OPPLIGER v. U.S., Cite as
107 AFTR 2d 2011-1844, 03/01/2010 , Code Sec(s) 6672
James H. OPPLIGER and Gayle OPPLIGER, PLAINTIFFS v. UNITED STATES
OF AMERICA, DEFENDANT; UNITED STATES OF AMERICA, PLAINTIFF v. James H. OPPLIGER
and Gayle OPPLIGER, DEFENDANTS.
Case Information:
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Code Sec(s):
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Court Name:
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U.S. District Court, Dist. of Nebraska,
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Docket No.:
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8:06CV750; 8:08CV530,
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Date Decided:
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03/01/2010.
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Prior History:
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Tax Year(s):
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Years 1998, 1999, 2000, 2001, 2002.
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Disposition:
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Decision for Govt.
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HEADNOTE
1. 100%
penalty for failure to pay over trust fund taxes—responsible
person—willfulness—summary judgment. Married trucking co. sole
owners/payroll LLC creators' Code Sec. 6672 penalty
liability was upheld on summary judgment: taxpayers' responsible person status
was shown by facts that they formed co.; acted as its officers and directors
and managed day-to-day business; that husband was manager of LLC; and that
taxpayers had hiring/firing authority, signed returns and payroll checks,
served as personal guarantors, attended and called executive and partnership
meetings and signed minutes. And taxpayers acted willfully where they were
aware of tax debt and sold co.'s assets yet paid employees and other creditors ahead
of IRS.
OPINION
MEMORANDUM AND ORDER
Judge: Joseph F.
Bataillon Chief United States District Judge
This matter is before the court on motions for summary judgment
filed by the United States in each of these cases. 8:06CV750, Filing No. 62;
8:08CV530, Filing No. 39. James and Gayle Oppliger have filed briefs in
opposition to both motions, and both parties have filed indices in support of
their respective positions. These cases are related and the motions will be
decided together as they are virtually identical.
The Oppligers filed the first of these cases, 8:06CV750, asking
for a refund of money paid to the Internal Revenue Service, pursuant to 26
U.S.C.
§ 6672. The assessments involved a business known as Livestock
Feed Company (“LFC”) that leased employees to Double O, Inc., a trucking
company. Employment taxes for 13 consecutive quarters from January of 1999
through March of 2002 were not paid. The United States then assessed the
Oppligers (Jim Oppliger in 2006 and Gayle Oppliger in 2005) pursuant to 26
U.S.C.
§ 6672 individually for these taxes in the amount of $2,363,704.
The United States then filed the second suit, 8:08CV530, to reduce to judgment
the officer penalty assessments against the Oppligers concerning Double O, the
related trucking company. The United States contends that the Oppligers failed
to pay taxes for the 17 consecutive quarters from January of 1998 through March
of 2002, and the United States assessed them personally for penalties under
IRC § 6672 in the amount of $27,013.
The Oppligers contend they are not liable for employment taxes for
either LFC or Double O and ask for a refund of payments made toward the LFC
assessments. They argue that a bookkeeper, Mary Kerkman, embezzled money, and
changed and withheld accounting information that kept them from knowing the
employment taxes had not been paid. The court will assume for purposes of this
motion that Kerkman did in fact withhold information, mislead the Oppligers, misinform
the Oppligers, commit fraud, embezzled, and supplied incorrect information
regarding payment of payroll taxes.
The Oppligers hired Mary Kerkman to perform the accounting and
bookkeeping responsibilities, including payment of payroll taxes, of both companies.
Kerkman provided the Oppligers with flash reports which gave snapshots of the
current financial situation of the companies on a weekly basis. The Oppligers
contend that these flash reports were false and fraudulent. However, it appears
that Mary Kerkman did not embezzle more than $10,000 which is a small sum of
money compared to the amount due. Kerkman committed suicide on April 3, 2002.
STANDARD OF REVIEW
Summary judgment is appropriate when, viewing the facts and
inferences in the light most favorable to the nonmoving party, “the pleadings,
the discovery and disclosure materials on file, and any affidavits show that
there is no genuine issue as to any material fact and that the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). The plain
language of Rule 56(c) mandates the entry of summary judgment, after adequate
time for discovery and upon motion, against a party who fails to make a showing
sufficient to es [pg. 2011-1845] tablish
the existence of an element essential to that party's case, and on which that
party will bear the burden of proof at trial. Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). “A party seeking summary judgment always bears the
initial responsibility of informing the district court of the basis for its
motion, and identifying those portions of “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if
any,” which it believes demonstrate the absence of a genuine issue of material
fact.” Id. at 323. If the moving party meets the initial burden, the
burden then shifts to the opposing party to produce evidence of the existence
of a genuine issue for trial. Id. at 324.
