motion, Ex. 12, Christian Depo., at 20.) Christian's job duties from December 2001 until December 2002 involved sales, marketing, raising capital, working with lenders, and working in the accounting and human resources department. ( Id., at 21.) Christian was authorized to hire and fire employees within his own department. ( Id., at 62.)

Ronald Savona began working for Eco in the spring of 2000 as a Vice President of Manufacturing. Approximately 6-9 months after he started working at Eco, Savona was promoted to COO and, in December 2001, he became the CEO, replacing Christian. Throughout these various promotions and changes in job title, Savona's job duties essentially remained constant. His primary activities related to Eco's manufacturing and construction activities, specifically the manufacturing plant, including purchasing. He also assisted with sales. ( See Savona Statement of Facts ISO Motion, Ex. 6, Savona Depo., 17-22.) Like Christian, Savona had the power to hire and fire employees within his department. (Gov. Statement of Facts ISO Motion, Ex. 13, Savona Depo, at 41-42.) While Savona owned no stock in the company, he did hold stock options. ( Id., at 35)

From at least March 2001 forward, both Christian and Savona were authorized signatories on Eco's various bank accounts and were the only authorized signers on the operating account from which Eco's bills were paid. ( See Gov. Statement of Facts ISO Mot., Ex. 7; Ex. 12, at 49-51; Ex. 13, at 57.) With respect to the operating account, only one signature was required to issue a check and there were no formal restrictions on either Christian's or Savona's ability to write checks from that account. ( See id.) Christian was responsible for signing most payroll checks as well as the majority of checks to Eco creditors. ( See Gov. Statement of Facts ISO Mot., Ex. 12, Christian Depo., at 60.) Savona was less involved in check writing. He states he never had access to an Eco checkbook and further asserts that while he may have signed checks on an "emergency" occasion when Christian was not around, he never authorized the payment of Eco's bills and he lacked authority to direct such payments. ( See Savona Statement of Facts ISO Opp., Ex. 6, Savona Depo., at 61, 63, 92-94.)

Christian and Savona were both members of Eco's Board from the Fall of 2001 until December of 2002. (Gov. Statement of Facts ISO Mot., Ex. 13, Savona Depo., at 19, 26.) Between January 2001 and December 2002, Eco's Board held regular quarter meetings which Christian and Savona both attended. ( See id., Ex. 12, at 29, 32; Ex. 13, at 27.) As early as November 2001, and again on February 29, 2002, Eric Blackhall, a consultant who worked for Eco periodically between November 2000 and November 2002, informed the Board of Directors that Eco had outstanding federal payroll taxes that it had not paid. (Gov. Statement of Facts ISO Mot., ¶ 24.) Around the same time period, Debt Acquisition Company of America ("DACA"), one of Eco's creditors, sent a demand letter to the company threatening to foreclose if it did not receive payment. Additionally, Rich Werner --one of Eco's Board members --threatened foreclosure if the company did not pay a note he held against it. Facing pressure from both DACA and Werner, Eco's Board, including Christian and Savona, approved payments to these creditors instead of to the IRS during the first quarter of 2002, as well as in June 2002, and again in August of 2002. ( See id. ¶ 24-27.) Eco eventually defaulted on the payments of federal withholding taxes for the tax quarters ending May 31, 2001 (the first quarter of 2001), May 31, 2002 (the first quarter of 2002), and June 30, 2002 (the second quarter of 2002).

On October 13, 2005, a duly authorized delegate of the Secretary of the Treasury made an assessment of liability arising under 26 U.S.C. § 6672 against Savona, alleging a willful failure to collect, truthfully account for, and pay over the withheld income and FICA taxes of Eco. The IRS made three separate trust fund penalty assessments: (1) a $94,869.01 penalty for the quarter ending May 31, 2001; (2) a $319,777.24 penalty for the quarter ending May 31, 2002; and (3) a $221,258.50 penalty for the quarter ending June 30, 2002. These figures brought the total assessment to $635.905, plus accrued statutory interest and less any payments or credits. (Def. Mem. ISO Motion, Statement of Facts, ¶ 1.) On March 29, 2004, a duly authorized delegate of the Secretary of the Treasury made an identical assessment against Counterclaim Defendant Christian.

In January of 2006, Savona began to make some payments towards the liability for the above tax quarters. Later, in March of that year, Savona requested an abatement of the trust fund recovery assessment against him and the return of his 2006 tax refund, which had been withheld by the IRS in partial satisfaction of the debt. On or about May 8, 2006, the IRS issued a letter denying Savona's requests.



B. Procedural Background

On July 5, 2005, Savona filed his complaint. (Doc. No. 1.) The complaint asserted that the IRS's assessment of tax liability against him was improper since he was neither a responsible person nor willful within the meaning of 26 U.S.C. § 6672. Savona sought a refund of amounts paid and a full abatement of the assessment against him. The government filed its answer denying Savona's allegations that the assessment had been improper. (Doc. No. 4.) In addition, the government asserted counterclaims against Savona and included Christian as a counterclaim defendant for the balance of the tax assessments that remained unpaid. ( Id.) Savona and Christian answered, denying the validity of the government assessments and liability under 26 U.S.C. 6672. ( See Doc. No. 7, Savona Ans., ¶ ¶ 6-10; Doc. No. 12, Christian Ans. ¶ 6.)

On June 29, 2007, the government filed the present motion for summary judgment on its counterclaims against Savona and Christian. (Doc. No. 20.) On July 25, 2007, Savona filed an opposition. (Doc. No. 21.) On August 6, 2007, the government filed its reply. (Doc. No. 23.) Christian filed his opposition on September 7, 2007, and the government replied on September 11, 2007. (Doc. No. 28, 30.) The Court held oral argument on September 24, 2007.


LEGAL STANDARD


Summary judgment is appropriate when there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Klamath Water Users Protective Ass'n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 2000) (recognizing that where material facts are undisputed, the court only decides the application of relevant law). A dispute is "genuine" when "the evidence presented is such that a jury applying [the appropriate] evidentiary standard could reasonably find for either the plaintiff or the defendant." See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

A party seeking summary judgment always bears the initial burden of establishing the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323. The moving party can satisfy this burden in two ways: (1) by presenting evidence that negates an essential element of the non-moving party's case, or (2) by demonstrating that the non-moving party failed to make a showing sufficient to establish an element essential to that party's case on which that party will bear the burden of proof at trial. See id. at 322-23.

Once the moving party meets the requirement of Rule 56, the burden shifts to the party resisting the motion, who "must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256. It is not enough for the party opposing a properly supported motion for summary judgment to "rest on mere allegations or denials of his pleadings." Id. Genuine factual issues must exist that "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250. To make such a showing, the non-moving party must go beyond the pleadings to designate specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 325.


