Tuesday, November 30, 2010

New case on the trust fund recovery penaltyu U.S. v. BIBIN, Jr., Cite as 106 AFTR 2d 2010-XXXX, 11/17/2010 Code Sec(s): Court Name: UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION, Docket No.: Case No. 09-13388, Date Decided: 11/17/2010. Disposition: Sections 3102(a) and 3402(a) of the Internal Revenue Code require an employer to deduct and withhold income and social security taxes from the wages paid to its employees. Slodov v. United States, 436 U.S. 238, 242–43 [42 AFTR 2d 78-5011] (1978). Employers are also required to pay over their own contributions to the social security system. See 26 U.S.C. § 3111. “Because federal law requires employers to hold these funds in “trust for the United States,” 26 U.S.C. § 7501(a), these taxes are commonly referred to as “trust fund” taxes.” United States v. Energy Resources Co., Inc., 495 U.S. 545, 546–47 [65 AFTR 2d 90-1078] (1990). These “trust fund taxes” are for the exclusive use of the government and are not to be used as working capital for the business or to pay the employer's business expenses, including payroll. 26 U.S.C. §§ 3102(b), 3403, 7501(a); Begier v. Internal Revenue Service, 496 U.S. 53, 60–61 [65 AFTR 2d 90-1095] (1990) (the act giving rise to tax liability, e.g., payment of wages, gives rise to a statutory trust in favor of the United States). The employer is required to report the amount of withheld taxes on its “Employer's Quarterly Federal Tax Return” (Form 941). See 26 C.F.R. § 31.6011(a)-4(a)(1). A Form 941 tax return must be filed every calendar quarter and is generally due on the last day of the first month following the quarter. See 26 C.F.R. § 31.6071(a)-1(a). Once the trust fund taxes are withheld from the employees' wages, the government is required to credit the amount withheld against the employees' individual income tax liabilities, and to record their earnings for Social Security and Medicare eligibility, regardless of whether such taxes are actually paid to the United States and even though the credits may result in refunds to the employees based upon taxes which it has never actually received. See 26 U.S.C. § 31(a); 26 C.F.R. § 1.31-1(a). Thus, the government suffers a loss of revenue, and incurs an unfunded Social Security and Medicare liability, when the “trust fund taxes” are not remitted by the employer. Here, the government suffered such a loss and assessed it against Bibin. Tax assessments by the IRS are entitled to a presumption of correctness. Welch v. Helvering, 290 U.S. 111, 115 [12 AFTR 1456] (1933); Sherwin-Williams Co. v. United States, 403 F.3d 793, 796 [95 AFTR 2d 2005-1864] (6th Cir. 2005). In a suit by the government to reduce liabilities to judgment, the introduction into evidence of Forms 4340, Certificates of Assessment and Payment, establishes a prima facie case. United States v. Noble, 3 Fed. Appx. 331, 334 [87 AFTR 2d 2001-719] (6th Cir. 2001); United States v. Walton, 909 F.2d 915, 919 [66 AFTR 2d 90-5379] (6th Cir. 1990). “[T]he taxpayer will bear not only the burden of production, but also the burden of proving by a preponderance of the evidence that the Commissioner's assessment is “arbitrary and excessive.”” Id. at 918–919 (quoting Helvering v. Taylor, 293 U.S. 507, 515 [14 AFTR 1194] (1935)). The taxpayer must demonstrate either that the assessment is erroneous or that the assessment lacked a minimal evidentiary foundation. Id. “If the taxpayer fails to meet his burden of presenting sufficient evidence showing the assessments to be incorrect, summary judgment in favor of the Government is appropriate upon submission of the Certificates of Assessments and Payments.” Fisher v. United States, 61 F.Supp.2d 621, 630 [83 AFTR 2d 99-2065] (E.D. Mich. 1999). The taxpayer bears the burden of proving by a preponderance of the evidence, that, in fact, the assessment is incorrect.” Fisher, supra, 61 F.Supp. at 630; see also United States v. Kraljevich, 364 F. Supp. 2d 655, 657 [95 AFTR 2d 2005-1881] (E.D. Mich. 2005) (citing Kinnie v. United States, 994 F.2d 279, 283 [71 AFTR 2d 93-1979] (6th Cir. 1993) (the person against whom trust fund assessments are made “bears the burden of proving that he is not a responsible person under section 6672 and that he did not act willfully in failing to pay over the taxes.”); Ameriquest Mortgage Co. v. Savalle, 2009 WL 2033236 [104 AFTR 2d 2009-5337], 3 (E.D. Mich., Jul. 9, 2009) (“An IRS assessment under 26 U.S.C. § 6672 is presumptively correct and the person against whom an assessment is made has the burden of showing that he was not a responsible person or that his failure to pay the withholding taxes was not willful.”). Bibin has not offered any evidence contesting the assessments. Thus, the question is whether Bibin is a responsible person or acted willfully in failing to pay over the taxes. As to whether Bibin is a responsible person, section 6672 of the Internal Revenue Code provides that [a]ny 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, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. 