“The inquiry performed is the threshold inquiry of determining
whether there is the need for a trial—whether, in other words, there are any
genuine factual issues that properly can be resolved only by a finder of fact
because they may reasonably be resolved in favor of either party.” Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A “genuine” issue of
material fact exists “when there is sufficient evidence favoring the party
opposing the motion for a jury to return a verdict for that party.” Id.
at 249–52 (1986) (noting the inquiry is whether the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that
one party must prevail as a matter of law). If “reasonable minds could differ
as to the import of the evidence,” summary judgment should not be granted. Id.
at 250–51.
The evidence must be viewed in the light most favorable to the
nonmoving party, giving the nonmoving party the benefit of all reasonable
inferences. Kenney v. Swift Transp., Inc., 347 F.3d 1041, 1044 (8th Cir.
2003). “In ruling on a motion for summary judgment, a court must not weigh
evidence or make credibility determinations.” Id. “Where the unresolved
issues are primarily legal rather than factual, summary judgment is
particularly appropriate.” Koehn v. Indian Hills Cmty. Coll. , 371 F.3d
394, 396 (8th Cir. 2004).
DISCUSSION
[1] 26 U.S.C.
§§ 3102(a) and 3402(a) of the Internal Revenue Code (“IRC”)
requires the employer to withhold income and Social Security taxes from wages
and to pay them into the government. An employer acts wilfully when it pays
employees and creditors instead of the IRS, because the employer cannot prefer
the creditors instead of paying the employment tax liability. Honey v.
United States,
963 F.2d 1083, 1092 [69 AFTR 2d 92-1333] (8th Cir. 1992). To be
personally liable under
§ 6672, one must be (1) a responsible person, and (2) act
willfully in not paying the taxes. Ferguson v. United States,
484 F.3d 1068, 1072 [99 AFTR 2d 2007-2486] (8th Cir. 2007); Kizzier
v. United States,
598 F.2d 1128, 1132 [44 AFTR 2d 79-5001] (8th Cir. 1979). The
Eighth Circuit has held that you are a responsible person even if you did not
become aware of the delinquency until a later date. Kizzier, 598 F.2d at
1133.
A. Responsible Person
The first issue is whether the Oppligers are responsible persons
who were required to collect payroll taxes for LFC for 1999, 2000, 2001 and the
first quarter of 2002, and for Double O for 1998, 1999, 2000, 2001 and the
first and fourth quarters of 2002 within the meaning of
§§ 6671 and
6672 of the IRC. The persons who fail to collect and pay these
taxes may be made personally liable to a penalty that equals the amount of the
delinquent taxes. Slodov v. United States,
436 U.S. 238 [42 AFTR 2d 78-5011] 244–45 (1978); Olsen v.
United States,
952 F.2d 236, 241 [69 AFTR 2d 92-395] (8th Cir. 1991). To be a
responsible person, that person must have significant control over the funds. Donelan
Phelps & Co. v. United States,
876 F.2d 1373, 1376–77 [64 AFTR 2d 89-5049] (8th Cir. 1989).
Delegation of such authority does not relieve one of responsibility. Keller
v. United States,
46 F.3d 851, 854 [75 AFTR 2d 95-721] (8th Cir. 1995). This court
has looked at such factors as: position and role in company, attendance at
high-level executive meetings, involvement in management, compensation, ability
to hire and fire employees, perception as person in charge, check signing
authority, signing security agreements, personal guarantees, signing
withholding reports, arrangement of bank financing, execution of contracts,
reviewing books, collecting on accounts, making improvements. See Malone v.
United States,
1986 WL 15949 [60 AFTR 2d 87-5888] 4 (D. Neb. 1986); Donelan
Phelps v. United States,
876 F.2d 1373, 1376 [64 AFTR 2d 89-5049] (8th Cir. 1989); Kizzier,
598 F.2d at 1132.
The court finds that the Oppligers are responsible persons within
the meaning of
IRC § 6672. During the periods in question, Gayle Oppliger, one of
the owners, was the only employee paid directly by Double O. LFC was formed to
be the payroll company for Double O in January 1997. All employees previously
paid through Double O, except Gail Oppliger, were then paid through LFC. LFC's
sole function was to issue payroll checks and to lease employees to Double O.