DISCUSSION




A. Liability Under 26 U.S.C. § 6672

The Internal Revenue Code requires employers such as Eco to withhold federal social security and income taxes from the wages of their employees. See 26 U.S.C. §§ 3102(a), 3402(a). Although an employer collects this money each salary period, payment to the federal government takes place on a quarterly basis. In the interim, the employer holds the collected taxes in "a special fund in trust for the United States." 26 U.S.C. § 7501(a). These taxes are known as "trust fund taxes." See Slodov v. United States, 436 U.S. 238, 243 (1978). If an employer fails to pay over collected trust fund taxes, "the officers or employees of the employer responsible for effectuating the collection and payment of trust fund taxes who willfully fail to do so are made personally liable to a 'penalty' equal to the amount of the delinquent taxes" under 26 U.S.C. § 6672. Id. at 244-45. Section 6672 provides, in relevant part:
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax ... shall ... be liable to a penalty equal to the total amount of the tax ... not collected, or not accounted for and paid over.

26 U.S.C. § 6672. For the purposes of Section 6672, a "person" includes "an officer or employee of a corporation ... who ... is under a duty to perform the act in respect of which the violation occurs." 26 U.S.C. § 6671(b). Such a person --who by virtue of his status with and authority over a company has a duty to collect, account for, and pay the taxes --is termed a "responsible person." Alsheskie v. United States, 31 F.3d 837, 838 (9th Cir. 1994). Thus, an individual is liable for a penalty under Section 6672 if (1) he is a "responsible person"; and (2) if he acts willfully in failing to collect or pay over the withheld taxes. Davis v. United States, 961 F.2d 867, 869-70 (9th Cir.1992) (citation omitted).

In an action to collect a tax, the government bears the initial burden of proof. Jones v. United States, 60 F.3d 584, 589 (9th Cir. 1995). The government can satisfy its burden with the introduction of certificates of assessment and payments, which establish a prima facie case for the United States. Id.; United States v. Stonehill, 702 F.2d 1288, 1293 (9th Cir. 1983) (government can carry its initial burden of proof merely by introducing its assessment of tax due which are entitled to a presumption of correctness when supported by minimal evidentiary foundation). Next, an individual against whom an assessment is made "bears the burden of proving by a preponderance of the evidence that one or both of [the elements of responsibility and willfulness] is not present." United States v. Jones, 33 F.3d 1137, 1139 (9th Cir. 1994) (internal quotation and citation omitted) (alteration in original).



1. Validity of Assessments

Savona attacks the assessments in this case, arguing that there is a genuine issue of fact as to whether he was assessed a penalty for any of the taxes at issue within the time period allowed by statute. Specifically, Savona argues that because the assessment date of October 13, 2005 came more than 3 years after the end of each of the above payroll periods, 26 U.S.C. § 6501(a) bars recovery by the United States.

26 U.S.C. § 6501(a) requires that the tax imposed be assessed "within 3 years after the return was filed." If the IRS provides notice to the taxpayer in writing that the IRS will be imposing a penalty assessment within the three years statute of limitations, the period is tolled for the latter of (1) the date 90 days after the date on which such notice was mailed or delivered; or (2) if the taxpayer makes a timely protest of the proposed assessment, the date 30 days after the IRS makes a final decision regarding such protest. See 26 U.S.C. § 6672(b)(3).

As discussed above, the relevant tax periods here are: (1) the first quarter of 2001 --the payroll period ending March 31, 2001; (2) the first quarter of 2002 --the payroll tax period ending March 31, 2002, and (3) the second quarter of 2002 --the payroll period ending June 30, 2002. The United States made assessments against Savona with respect to these payroll periods on October 13, 2005 and filed a notice that it was imposing a penalty assessment. (Gov. Reply ISO Mot., Second Decl. of Jeremy N. Hendon, Ex. 1, pg. 2.) On December 26, 2003, Savona timely submitted his protest to the proposed assessments. Therefore, the limitations period would not have run until 30 days after the IRS made its final administrative determination. 26 U.S.C. § 6672 (b)(3)(B). Savona was notified of the Secretary of the Treasury's final determination on October 6, 2005. The assessments were made on October 13, 2005. Thus, because the assessments were made within 30 days of the October 6, 2005 notification, the assessments against Savona were timely. See 26 U.S.C. § 6672(b)(3).



2. The Responsibility Prong

Next, both Savona and Christian argue that they are not "responsible persons" under section 6672.

The Ninth Circuit has explained that a person is responsible for the payment of trust fund taxes for purposes of the section 6672 penalty if he had the "final word on which bills should or should not be paid." Maggy v. United States, 560 F.2d 1372, 1374 (9th Cir. 1997). "Final word" does not mean "final" but instead means "the authority required to exercise significant control over the corporation's financial affairs, regardless of whether the individual exercises such control in fact." Jones, 60 F.3d at 587 (internal citation and quotation omitted) (emphasis in original).

The government relies heavily on the Ninth Circuit's decision in Purcell v. United States, 1 F.3d 932 (9th Cir. 1993), for its position that both Savona and Christian are responsible persons. In that case, a company owner and president named Purcell hired a man named Hatchard to run his company while Purcell focused on non-management activities. Hatchard embezzled several hundred thousands from the company during his tenure, using a signature stamp bearing Purcell's signature to issue company checks payable to himself. Hatchard also failed to pay withheld taxes to the IRS for two quarters. After Hatchard had left the company, the IRS assessed Purcell with the amount of unpaid withholding taxes for 1981. Purcell brought an action against the government seeking a refund of amounts transferred to the IRS in partial settlement of this liability, arguing that because he had delegated full authority for handling the company's finances to Hatchard and took no active role in financial matters, he was not a "responsible person" for purposes of § 6672. The Ninth Circuit disagreed, noting that the delegation theory pressed by Purcell had been widely rejected. Instead, the court explained, an individual's responsibility stems primarily from his/her authority within the corporation:
[R]esponsibility is a matter of status, duty, and authority. Authority turns on the scope and nature of an individual's power to determine how the corporation conducts its financial affairs; the duty to ensure that withheld employment taxes are paid over flows from the authority that enables one to do so. That an individual's day-to-day function in a given enterprise is unconnected to financial decision making or tax matters is irrelevant where the individual has the authority to pay or to order the payment of delinquent taxes.

Id. (internal citations and quotations omitted) (emphasis added). Under this formulation, the court concluded that given Purcell's status as company president, sole shareholder, and sole authorized signatory on the company checking account, he qualified as a responsible person.

While the government contends Purcell's language extends liability to any individual who could theoretically write a check on behalf of a company, as the citations of the Purcell court make clear, the court was more concerned with an individual's "effective" power and his ability to make decisions on behalf of the company, not simply his ability to sign a check. See Purcell, 1 F.3d at 937 ("Authority turns on the scope and nature of an individual's power to determine how the corporation conducts its financial affairs") (citing the following cases: Raba v. United Sates, 977 F.2d 941, 943 (5th Cir. 1992) ("the crucial examination is whether a person had the 'effective power to pay taxes.'"); Bowlen v. United States, 956 F.2d 723, 728 (7th Cir. 1992) ("the key to liability under section 6672 is the power to control the decision-making process by which the employer corporation allocates funds"); O'Connor v. United States, 956 F.2d 48, 51 (4th Cir. 1992) (whether a person is responsible "is considered in light of the person's authority over an enterprise's finances or general decision making.").). Indeed the Ninth Circuit has explicitly refused to extend section 6672 liability merely on the basis of check writing ability. See United States v. Jones, 33 F.3d 1137 (9th Cir. 1994) (refusing to extend section 6672 liability to employee of a casino despite employee's check writing authority and his service as general manager, where employee served more in a ministerial capacity and was only authorized to pay creditors approved by his supervisor).