26 U.S.C. § 6672. “Person” as used in § 6672 includes, but in no way is limited to, an officer or employee of a company who is under a duty to collect and remit the taxes to the United States. 26 U.S.C. §6671(b). Thus, § 6672 authorizes the collection of the taxes from those persons who were responsible for the company's failure to pay them. “A person is responsible under section 6672 if he retains sufficient control of corporate finances that he can allocate corporate funds to pay the corporation's other debts in preference to the corporation's withholding tax obligations.” Id. at 728. Here, the evidence supports a finding that throughout the default periods when the taxes were not paid, Bibin was a responsible person at Tannery. He had a duty to collect and remit the trust fund taxes at issue to the government. Bibin was the sole shareholder and officer of Tannery, signed tax filings, had check-signing authority, supervised the business operations of the company, hired and fired employees, managed employees, directed or authorized payment of bills, opened and closed corporate bank accounts, signed and countersigned corporate checks, made or authorized bank deposits, authorized payroll checks, authorized payment of federal tax deposits, reviewed federal income tax returns, reviewed payroll tax returns or tax payments, and determined company financial policy. Bibin was also responsible for communicating with the IRS, had discussions with the company's accountants regarding the liabilities, and even admitted that he was responsible in a signed statement. Moreover, by his own admissions, Bibin had nearly total control of the financial affairs of Tannery, uniquely possessed the ability to avoid the default on the company's trust fund tax obligations. Thus, there is no dispute that Bibin is a responsible person under § 6672.4. As to whether Bibin acted willfully in that he knew, or recklessly disregarded the known risk, that trust fund taxes were not being paid to the government. ““Willfully” means merely that the responsible person “had knowledge of the tax delinquency and knowingly failed to rectify it when there were available funds to pay the Government.”” Cooper v. United States, 827 F.Supp. 1309, 1313 [72 AFTR 2d 93-5865] (E.D. Mich. 1993) (citing cases). Willfulness may also be established if the responsible person “recklessly disregarded facts and known risks that the taxes were not being paid,” such as “when a responsible officer attempts to “immunize himself from the consequences of his actions by wearing blinders which will shut out all knowledge of the liability for and the nonpayment of [the] withholding taxes.”” Harold, 195 Fed.Appx. at 364 and 366 (citing Calderone v. United States, 799 F.2d 254, 264 [58 AFTR 2d 86-5703] and 260 (6th Cir. 1986)). “The responsible party need not exhibit an intent to defraud the IRS or some other evil motive; all that is necessary to demonstrate willfulness is the existence of an intentional act to pay other creditors before the federal government.” Bell v. United States, 355 F.3d 387, 393 [93 AFTR 2d 2004-369] (6th Cir. 2004). Furthermore, “[i]t is no excuse that, as a matter of sound business judgment, the money was paid to suppliers and for wages in order to keep the corporation operating as a going concern—the government cannot be made an unwilling partner in a floundering business.” Collins v. United States, 848 F.2d 740, 741–42 [62 AFTR 2d 88-5038] (6th Cir. 1988). Rather, “evidence that the responsible person had knowledge of payments to other creditors after he was aware of the failure to pay withholding tax is sufficient for summary judgment on the question of willfulness.” Cooper v. United States, supra, 827 F.Supp. at 1313 (citing cases)

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