Everything else re [pg. 2011-1846] mained
the same including the employees, trucks, operations, office space, and
maintenance of documents. The Oppligers formed the companies, held offices and
managed the day-to-day business. The Oppligers each owned 50% of Double O, were
the only shareholders, and were the directors of Double O. Jim Oppliger was the
president and Gayle Oppliger the secretary of Double O. The Oppligers were also
the creators of LFC. Jim Oppliger was the manager of LFC and the Oppligers had
authority to hire and fire employees. The Oppligers attended executive and
partnership meetings, called the meetings, and signed the minutes. Both
Oppligers possessed the authority to sign tax returns on behalf of both Double
O and LFC. They signed payroll checks for both companies. They also signed for
bank notes and on security agreements and served as personal guarantors. Based
on these facts and the relevant law, the court finds that both Oppligers are
responsible parties.
B. Willful Failure to
Collect and Pay
The second issue is whether the Oppligers willfully failed to
collect and pay the payroll taxes discussed above pursuant to
§§ 6671 and
6672 of the IRC. Following the death of Kerkman, Jim Oppliger took
over as the person who did the employment tax returns and paid the employment
taxes. On April 4, 2002, an IRS revenue officer, Susan Fox, drove to Double O
and informed the Oppligers that they owed payroll taxes for the quarters at
issue in this lawsuit. The Oppligers then sold the assets of Double O, but none
of the proceeds were used to pay for the payroll taxes. 1 Thereafter,
over the next six months, the Oppligers allowed $2,117,640.43 to be paid out of
the LFC checking account in employee compensation. They also paid third-party
creditors during this period of time in the amount of $3,240,138.60.
“A responsible person acts willfully within the meaning of
§ 6672 whenever he [(1)]“acts or fails to act consciously and
voluntarily and with knowledge or intent that as a result ... trust funds
belonging to the government will not be paid over but will be used for other
purposes,” ... [or, (2)] by proceeding with a “reckless disregard of a known or
obvious risk that trust funds may not be remitted to the government.”” Olsen,
952 F.2d at 240 (citations omitted). “The term willfully does not connote a bad
or evil motive, but rather means a voluntary, conscious, and intentional act,
such as the payment of other creditors in preference to the United States.” Elmore
v. United States,
843 F.2d 1128, 1132 [61 AFTR 2d 88-975] (8th Cir. 1988); see
also Honey, 963 F.2d at 1087 (same).
It is clear that the Oppligers knew of their payroll tax liability
at least by April 4, 2002, when the Internal Revenue officer arrived at their
business, or by April 29, 2002, when they filed their Form 941 for the first
quarter of 2002 which showed a balance due of $291,926.24, and at the latest
July or August 2002, when the late Form 941s were filed. Forty-five days later
the assets of Double O were sold. The Oppligers argue they were entitled to
continue running their business. Nevertheless, the Oppligers paid employees and
third-party creditors rather than the IRS. Such knowledge and subsequent
payments to employees and third-party creditors connote willfulness. Honey,
963 F.2d at 1087; Olsen, 952 F.2d at 240.
The Oppligers argue that at the close of business on April 4,
2002, when they learned of the tax deficits, LFC and Double O had bank balances
of $3,426.29 and $4,632.73, respectively, with checks written in the amount of
$124,165.36 and $10,323.94. See Filing No. 50, 8:08CV530, Ex. 11. Decl. of Anna
Palmer at ¶¶ 7–9. Accordingly, the Oppligers argue that had no liability under
IRC § 6672.
The court disagrees with the Oppligers. The Oppligers knew by
April 4, 2002, when the Internal Revenue Service showed up at their doorstep
that there were outstanding employment taxes due and owing. Yet, again as
substantiated by the government, the Oppligers used over three million dollars
to pay other creditors and employees and did not pay the United States
employment taxes. See Kizzier, 598 F.2d at 1134 (responsible person must
pay withholding taxes, and is willful as a matter of law, if creditors
preferred after IRS makes them aware taxes have not been paid). The court finds
as a matter of law that the Oppligers acted willfully when they made such
payments to creditors without first making payments for the payroll taxes due
and owing to the United States.