Instead, the court has recognized that several factors are relevant to the inquiry of whether an individual is a responsible person. Id. at 1140. Such factors include (1) the individual's duties as outlined in the corporate bylaws; (2) his ability to sign checks; (3) his status as an officer or director; (4) whether he could hire and fire employees; and (5) his discretion over which creditors to pay. Id. (citing Hochstein v. United States, 900 F.2d 543, 547 (2d. Cir. 1990). Other courts have identified additional factors, such as: (6) whether the individual held stock in the corporation, see Greenberg v. United States, 46 F.3d 239, 243 (3d Cir. 1994); and (7) whether the individual's signature is on the employer's federal quarterly and other tax returns. Id.



a. Are Savona and Christian "Responsible"?



i. Savona

Savona's employment exhibits many of the factors identified above: (1) he had check signing authority (factor 2); (2) he held an office in Eco (though not any stock) (factor 3); and (3) he had the ability to hire and fire employees in his department (factor 4).

However, the Court's review of the summary judgment evidence reveals a genuine and heated dispute on the ultimate issue of whether Savona had significant control over Eco's financial affairs, including a dispute over a key factor: his authority, if any, to direct payment to creditors of the company. In addition to his own deposition testimony, Savona has put forth evidence from three different Eco employees indicating that it was Christian and not he who had the significant, and in some respects exclusive, authority over financial matters. Specifically, Lisa Marie Parsons, who worked in Eco's accounts payable and payroll departments, testified that Christian "was the only one could make any decisions when it came to any kind of financial spending" and that he had explained to her that he was the only person that she would talk to regarding financial matters and purchases. ( See Savona Statement of Facts ISO Opp., Ex. 7, Parsons Depo., at 20-22.) Similarly Robert George Caronna, a manager of field operations at Eco, stated that Christian was the only person who he could go to about financial decisions at Eco. (Savona Statement of Facts ISO Opp., Ex. 8, Caronna Depo., at 17.) Significantly, Caronna described Savona as operations head, while describing Christian as "the owner in charge" and the person who "we went to [] for any financial needs or anything ..."). ( See id., at 16.) Finally, Gina Lee Florentino, a marketing and sales specialist with Eco, made similar representations, saying that Savona was not the one to ask about financial decisions, but that such decisions were to be directed at Christian. (Savona Statement of Facts ISO Opp., Ex. 9, Florentino Depo, at 20-26.) Even the consultant Blackhall, while asserting that he had seen some checks for creditors signed by Savona, confirmed that 90% of checks were signed by Christian and also testified that Eco's controller Patricia Foster (the one who prepared check, prepared invoices, and who made bank deposits) reported directly to Christian. Blackhall's testimony also supported Savona's claim that he would direct payment only in "crisis" situations. (Gov. Statement of Facts ISO Mot., Ex. 14, Blackhall Depo., at 18, 30.)

Viewing the evidence in the light most favorable to Savona, as is appropriate at this stage of the proceedings, there is a genuine issue of material fact as to whether Savona had the authority to exercise "significant" control over Eco's financial affairs. Cf Jones, 33 F.3d at 1141-2 (reversing district court's finding of liability under section 6672 where record did not show that employee had a role in picking certain creditors to pay or otherwise had authority to pay taxes).



ii. Christian

Of the factors identified in this circuit as typical of responsible persons, Christian also exhibits many of the significant factors associated with responsibility: (1) he had the ability to sign checks (factor 2); (2) he served as President and Chairman of the Board (factor 3); (3) he had authority to hire and fire employees (factor 4); (4) he owned stock in the corporation (factor 6); and (5) he signed Eco tax returns (factor 7). Further there is unchallenged testimony that Christian was ultimately responsible for making financial decisions and directing payment to Eco creditors (factor 5). Patricia Foster, the Eco employee actually responsible for printing out company checks, stated that it was Christian who selected which bills, out of all those due, which would be paid. ( See Gov. Statement of Facts ISO Mot., Ex. 15, Foster Depo., at 19.) Blackhall also stated that Christian directed and authorized the payment of bills and that he was the one responsible for the company's financial decisions. ( See id., Ex. 14, Blackhall Depo., at 30, 54.)

Christian has offered no significant evidence rebutting any of these statements and instead only attempts to distribute blame to the Board and Savona. This effort is unpersuasive. With respect to Christian's attempts to use the Board as a scapegoat, he ignores the obvious purpose of § 6672, which is to authorize the IRS to cut through corporate identities and to assess civil penalties directly against responsible corporate officers. As to Savona, Christian fails to recognize that, under § 6672, liability may extend to more than one corporate officer. USLIFE Title Ins. Co. of Dallas v. Harbison, 784 F.2d 1238, 1243 (5th Cir. 1986) ("The fact that more than one person is responsible for a particular delinquency does not relieve another responsible person of his or her personal liability, nor can a responsible person avoid collection against himself on te ground that the Government should first collect the tax from someone else."); Hartman v. United States, 538 F.2d 1336, 1340 (9th Cir. 1976) (two or more persons may be jointly and severally liable under section 6672).

Because he fails to point to specific facts refuting the evidence above, the Court finds Christian has failed to raise a genuine issue of material fact as to whether he had significant control over the financial affairs of Eco. The Court therefore deems Christian a "responsible" person under section 6672 with respect to the tax assessments issued to him on March 29, 2004.



3. The Wilfulness Prong

Willfulness, under § 6672, has long been defined as "a voluntary, conscious and intentional act to prefer other creditors over the United States." Purcell, 1 F.3d at 938 (quoting Davis, 961 F.2d at 871). Willfulness does not require the intent to defraud the government or any other bad motive. Davis, 961 F.2d at 871. "Once a responsible person gains knowledge of a payroll tax deficiency, he is liable for all periods during which he was a responsible party, regardless of whether those periods precede or follow the date he gained that knowledge." Schlicht v. United States, 2005 WL 2083103, *4 (D. Ariz. August 25, 2005) (citing Davis, 961 F.2d at 873). Accordingly, a deliberate decision to use corporate funds after receiving knowledge of a payroll tax deficiency "falls within the literal terms of this Circuit's definition of willfulness." Davis, 961 F.2d at 871; see also Thomsen v. United States, 887 F.2d 12 (1st Cir.1989) (holding that once a person is aware of the liability to government, that person has a duty to ensure that the taxes are paid before any payments are made to other creditors (citing Mazo v. United States, 591 F.2d 1151, 1157 (5th Cir.1979)).



a. Were Savona and Christian Willful?



i. Savona

Because the Court determines that there is a genuine issue as to whether Savona is a responsible person --i.e. whether he had authority to prefer certain creditors over the United States --the Court necessarily finds a genuine issue as to whether Savona willfully preferred such creditors.



ii. Christian

Christian argues that he did not act voluntarily when paying creditors instead of the government because it was the Board of Eco which ultimately authorized and directed payments, even though actual checks were issued by either him or Savona. Christian says that it was the Board that voted to prefer creditors over the IRS due to the strong influence of specific board members. He further asserts that his conduct cannot be deemed willful because he was under significant duress, since signing a check to the IRS instead of Eco creditors would have resulted in the loss of his home, his minority equity share, and the money he had loaned to Eco.