IT IS ORDERED that the motions for summary judgment filed by the
United States in each of these cases, 8:06CV750, Filing No. 62; 8:08CV530,
Filing No. 39, are granted. The United States is ordered to submit a proposed
judgment to this court within seven days of the date of this Memorandum and
Order. 2 [pg.
2011-1847]
DATED this 1st day of March, 2010. *
BY THE COURT:
Joseph F. Bataillon
Chief United States District Judge
It should be noted that the Oppligers did pay two quarters of
payroll taxes.
Such judgment shall relate back to April 4, 2002, when the
Oppligers were first informed by the Internal Revenue agent of the
deficiencies.
This
opinion may contain hyperlinks to other documents or Web sites. The U.S.
District Court for the District of Nebraska does not endorse, recommend,
approve, or guarantee any third parties or the services or products they
provide on their Web sites. Likewise, the court has no agreements with any of
these third parties or their Web sites. The court accepts no responsibility for
the availability or functionality of any hyperlink. Thus, the fact that a
hyperlink ceases to work or directs the user to some other site does not affect
the opinion of the court.
ELMORE v. U.S., Cite as 61
AFTR 2d 88-975 (843 F.2d 1128), 04/06/1988 , Code Sec(s) 6672
Calvin F. ELMORE, APPELLANT v. U.S., APPELLEE.
Case Information:
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Code Sec(s):
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Court Name:
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U.S. Court of Appeals, Eighth Circuit,
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Docket No.:
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No. 86-2260,
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Date Decided:
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04/06/1988
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Prior History:
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District Court reversed.
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Tax Year(s):
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Years 1980- 1981.
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Disposition:
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Decision for Taxpayer.
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Cites:
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61 AFTR 2d 88-975, 843 F2d 1128, 88-1 USTC P 9267.
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HEADNOTE
1.
ADDITIONS TO TAX AND PENALTIES—Assessable penalties—100% penalty—failure to
collect or pay over tax—burden of proof and related matters. District
court erred in omitting jury instruction that corporate officer who became
responsible after withholding tax liability had accrued wasn't responsible for
payment of that liability if no unencumbered funds existed when he assumed
control. Evidence indicated that corp. had no unencumbered funds at time
officer assumed control and although he paid wages and costs after taxes for
this period had accrued, evidence didn't show that funds used for these purposes
were traceable to trust funds or that they weren't acquired after officer had
attained control. Claims based on liability of another officer and state
determination as to state withholding taxes were irrelevant.
Reference(s): 1988 PH
Fed. ¶37,367.20(20); 37,367.30(25),(80); 37,367.35(35). Code Sec. 6672 .
OPINION
Patricia M. Bowman, Atty., Justice Dept., Wash., D.C., for
Appellee.
Appeal from the United
States District Court for the Eastern District of Arkansas.
Before ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and
BOWMAN, Circuit Judge.
Judge: HENLEY,
Senior Circuit Judge:
This is an appeal from a final judgment entered by the district
court upon a jury verdict finding appellant Calvin F. Elmore liable under
26 U.S.C. §6672 for
failure to collect and pay over federal employment taxes required to have been
withheld from the wages of employees of Digital Systems, Inc. (Digital) during
the fourth quarter of 1980 and the first three quarters of 1981. Elmore
challenges only that portion of the judgment holding him liable for the fourth
quarter of 1980. Because we conclude that the district court erred in omitting
a jury instruction, we vacate the judgment and remand for a new trial as to the
quarter in question.
Elmore and his business partner, Ralph S. LaCotts, were each fifty
per cent shareholders in Digital, a corporation located in Little Rock,
Arkansas, primarily engaged in the production and sale of computer software.
LaCotts, a practicing certified public accountant officed in DeWitt, Arkansas,
served as president and treasurer of Digital and, until his death on December
20, 1980, assumed primary responsibility for the management of its daily
business affairs. LaCotts arranged all corporate financing and directed the
bookkeeping and accounting, including the payment of creditors and the
remittance of employment taxes. Elmore served as vice president and secretary
and, prior to LaCotts's death, did not generally participate in day-to-day
operations. Although Elmore was authorized to sign corporate checks, his
principal responsibilities concerned the sales of Digital's computers and
software.
Ordinarily, Vickie Wiley, a bookkeeper hired by the corporation,
prepared Digital's payroll and accounts payable checks as directed by LaCotts
and mailed them to him to sign and file. Likewise, Wiley prepared the quarterly
Form 941 federal employment tax returns and sent them to LaCotts for his
signature.