Christian was undisputably aware of the unpaid employment taxes when Eco used unencumbered funds to pay DACA in June 2002 and August 2002. Once Christian became aware of the tax deficiency, he failed to ensure payment in full of that deficiency before any other creditors were paid. The law is clear that such a failure is willful and subjects the responsible person to § 6672 penalties. See Schlicht, 2005 WL 2083103, at *4. Christian has presented this court with no authority for his assertion that liability does not attach where a Board directs a responsible corporate officer to prefer creditors to the IRS nor for his claim that economic pressure may his noncompliance.


CONCLUSION


Based on the foregoing, the Court DENIES the government's motion for summary judgment with respect to counterclaim defendant Savona. The Court GRANTS summary judgment with respect to counterclaim defendant Christian. The Court finds Christian liable for the balance of the total assessment, $635.905, plus accrued statutory interest and less any payments or credits.

IT IS SO ORDERED.



Alvin S. Brown, Esq.
Tax Attorney
www.irstaxattorney.com
703 425-1400

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Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax: Assessment of Penalty: Statute of limitations

An IRS assessment of the trust fund recovery penalty against an individual was time barred because it was made more than three years after relevant returns were deemed to have been filed. The IRS's contention that no statute of limitations, including the three-year limitations period contained in Code Sec. 6501, applied to IRS assessments of the trust fund recovery penalty was rejected.

A.K. Lauckner, CA-3, 96-2 USTC ¶50,364. (Acq.).

The corporation of which the taxpayer was controlling shareholder filed withholding returns in 1964; so the statute of limitations barred 1972 assessments for failure to file and for the 100% penalty. Failure of IRS records to show that the returns were filed was insufficient to rebut the taxpayer's testimony that he mailed the returns.

A. Harzvi, DC, 73-2 USTC ¶9712.

A judgment against a responsible corporate officer for failure to collect and pay over tax was not barred by the statute of limitations. The officer did not offer proof to rebut the presumed correctness of a "Certificate of Assessments and Payments," offered in evidence, which showed that assessment was made within the formerly allowed six years before the commencement of this court proceeding.

L.A. Posner, DC, 76-1 USTC ¶9224, 405 FSupp 934.

Collection of assessed penalties was barred by the statute of limitations notwithstanding the taxpayer's execution of a waiver agreement because the waiver agreement, through a mistake admittedly made by the IRS, referred to a time period other than the one for which the assessment had been made.

W. Grabscheid, DC, 82-1 USTC ¶9382.

An assessment was timely in that it was imposed within three years after the trustee in bankruptcy filed the corrected returns. The purported mailings of returns, without evidence of actual deposit in U.S. mails, did not constitute a filing and did not trigger the running of the statute of limitations. It was also well settled that delivery of the returns to an investigating IRS agent did not constitute such filing as triggers the running of the statute of limitations, nor did the preparation and execution of substitute returns by the Secretary under Code Sec. 6020(b).

W. Kraus, DC N.Y., 85-1 USTC ¶9310.

The government's claim against a bankrupt husband and wife for the 100% penalty with regard to unpaid withholding taxes was barred because the government failed to make a proper assessment within the limitations period. The government's assessment was void ab initio because it violated the bankruptcy court's automatic stay then in effect. The government failed to make an assessment subsequent to the taxpayers' discharge from bankruptcy when the bankruptcy stay was lifted.

J.S. Anglemyer, DC Md., 90-2 USTC ¶50,391.

A motion to vacate a judgment barring a 100% penalty based on newly discovered evidence was denied since the outcome of the case would have been the same. Newly discovered attorney billing records allegedly established that the taxpayer carefully drafted and delayed filing court papers in order to obfuscate the reasoning behind his position that the penalty was barred by the statute of limitations. Estoppel would have been inapplicable because the taxpayer did not falsely represent any fact upon which the government, in ignorance, detrimentally relied. The taxpayer at all times had informed the government that he intended to rely on the statute of limitations as an affirmative defense. The taxpayer would not have been deemed to have waived his limitations defense had the billing evidence been discovered since his refusal to join in a penalty refund action brought by another potentially responsible person did not demonstrate a voluntary relinquishment of a right to raise his defense.

B.J. Hodgekins, DC Ind., 93-1 USTC ¶50,256.

The president, director and majority shareholder of two corporations and his wife were liable for the trust fund recovery penalty for failure to pay over employment taxes. The couple's challenges to the assessments against their joint income were without merit. A check mailed to the IRS that the couple attempted to connect to the assessments did not relate to any of the years at issue. Moreover, none of the assessments were barred by the statute of limitations because they were made well within the extended limitations period. Further, the suit was timely filed because an involuntary bankruptcy filed against the couple suspended the limitations period. The couple did not challenge the IRS's determinations or other factual matters, and, therefore, the IRS was granted summary judgment.

W.H. Garland, DC Ohio, 93-2 USTC ¶50,662.

A federal district court properly granted summary judgment to the treasurer of a plumbing company and dismissed the government's suit to impose the trust fund recovery penalty on him, because the statute of limitations had expired. The IRS withdrew its original assessment of the penalty against the treasurer on the condition that he extend the statute of limitations in his case (Form 2750), but subject to the proviso (written on the back of Form 2751) that the government could only reopen his case if it decided to "interplead" him in future litigation. The government admitted that the IRS mistakenly used the term "interplead" instead of "implead," but the court declined to ignore the plain language that the IRS incorporated into its own form. Therefore, the waiver of the limitations period was ineffective because the IRS had not interpled the treasurer into subsequent litigation and, instead, sued him outright.

B.J. Hodgekins, CA-7, 94-2 USTC ¶50,317.

An individual was not liable for the trust fund recovery penalty for unpaid employment taxes because the three-year statute of limitations period had expired before the penalty was assessed. Although the IRS argued that the three-year period did not apply to the trust fund recovery penalty, both case law and prior IRS interpretation held otherwise.

M.V. Howard, DC Calif., 95-1 USTC ¶50,116, 868 FSupp 1197.

The refund claim of a bankrupt married couple who waited six years to dispute their liability for the penalty for failure to pay withholding taxes was barred by the doctrine of laches. The couple did not offer any explanation as to why they waited six years to bring their claim. In addition, the IRS was prejudiced by the delay because it was unable to reassess the penalty after the expiration of the limitations period. The three-year statute of limitations applied to the assessment of the penalty because the IRS has historically acquiesced in this issue and has not indicated the initiation of formal procedures to change its position. Furthermore, the IRS's argument that no statute of limitations applied to the penalties was first raised on appeal.