The Form 941 return prepared for the second quarter of 1980 was
returned to the corporation in Little Rock by the Internal Revenue Service
(IRS) because it had been mailed unsigned. At LaCotts's direction, Elmore, who
was based in Little Rock, signed the return as a corporate officer and mailed
it back to the IRS. At that time, Elmore observed that the form indicated that
the tax liability for the employees' withholding and FICA (social security)
taxes had been deposited, leaving a $0.00 balance due. Elmore testified that he
believed the Form 941 for the third quarter of 1980, which LaCotts also directed
him to sign, had been prepared in an identical manner.
Sometime in December, 1980 LaCotts disclosed to Elmore that some
of Digital's [pg. 88-976] employment
tax liability had not been satisfied, but that he was anticipating a loan which
would permit the corporation to be refinanced and the taxes paid. Elmore
testified that this was the first that he learned of the tax arrearage. Elmore
also learned that the Form 941 returns which he had signed for the second and
third quarters of 1980 were erroneous; the requisite funds to cover the
employment tax liability had not in fact been deposited nor had any funds been
sent to the IRS.
After LaCotts's death, Elmore assumed sole responsibility for
corporate affairs. Apparently, throughout 1980 Digital exercised a practice
permitting its salesmen, who were paid on commission, to make "draws"
on the corporation when they needed money. The draws were treated as loans
which were reduced accordingly when commissions were earned. The commissions
were not reported as earned income, however, until a sale was completely
closed. Upon assuming control, Elmore instructed Wiley to bring the commissions
to date. Elmore had Wiley treat all of the sales as closed, which resulted in a
showing of income earned by the salesmen during the fourth quarter of 1980
which had in reality been dissipated in previous quarters. This created an
employment tax liability for these "earnings" alone in excess of
$23,000.00. In addition, Elmore testified that Digital had no unencumbered funds
at the time that he assumed control, and that he was unable to obtain the
financing that LaCotts had hoped to acquire. 1
In August, 1981 Elmore caused Digital to file a petition for
reorganization under Chapter 11 of the Bankruptcy Code. Digital ceased
operating shortly thereafter and the bankruptcy proceeding was dismissed.
Although Elmore paid wages 2 and costs and
filed the quarterly Form 941 returns during the period that Digital was able to
continue operations, no withholding taxes were remitted to the government.
In the fall of 1981, the IRS, pursuant to
26 U.S.C. §6672, assessed a one hundred per cent penalty in the
amount of $54,547.80 against Elmore individually for Digital's unpaid
withholding taxes accrued in the second, third and fourth quarters of 1980, and
the first, second and third quarters of 1981. 3 In March, 1982
Elmore paid $154.40 toward this assessment and then filed with the IRS Form 843
claims for refund of the amount paid and abatement of the balance. In June,
1982 he was notified that these claims had been disallowed.
During this same time, the Arkansas Department of Finance and
Administration proposed to assess a similar one hundred per cent penalty
against Elmore for Digital's failure to remit Arkansas state withholding taxes
from November, 1980 through July, 1981, as provided in Ark. Stat. Ann.
§84-4707, (recodified at Ark. Code Ann. §26-51-916 (1987)). Elmore protested
imposition of this penalty, and after an administrative hearing the State
determined that Elmore was not responsible for the collection, accounting, or
paying over of state withholding taxes at any time prior to January, 1981.
After receiving notice of the State's determination, Elmore
requested the IRS to again consider his claims for refund and abatement. Before
this request was considered, 4 Elmore
instituted this suit for a refund against the United States; the IRS
counterclaimed for the unpaid balance of its assessment. The case was tried to
a jury. 5 [pg.
88-977] Two
special interrogatories for each taxable quarter were submitted. The
interrogatories directed the jury to indicate for each quarter whether Elmore
was responsible for the collection, accounting, or payment of taxes, and if so,
whether his nonpayment was willful, both of which are essential elements to the
imposition of liability under §6672. The jury found Elmore neither responsible
nor willful for the second and third quarters of 1980, but found him both
responsible and his failure to collect, account, or pay over willful for the
remaining quarters. The district court entered judgment upon the verdict in
favor of the government in the amount of $41,268.77, plus interest.