A. Cooper, CA-6 (unpublished opinion), 95-2 USTC ¶50,521.

The trust fund recovery penalty was timely assessed against a corporate president for his failure to pay over withheld windfall profit taxes. Although the amount due was abated as the result of a clerical error, reimposition of the abated penalty assessment was not barred by the three-year period of limitations because no effective tax abatement ever occurred. The abatement was the result of an inadvertent processing error, and correction of the error was not subject to the statute of limitations.

S.E. Bugge, CA-5, 96-2 USTC ¶50,629.

The IRS's assessment of the trust fund recovery penalty against a responsible person was timely. The IRS sent the taxpayer a Form 2751, Proposed Assessment of 100 Percent Penalty, that properly identified the tax periods corresponding with the penalty assessment for statute of limitations purposes, and, although the form itself was not dated, it was accompanied by a dated letter. The IRS also complied with Reg. §301.6203-1 by assessing the penalty against the taxpayer. Since the Form 2751 sent to the taxpayer contained all of the required information, it constituted the supporting records necessary for a valid assessment.

D.C. Zeller, DC Ill., 97-1 USTC ¶50,116.

An administrative refund claim was dismissed because it was not filed within the two-year limitations period that began when the taxpayer paid a trust fund recovery penalty for nonpayment of his partnership's employment taxes. Even if Forms 941 constituted returns, they were filed more than three years earlier; thus, the taxpayer should have filed an administrative refund claim within two years after he made each penalty payment. Moreover, the limitations period did not begin on the date he made his last installment payment since the payment was late and the installment arrangement did not extend the last day for paying the penalty.

H.M. Pham, FedCl, 99-1 USTC ¶50,314, 42 FedCl 886.

Assessments made within the three-year statute of limitations were timely.

J. Watson, DC Tex., 99-2 USTC ¶50,806.

Similarly.

J.V. Stuart, CA-1, 2003-2 USTC ¶50,585, 337 F3d 31.

The three-year statute of limitations did not bar the assessment of the trust fund recovery penalty against the president and majority shareholder of a bankrupt corporation who was found to be a responsible person in a prior proceeding. The statute of limitations did not begin to run on the date the corporation filed its tax returns, but rather on April 15 of the year following the year at issue in accordance with Code Sec. 6051(b)(2).

E.D. Battles, BC-DC Ala., 2000-2 USTC ¶50,734.

The IRS's assessment of the trust fund recovery penalty against a corporate officer who was deemed to be a responsible person was timely absent evidence that contradicted Form 2866, Certificate of Official Record, offered by the IRS.

J.E. Bisbee, CA-8, 2001-1 USTC ¶50,359, 245 F3d 1001, aff'g an unreported District Court decision.

The Chief Counsel has determined that a responsible person is subject to the same assessment period that applies to the employer's returns, even when the IRS cannot prove fraud on the part of the responsible person. Assessment of the Code Sec. 6672 trust fund recovery penalty is subject to the limitations period provided in Code Sec. 6501(a). Thus, the filing of the employer's quarterly employment tax return starts the running of the three-year limitations period with respect to the responsible person's trust fund recovery penalty liability. Accordingly, if the limitations period is still open because of fraud, a willful attempt to evade tax, or the failure to file an employment tax return, the limitations period for the Code Sec. 6672 penalty that is based on the same employment tax return remains open as well.

CCA Letter Ruling 200532046, June 30, 2005.

A trust fund recovery penalty was timely assessed within 30 days after the IRS rejected a taxpayer's protest of the proposed penalty, even though the IRS could not produce his protest document. The IRS appeal file established that a protest had been in fact filed by the taxpayer. The file listed the dates he was informed of his protest rights, he requested an appeal and his request was received. It also noted that he was protesting the assessment for one tax year but not for two others, and recorded several contacts he had with IRS agents during the course of his appeal.

K.K. Haley, DC Md., 2006-1 USTC ¶50,179.

A waiver extending the statutory period for assessment of the trust fund penalty, executed during the statutory 90-day extension of the assessment period, was valid and enforceable to extend the assessment period. The IRS could secure an extension agreement at any time that the limitation period, with respect to a particular tax year, was open, even if the waiver was executed outside the assessment period provided by Code Sec. 6501(a).

CCA Letter Ruling 200637001, May 31, 2006.

The IRS's assessment of the trust fund recovery penalty against an individual was not void because it was made after a debtor's bankruptcy plan was confirmed so the debtor was no longer protected against collection by an automatic stay. Since the assessment was not void as a violation of the automatic stay and since it was made before the expiration of the statute of limitations, it was timely.

J.W. White, CA-11, 2006-2 USTC ¶50,559.

Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax: Responsible Person: Responsible person determined

The treasurer of a bankrupt corporation was personally liable to the government for withheld taxes that were diverted to pay other creditors. The treasurer breached his duty to hold such collected taxes in trust until they are paid over to the government. Although the treasurer could not sign checks in excess of $1,000 without the signature of another officer, such a limitation on his authority did not protect him from liability as the person responsible for payment of taxes. Further, the government was not bound by a hold-harmless agreement executed in favor of the treasurer by the other corporate officers.

E.A. Cella, DC, 80-1 USTC ¶9369.

Taxpayer was not an officer, director or employee of a toy company financed by her father and therefore was not liable for unpaid employment taxes of the company.

S. Philipson, DC, 55-1 USTC ¶9466.

Although the claimant denied that he was a director, officer or shareholder of the corporation, the weight of the evidence showed that he (1) hired and controlled employees of the corporation, (2) controlled the financial and business aspects of the corporation, (3) signed IRS forms, (4) engaged in other activities tending to show his direction and control over corporate funds, and (5) had the corporation formed.

J. Labowitz, DC, 73-1 USTC ¶9155, 352 FSupp 202.

A district court reversed a bankruptcy court's finding that the chairman of the board of two corporations was not a responsible person with respect to the collection and paying over of withholding and social security taxes. Because the taxpayer had, at all times, the power to see that such taxes were paid, the bankruptcy court's decision was clearly erroneous. The bankruptcy court's finding that the taxpayer did not willfully fail or refuse to pay the taxes in question was also clearly erroneous. After she became aware that the taxes had not been paid, she paid other creditors in preference to the government.

T.L. Woodson, DC Mich, 83-1 USTC ¶9258, rev'g BC- DC, 81-2 USTC ¶9791, 15 BR 185.

The determination of the liability (a corporate officer) for the payment of withheld taxes is an issue to be decided on the facts of the case. Thus, the court was compelled to dismiss both the government's and the taxpayer's motions for summary judgment.

B.H. Hoeniger, DC, 76-1 USTC ¶9296.

A corporate officer who paid the corporate liability for FICA taxes under the mistaken assumption that he was personally liable for their payment was entitled to a refund of the taxes and penalties paid.

E.B. David, DC, 83-1 USTC ¶9259.

After he failed to appear at trial, a district court sustained a 100% penalty against a president and treasurer of a photographic equipment business for his failure to pay over or collect employment taxes. However, an individual who had acted as general manager was not jointly liable for the penalty, since there was not sufficient evidence to suggest that he either preferred other creditors over the government or that he had financial responsibility over corporate affairs beyond that of depositing funds in a corporate account. As a result, the court sustained the penalty assessed against the president, but it dismissed the government's claim against the general manager.