Thereafter, Elmore moved for partial judgment notwithstanding the
verdict solely as to the fourth quarter of 1980. In his motion, Elmore argued
that he was not liable for this period because he did not become
"responsible" for the payment of withholding taxes within the meaning
of §6672 until December 20, 1980, the date of LaCotts's death. Elmore insisted
that at that time Digital had no unencumbered funds and that the district court
erroneously instructed the jury that a person who is responsible at the time an
employment tax return is due is responsible for any unpaid trust fund taxes for
the entire quarter (Instruction No. 11). 6 Elmore reasserted
the ground upon which he objected to the instruction at trial, its failure to
inform the jury that in Slodov v. United States,
436 U.S. 238 [
42 AFTR2d 78-5011]
(1978), the Supreme Court held that a corporate official who becomes
responsible after withholding tax liability has accrued is not responsible for
payment of that liability if no unencumbered funds exist when he assumes
control. Id. at 259-60.
The government resisted Elmore's motion, arguing that Elmore was
responsible during the entire fourth quarter and that once he became aware of
the unpaid taxes, he was required to satisfy that liability with all
unencumbered funds. Moreover, the government stressed that it had introduced
evidence indicating that there were funds in the corporate bank account at the
time of LaCotts's death, and that Elmore did not establish that these funds
were encumbered. Prior to a court ruling on the motion, Elmore also filed an
untimely request that it be treated alternatively as a motion for a new trial.
7 The district
court denied both motions after concluding that the jury's verdict was
supported by substantial evidence. This appeal followed.
On appeal, Elmore argues (1) that Instruction No. 11 was erroneous
because it failed to inform the jury of the circumstances recognized in Slodov;
and (2) that the district court erred in denying his motion for partial
judgment notwithstanding the verdict because of the asserted error in
Instruction No. 11, and because of the court's refusal to admit certain
proffered evidence, which effectively precluded the jury from finding in
Elmore's favor as to the quarter in question.
[1] We begin
our analysis by briefly reciting the principles governing the imposition of
liability under §6672. The Internal Revenue Code requires employers to withhold
income and FICA taxes from their employees' wages.
26 U.S.C. §§3102 & 3402; Emshwiller v. United States,
565 F.2d 1042, 1044 [
40 AFTR2d 77-6094]
(8th Cir. 1977). The withheld funds are to be deposited in a special trust by
the employer for the benefit of the United States, to be periodically accounted
for and paid over.
26 U.S.C. §7501; Hartman v. United States,
538 F.2d 1336,
1339-40 [
38 AFTR2d
76-5510] (8th Cir. 1976). 8
Under the provisions of
26 U.S.C. §7501, once net wages are paid to an employee, the taxes
that were, or should have been, withheld are credited to the employee as paid
regardless of whether the employer in fact remits these funds to the
government. Emshwiller, 565 F.2d at 1044. Consequently, the government has no
recourse [pg. 88-978] against
the employee for an employer's failure to pay withholding taxes. Id. If a
corporate employer fails to remit withholding taxes, however, §6672 permits the
government to recover these lost revenues from the corporate personnel
responsible for either collecting, truthfully accounting for, or paying over
the tax. Slodov, 436 U.S. at 250; Hartman, 538 F.2d at 1340. Pursuant to §6672,
such individuals are personally liable for a penalty equal to the amount of the
delinquent tax. In relevant part, §6672 provides:
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, 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.
Hence, in order for an officer or employee to be held liable under
this section, two requirements must be satisfied: (1) the party assessed must
be a person required to collect, truthfully account for, and pay over the tax,
referred to in the parlance as a "responsible person," 9 and (2) such a
person must havewillfully failed to ensure that the withholding taxes
were paid. Kizzier v. United States,
598 F.2d 1128, 1132 [
44 AFTR2d
79-5001] (8th Cir. 1979); Hartman, 538 F.2d at 1340. We have recognized that a
corporate officer may be deemed responsible if he has significant but not
necessarily exclusive authority concerning corporate decision making and
actions where the payment of federal taxes is involved. Hartman, 538 F.2d at
1340. The term willfully does not connote a bad or evil motive, but rather means
a voluntary, conscious, and intentional act, such as the payment of other
creditors in preference to the United States. Id. at 1341; Emshwiller, 565 F.2d
at 1045.
Highly instructive here is the Supreme Court's interpretation of
§6672 in Slodov,
436 U.S. 238 [
42 AFTR2d
78-5011]. There, the Court considered the liability of an individual who
becomes responsible after the corporation's withholding taxes have accrued, any
funds held in trust have been dissipated, and the corporation has no liquid
assets. The government argued that Slodov was liable under §6672 because he
used funds acquired from carrying on the business after his assumption of
control to pay other creditors. These funds, the government urged, were
impressed with a trust in its favor for satisfaction of the corporation's
overdue employment taxes, and Slodov's willful use of the funds to pay other
creditors violated his obligation to "pay over" to the United States.