R. Sparkman, DC Calif., 84-2 USTC ¶9983.

In reversing the Claims Court, the court of appeals held that a corporation's chairman of the board was not liable for the 100-percent penalty for failure to collect and pay withholding taxes because (1) he was not a responsible person who had a duty to collect, account for, and pay over taxes, since there was no evidence that he had or exercised control over such functions and (2) he did not act willfully in failing to withhold taxes because there was no evidence that he had actual knowledge of the nonpayment of taxes due after the first two quarters of the year until the eve of the corporation's bankruptcy. Since the taxpayer was not a responsible person and did not fail willfully to execute a duty to collect and pay taxes, the part of the judgment relating to the IRS's allocation of certain tax payments was vacated as moot.

D.J. Godfrey, Jr., CA-FC, 84-2 USTC ¶9974, 748 F2d 1568, rev'g ClsCt, 83-2 USTC ¶9635.

For withholding tax purposes, an individual who acquired a company in bleak financial condition and assumed unpaid liabilities had control over such company and was a responsible person. The facts that (1) the list of liabilities assumed did not include reference to unpaid pre-acquisition withholding tax liabilities and (2) such individual subsequently entered into an agreement with a bank to handle receipts and payments were insufficient to relieve such individual of his status as a responsible party. However, a question of material fact existed regarding whether such individual intentionally failed to pay taxes due.

H. Bonnabel, DC N.J., 90-2 USTC ¶50,481.

Mere titular officers of a corporation were not responsible parties and, even if they were, there was no showing that they willfully failed to pay the taxes due.

R.E. Couture, DC, 74-2 USTC ¶9706.

The son of the president of a restaurant corporation was not liable for the unpaid employee withholding taxes of the corporation because he was not a responsible person obligated to withhold and pay over taxes. Even though he managed some of the company's restaurants and was authorized to sign checks, he could not disburse funds except in emergency situations, and he did not have authority to pay creditors. In addition, although he held the office of Secretary/Treasurer and technically owned 10 percent of the stock of the corporation, he did not control that interest, had no authority to sell the stock, and was completely accountable to his father. Finally, even if it had been determined that he was a responsible person, he lacked authority to pay the taxes and other debts of the corporation and, therefore, could not be found to have willfully failed to carry out that responsibility.

E.D. Goodick, DC La., 92-1 USTC ¶50,279.

Individual financial backers who loaned money and obtained lines of credit for a corporation were responsible persons and, therefore, were liable for penalties for failure to pay over withheld income taxes. The backers had the ability to decide where corporate funds were spent and, in fact, exerted this control at least once. They had check-writing authority and could pull their financial support at any time their wishes were not fulfilled. Moreover, the backers' failure to pay the taxes was willful because they knew of the corporation's obligation to pay the taxes. In addition, the corporate officer, who operated the company on a day-to-day basis, was also liable for the taxes as a responsible person. Even though the officer intended to pay the taxes in the long run, he preferred to use current cash flows to carry on the corporation's operations and not to pay over the withheld taxes.

C.D. Webster, DC Md., 94-1 USTC ¶50,008.

A corporation in bankruptcy that was in the business of providing security guards to its customers was the employer of these guards because it had control over the guards and the funds used to pay them. It was responsible for the payment of employment taxes regarding these employees, and this obligation could not be avoided by delegating that function to another. However, the government's tax claim for the penalty for the failure to pay over withheld taxes was disallowed with leave to file an amended claim, because it failed to identify a particular person as the responsible person liable for the corporation's FICA and FUTA obligations and did not specify whether the unpaid FICA amounts were attributable to the debtor's portion or the employees' share.

Professional Security Services, Inc., BC-DC Fla., 94-1 USTC ¶50,148.

Summary judgment was denied where material issues of fact existed as to whether a corporate officer should be classified as a responsible person. The corporate officer had authority to sign corporation checks and could be deemed a person responsible for paying withholding taxes. Further, there was evidence that the officer was aware that the corporation was delinquent in paying over withholding to the IRS.

J.P. Ladwig, DC Ill., 94-1 USTC ¶50,192.

Married individuals were not responsible persons during the time that a company's tax delinquency accrued and, therefore, were not required to pay over federal income taxes and social security taxes withheld from employees' wages. They lacked control over the decision-making process by which the corporation allocated funds to other creditors instead of paying its withholding tax obligations.

M.L. Michaud, FedCl, 97-2 USTC ¶50,972, 40 FedCl 1.

The president of a bankrupt company who willfully failed to pay over his company's payroll withholding taxes was a responsible person with respect to the trust fund recovery penalty. The president acknowledged that he was a responsible person under the statute. However, whether two other company officers were responsible persons was questionable. Although one of the officers served as chief financial officer and both had check-writing authority, the president exerted such command over the finances of the company that a reasonable fact-finder could conclude that neither officer had significant control over the company's finances.

R.S. Hudson, DC Pa., 99-2 USTC ¶50,914.

A bankrupt attorney who was the president and sole shareholder of his law corporation was liable for the trust fund recovery penalty in connection with the corporation's failure to collect and pay over employment taxes.

D.A. Smith, DC Hawaii, 99-2 USTC ¶50,998. Aff'g 99-1 USTC ¶50,278.

The president and vice president of a corporation who failed to remit withholding taxes to the IRS were determined to be "responsible persons" liable for the trust fund recovery penalty. In addition to being corporate directors and officers, the individuals owned stock in the corporation, were responsible for daily management operations, hired and fired employees, and had the authority to sign checks and pay the corporation's taxes.

D.C. Stull, DC Tex., 2000-1 USTC ¶50,168. Aff'd, per curium, CA-5 (unpublished opinion), 2001-1 USTC ¶50,333.

A corporate director who lacked control over the company's tax deposits and payments did not qualify as a responsible person liable for the trust fund recovery penalty. Although he made deposits and tax payments at a bank under the direction of the corporate president and was aware of the company's payroll tax delinquencies, he had no decision-making authority regarding the payment of creditors.

M.D. McGlaughlin, DC Md., 2000-1 USTC ¶50,183.

Questions of fact precluded summary judgment on the government's claim for the trust fund recovery penalty against the sole owner of a real estate appraisal business who was on maternity leave during the quarters at issue. Because her level of involvement with company during her maternity leave was in dispute, it could not be determined on summary judgment that she was a responsible party.

P. Ranson, DC Wash., 2001-1 USTC ¶50,161.

A federal district court applied improper legal standards to reach its determination that an individual was not a responsible person. The district court erroneously focused its inquiry on whether the taxpayer had knowledge of the unpaid taxes, the taxpayer's functional responsibility, and the fact that another individual had greater control of corporate affairs. That the taxpayer had significant control over the company's affairs was sufficient for him to qualify as a responsible person.

D.M. Chapman, CA-9 (unpublished opinion), 2001-1 USTC ¶50,380, rev'g and rem'g and unreported District Court decision.