Slodov, 436 U.S. at 251.
The Court rejected this argument, and held that a person who may
otherwise be considered responsible does not violate §6672 by willfully using
employer funds for purposes other than satisfaction of overdue employment taxes
if, "at the time he assumed control there were no funds with which to
satisfy the tax obligation and the funds thereafter generated are not directly
traceable to collected taxes referred to by that statute." Id. at 259-60:
see Kizzier, 598 F.2d at 1132-33.
Relying upon Slodov, Elmore argues that the district court erred
in submitting the following instruction (Instruction No. 11):
With
respect to any unpaid employment taxes, a person is responsible so long as he
was responsible for either withholding them, truthfully accounting for them or
paying them over. As I previously instructed you, trust fund taxes that have
not been paid must be paid when the quarterly tax return is filed. A person who
is responsible at the time the employment tax return was due is responsible for
any unpaid trust fund taxes for the entire quarter.
As indicated, Elmore objected to this instruction because it
failed to inform the jury of the circumstances recognized in Slodov.
Before addressing the merits of this contention, we must confront
a procedural problem concerning the preservation of error. Although Elmore
objected to Instruction No. 11 and mentioned Slodov, he did not tender to the
trial court specific language of a requested instruction based upon Slodov. Nevertheless,
we believe Elmore's objection alerted the district court to the potential error
in a timely manner, thereby sufficiently complying with the dictates of Fed. R.
Civ. P. 51. See Lear v. Equitable Life Assurance Society of the United States,
798 F.2d 1128, 1133 (8th Cir. 1986) ("[W]hile a party may request an
instruction, ordinarily what is necessary in order to preserve the matter for
appeal is to object to the instruction or in some way alert the district court
to a potential error before submission to the jury."), cert. denied, 107
S.Ct. 953 (1987); cf. Smith v. Honeywell, Inc., 735 F.2d 1067, 1069 (8th [pg.
88-979] Cir.
1983) (error inadequately preserved where counsel did not request instruction
nor alert trial court to the alleged omission in a timely manner), cert.
denied, 469 U.S. 1077 (1984). We will overlook an omission to alert the trial
court to the problem only if the failure to give an instruction constitutes
plain error. Gander v. Mr. Steak of Sun Ray, Inc., 774 F.2d 920, 923 (8th Cir.
1985). The plain error exception to compliance with Rule 51 is " 'confined
to the exceptional case where error has seriously affected the fairness,
integrity or public reputation of judicial proceedings.' " Smith v.
Honeywell, Inc., 735 F.2d 1067, 1069 (8th Cir.) (quoting Rowe International,
Inc. v. J-B Enterprises, Inc., 647 F.2d 830, 835 (8th Cir. 1981)), cert.
denied, 469 U.S. 1077 (1984). It is doubtful at best that plain error has been
demonstrated here, and indeed there is no need for further reference to plain
error since, as indicated, we consider Elmore's objection sufficient to
preserve for review the alleged Slodov error.
Returning to the merits of Elmore's argument, we note at the
outset that Instruction No. 11 properly states the law so far as it goes; as
indicated above, an officer responsible for collecting, accounting for, or
paying over withholding taxes is a responsible person within the meaning of
§6672. In similarity to Slodov, however, the jury here undoubtedly found that a
change in corporate control had occurred. It is extremely likely, particularly
in light of the jury's finding that Elmore was not responsible during the prior
two quarters, that the jury did not consider him responsible until after
LaCotts's death.
Furthermore, the record contains evidence indicating that Digital
had no unencumbered funds at this time. The record reflects that although
Digital may have had a positive balance in its bank account, these funds were
encumbered because the corporation had previously written a number of checks
which remained outstanding. Moreover, aside from the bookkeeping entry
resulting in a showing of earned commissions, 10 the entire tax
liability for the fourth quarter accrued prior to LaCotts's death. Finally,
although the government insists that Elmore should be held liable for the
fourth quarter because he paid wages and costs after the taxes for this period
accrued, the record contains no evidence that the funds used for these purposes
were traceable to trust funds or were otherwise anything but acquired after
Elmore's accession to control.