The former owner of a plumbing business who transferred 80% of the ownership in the business to his children was deemed to be a responsible person for purposes of the trust fund recovery penalty. The individual was still a 20% owner in the business, had check-signing authority, was often asked to co-sign checks for the business and continued to work to determine the bids the company would make. Moreover, he loaned money to the company when it was in financial difficulty and had considerable influence over how his children ran the business.

M.E. Pitts, DC Ariz., 2001-1 USTC ¶50,419.

The president and CEO of two trucking corporations, who was assessed penalties for his failure to turn over withholding taxes, was a responsible person under Code Sec. 6672. The undisputed evidence established that he had the authority to instruct his manager to pay the taxing authorities, had significant control over the finances of the corporations, retained the authority to sign checks on behalf of the corporation, and possessed the authority to hire and discharge employees. The taxpayer's argument that he delegated these duties and did not have day-to-day financial responsibilities was unpersuasive.

R.C. Bolus, Sr., DC Pa., 2001-2 USTC ¶50,644.

An individual who was the sole shareholder of one credit bureau and the president and CEO of a second bureau, both of which failed to pay over withholding taxes, qualified as a responsible person who willfully failed to collect, account for, or remit the funds to the IRS. Thus, he was liable for the assessed trust fund recovery penalties. No triable issues of fact existed as to the individual's liability for the penalties.

W.K. Hankins, DC Ind., 2001-2 USTC ¶50,692.

A third-party defendant's motion for summary judgment in connection with the IRS's assessment of a trust fund recovery penalty against him due to a corporation's failure to pay over employment taxes was denied. He unsuccessfully contended that he was not a responsible person because he was not an employee, officer or shareholder of the corporation. However, he served as corporate counsel and as the entity's chief financial officer. He also directed the president to make payments to various creditors, including tax payments to the IRS, was involved in the preparation and filing of the company's payroll tax returns, prepared corporate tax returns and was responsible for ensuring that the payroll tax deposits were made.

D.K. Scheingold, DC N.J. (unpublished opinion), 2002-2 USTC ¶50,510.

The chairman of a corporation was liable for the trust fund recovery penalty in connection with the corporation's failure to pay over employment taxes. He qualified as a responsible person because he had the authority to sign checks, hire and fire employees, participate in management, determine corporate financial policy, and authorize the payment of bills. He also discussed corporate business with other company officers on a weekly basis and was the corporation's majority shareholder, a member of its board of directors, and a guarantor of corporate loans.

C.S. Perlman, DC Fla., 2002-1 USTC ¶50,346.

The founder and president of a corporation was a responsible person with liability to pay the IRS's assessment of unpaid employment and withholding taxes, plus interest and penalties, for one tax year. He held the position of president of the company and attended its board meetings, he was generally responsible for the operation of the company and possessed the authority to sign checks and approved the check signing of the only other company employee with checking signing authority. Furthermore his decision not to pay over or withhold the employment taxes was willful. He made the decision to pay other creditors in preference to the IRS knowing that taxes were due and he failed to take corrective actions.

G. Sutton,, DC Tex., 2002-2 USTC ¶50,552, 194 FSupp2d 559.

The president of a corporation was considered the responsible person with liability to pay the assessment of unpaid taxes, plus interest and penalties, for two tax years. He was the highest-ranking officer and had substantial authority to direct operations. Moreover, he signed the payroll tax returns and had signature authority on corporate accounts. He paid other creditors in preference to the IRS knowing that taxes were due and failed to take corrective actions. That he resigned from his position of president was meaningless as he exercised control in all relevant areas both before and after the purported resignation.

L.A. Mitchell, DC N.J. (unpublished opinion), 2002-2 USTC ¶50,537. Aff'd, CA-3 (unpublished opinion), 2004-1 USTC ¶50,113, 82 FedAppx 781.

The CFO of a bankrupt airline company was a "responsible person," who willfully failed to file quarterly excise tax returns and pay the accompanying tax to the government. The CFO held a corporate office, possessed control over the financial affairs of the airline company, possessed the authority to disburse corporate funds, and possessed the ability to pay the excise taxes without the approval of the company's Board. There was a material issue of genuine fact, however, as to whether the controller of the company had the requisite corporate decision making authority within the company to be considered a responsible person with regard to the delinquent excise taxes. Although the controller applied for credit on behalf of the company and signed promissory notes that bound the company, he was not in charge of the department that was responsible for tracking the excise taxes and he was not involved in overall day-to-day operations of the company.

D.R. Ferguson, DC Iowa, 2004-1 USTC ¶50,247, 317 FSupp2d 945.

The bankruptcy court erroneously held that the president and sole shareholder was not a responsible person for purposes of the trust fund recovery penalty. Although the taxpayer did not run the day-to-day operations of the corporation, she had sole authority to right checks for the company. The bankruptcy court's conclusion that the taxpayer was not a responsible person was strongly based on the lack of authority or power over daily management of the company. However, the taxpayer's status as president, sole shareholder and her authority to sign checks was sufficient to make her the responsible person.

E.L. Marino, DC Fla., 2004-1 USTC ¶50,262, 311 BR 111, rev'ing BC-DC Fla., 2004-1 USTC ¶50,261.

A president and fifty percent shareholder of an employee leasing company was liable for the trust fund recovery penalty in connection with his company's failure to pay employee withholding taxes. Evidence established that the taxpayer was a responsible person because he had check signing authority, even though he claimed that he did not often exercise such authority, and had the authority to manage and direct the employees of the company. The taxpayer also had the authority to hire and fire all levels of employees, which he displayed when he fired his business partner, who was also a fifty percent shareholder.

S. Farkas, FedCl, 2003-2 USTC ¶50,574.

A debtor who served as vice-president of a general contracting business was a responsible person as a matter of law. He had significant authority over the employees, as well as over the finances of the company during the tax periods in issue. Questions remained regarding whether he willfully failed to pay over the withholding taxes.

V.K. Pugh, BC-DC Nev., 2004-2 USTC ¶50,352, 315 BR 889.

A debtor's objection to the IRS's claim for the trust fund recovery penalty assessed against him was denied because he was determined to be a responsible person who willfully failed to pay over withheld taxes. The debtor stipulated that he was a responsible person and his failure to remit the withheld taxes was willful because he was aware of the company's employment tax deficiency yet chose to pay creditors other than the government. The fact that the debtor was told by the company's owner not to pay the taxes and that he might have been fired had he disobeyed orders did not excuse his liability for nonpayment.

L. Borman, BC-DC Fla., 2005-1 USTC ¶50,109.

An individual was liable for the trust fund recovery penalty, during the time he was no longer president of the corporation. The taxpayer admitted to being the chairman of the board, the sole director, vice president, secretary, and treasurer. Between himself, his spouse and his children, he controlled about 50 percent of all outstanding stock and he has controlling interest in the corporation. At all times, the interim president served at his will. Undoubtedly, the taxpayer was a "responsible person" liable to pay the trust fund taxes.

D.J. Frank, BC-DC N.C., 2005-1 USTC ¶50,222.

The manager of a casino was not a responsible person for purposes of the trust fund recovery penalty since he had no authority over payroll or tax matters. Although he supervised department managers and was otherwise responsible for the day-to-day operations of the casino, the manager did not have significant decision-making authority over the financial affairs of the company to be responsible for payroll taxes. Authority to decide which checks were to be written, and to whom, rested in the sole shareholder, director and corporate officer of the casino.

B.E. Dewing, DC Nev., 2005-1 USTC ¶50,275.

The chief financial officer of a bankrupt company was not a responsible person for purposes of imposition of the trust fund recovery penalty, despite have check-signing authority, because the company president had absolute control over all of the company funds. The company president reviewed the cash flow balance daily, authorized the creditors to be paid and even wired funds to another creditor to prevent the IRS from obtaining the funds after the CFO sent the IRS a check without the president's knowledge.

J.D. Salzillo, FedCl, 2005-1 USTC ¶50,324, 66 FedCl 23.

The sole owner and president of a corporation was a responsible person who willfully failed to pay the corporation's employment tax liabilities for purposes of imposing the trust fund recovery penalty. He signed Form 941 employment tax returns on behalf of the corporation, could independently sign checks on behalf of the corporation and signed a sworn statement that he was solely responsible for all tax debts incurred by the corporation. The taxpayer's failure to pay the taxes was willful because he knew of the tax liabilities, but chose to pay other expenses.

G. Kraljevich, DC Mich., 2005-1 USTC ¶50,372, 364 FSupp2d 655.

An individual was determined to be a responsible person with respect to unpaid employment taxes. The taxpayer, who was involved in the operation of two companies until the time a surety company assumed control, did not present any evidence contradicting that he was a responsible party for tax liability under Code Sec. 6672. Instead, the evidence reflected that the majority of the unpaid employment taxes accrued prior to the time the surety company assumed control. Furthermore, whether the surety was responsible for the unpaid employment taxes had no bearing on whether the taxpayer was a responsible person for purposes of tax liability.

J. Dowdy, DC Tex., 2005-2 USTC ¶50,517.

The IRS was granted summary judgment against the former president of a non-profit corporation for trust fund recovery penalties under Code Sec. 6672. The taxpayer had significant control of the corporation's finances, had check writing authority, and was responsible for ensuring that the company paid its trust fund taxes. Further, once the taxpayer became aware of the deficiency, he failed to ensure its payment before any other creditors were paid. Such a failure is willful and subjects the responsible person to trust fund recovery penalties under Code Sec. 6672.

Reverend R. W. Schlicht, DC Ariz., 2005-2 USTC ¶50,527.

An electrical contractor was liable for penalties under Code Sec. 6672 for failing to pay over federal employment taxes owed by two corporations that he formed. Despite having relinquished his management role to family members, he was a "responsible person" for purposes of Code Sec. 6672 liability because he kept the title of president and retained authority to control the company, even if he did not exercise that authority. Specifically, the taxpayer had full check writing authority, full access to company books and records, and the opportunity to exercise substantial financial control over company affairs.

J.F. Grillo, BC-DC N.J, 2005-2 USTC ¶50,625.

The founder, president and principal stockholder of a company was determined to be a responsible person with respect to unpaid employment taxes. The failure of the taxpayer's accountant and tax specialist to properly designate amounts paid to offset these liabilities did not mean that the IRS should be equitably estopped from collecting under Code Sec. 6672, as the taxpayer mistakenly argued. The trust fund recovery penalty is separate and distinct from the legal obligation imposed on the employer to collect and remit the trust fund taxes. Since the taxpayer did not present any evidence to the contrary, he was found to be a responsible person who willfully failed to pay the owed employment taxes.

J.A. Lencyk, DC Tex., 2005-2 USTC ¶50,630, 384 FSupp2d 1028.

A 100-percent trust fund penalty was reduced to judgment since the taxpayer was the responsible person even though he did not have day-to-day control of the company. Rather his status as CEO, president and sole shareholder gave him sufficient control to be the responsible person for trust fund purposes.

R. Sage, DC N.Y., 2006-1 USTC ¶50,175, 412 FSupp2d 406.

The president of a tax-exempt organization was not entitled to a refund of the federal employment and withholding taxes he paid from his personal funds. As president of the board of directors for almost 20 years, he had check-signing authority and control over the organization's financial affairs. Further, he exhibited a reckless disregard of a known risk that the organization was not making required trust fund payments to the IRS and he made no effort to ascertain the status of the organization's tax payments.

C.E. Jefferson, DC Ill., 2007-1 USTC ¶50,304, 459 FSupp2d 685.

A company's vice president of operations was denied a refund of a trust fund recovery penalty assessed against her for her employer's failure to pay backup withholding taxes. She was a responsible person because her own testimony about her duties and responsibilities and her undisputed check-writing authority established that she could have prevented the company from paying other creditors instead of paying the taxes. She enjoyed exclusive check-writing authority and was responsible for collecting, accounting for, and paying over the withheld taxes. She was in a position to use her ability to prioritize creditors and her check-signing authority to impede the flow of business to the extent necessary to ensure the payment of taxes and nothing in the company's business model prevented her from paying the taxes. In addition, the undisputed evidence clearly established that the willfulness requirement was met.

N.A. Cook, DC Ind., 2007-1 USTC ¶50,333.

A trust fund recovery penalty was correctly assessed against the chief financial officer of a bankrupt airline company because he was a responsible person who willfully failed to pay the company's excise taxes. The individual was authorized to sign checks and disburse corporate funds on behalf of the company and had the authority to pay the company's excise taxes without board or management approval. The board never explicitly instructed him to not pay the excise taxes but he chose not to do so in order to pay other company expenses.

R. Musal, DC Iowa, 2006-1 USTC ¶50,207, 421 FSupp2d 1153. Aff'd sub nom. D.R. Ferguson, CA-8, 2007-1 USTC ¶50,481, 484 F3d 1068..

The CEO and board chairman of a motorcycle company was not entitled to a refund of a portion of the trust fund recovery penalty he paid to the IRS in satisfaction of the company's unpaid payroll withholding taxes. Testimony of the CEO and the company's chief operating officer and financial director established that the CEO was a responsible person who willfully failed to pay the company's taxes. He had overall authority, including raising capital and hiring, was involved in the day-to-day management of the company, had the authority to issue checks, and determined which creditors to pay and when to pay them. Further, he instructed the company's financial director that bills pertaining to utilities were to be paid first; thus, checks were issued to other creditors but not to the government.

R.K. Hagen, DC Md., 2007-1 USTC ¶50,510, 485 FSupp2d 622.

The sole corporate officer of a construction company was a responsible person who willfully failed to pay over federal withholding taxes. The officer continued to write checks, sign returns and act on behalf of the corporation after the date he claimed an insurance company took over control under an indemnity agreement. However, the officer's wife was not liable for the unpaid taxes because there was no evidence that she was an officer or director of the construction company. Her involvement was limited to occasional business purchases and as a signatory with her husband on the indemnity agreement.

In re G. Hartman, BC-DC Pa., 2007-2USTC ¶50,747.