In these circumstances, we think that the district court erred in
omitting an instruction informing the jury of Elmore's Slodov theory. See
Federal Enterprises, Inc. v. Greyhound Leasing & Financial Corp., 786 F.2d
817, 820 (8th Cir. 1986) (instructions must inform the jury of the pertinent
issues and the permissible ways of resolving them). We have reviewed the
instructions as a whole, Total Petroleum, Inc. v. Davis, 788 F.2d 476, 484 (8th
Cir. 1986), and in the context of the trial, United States v. McMillan, 820
F.2d 251, 256 (8th Cir.), cert. denied, 108 S.Ct. 234 (1987), and conclude that
this error was not cured at any other place in the instructions. Accordingly,
we reverse and remand for a new trial as to the fourth quarter of 1980.
We disagree, however, with Elmore's assertion that the district
court erred in failing to grant his motion for partial judgment notwithstanding
the verdict. An order entering judgment notwithstanding the verdict is proper
only if the evidence points solely in favor of the movant and is susceptible of
no reasonable inferences sustaining the position of the party opposing the
motion. Rule v. Lutheran Hospitals & Homes Society of America, 835 F.2d
1250, 1252 (8th Cir. 1987). We have previously acknowledged the applicability
of this standard in cases involving the assessment of penalties under §6672.
See, e.g., Hartman, 538 F.2d at 1341. We do not believe that this standard has
been satisfied here. The record contains sufficient conflicting evidence to
preclude conclusive establishment of the movant's case. See Simpson v. Skelly
Oil Co., 371 F.2d 563, 565-67 (8th Cir. 1967).
Furthermore, we find Elmore's evidentiary arguments without merit.
Elmore argues that the district court erred in refusing to permit him to
introduce evidence concerning the fact that no §6672 penalty [pg.
88-980] had been
assessed against LaCotts, and in refusing to permit him to inform the jury of
the determination by the State of Arkansas that he was not responsible for the
payment of state withholding taxes until after January 1, 1981. The fact that
no liability had been assessed against LaCotts was irrelevant to Elmore's case;
two or more persons may be jointly and severally liable under §6672. Hartman,
538 F.2d at 1340. No question of contribution or indemnity between Elmore and
LaCotts was presented at trial.
Similarly, we find no abuse of discretion in the district court's
refusal to permit the introduction of evidence concerning the state
determination; the outcome of that proceeding bore no relevance to the question
of Elmore's liability under federal law. Although Elmore attempts to liken this
case to Commissioner v. Estate of Bosch, 387 U.S. 456 [
19 AFTR2d 1891]
(1967), in support of his argument in this regard, Estate of Bosch is
inapposite. That case concerned the admissibility of a state determination
where federal tax liability turned upon state law. The situation in the present
case is factually distinct.
In summary, we remand for a new trial with respect to liability
for the fourth quarter of 1980 and, as indicated, for an instruction informing
the jury of the circumstances recognized in Slodov. We have considered Elmore's
additional contentions, and find them without merit.
Reversed and remanded.
During the period that LaCotts managed the daily affairs of the
corporation, it encountered cash flow difficulties because Quantel Corporation,
Digital's primary supplier, required a deposit before Quantel would ship
Digital equipment. Eventually, after Elmore assumed control, Quantel began
demanding advance payment for all equipment ordered and payment of a percentage
of Digital's outstanding debt before any shipments would be made. In order to
satisfy these requirements, Digital ordinarily obtained deposits from its
customers, whose checks were sent directly to Quantel.
The record reflects that immediately after LaCotts's death, Elmore
closed Digital for a two-week vacation; he did not pay any wages during this
period.
The IRS determined the following arrearages for each quarter
respectively:
Taxable
Period Sec. 6672
Penalty Assessed
1980
Second Quarter
................ $ 5,993.14
Third Quarter ................. 7,131.15
Fourth Quarter
................ 28,592.96
1981
First Quarter
................. $ 6,741.40
Second Quarter
................ 4,672.35
Third Quarter
................. 1,416.80
----------
Total
$54,547.80
The IRS informed Elmore that it was unable to entertain his
request for reconsideration at any date prior to the expiration of the statute
of limitations governing this suit.
Both parties filed motions for a directed verdict, upon which the
district court initially reserved ruling, but later overruled.
A quarterly employment tax return is due by the end of the month
following the quarter for which the return is made. 26 C.F.R.
§31.6071(a)-1(a)(1). It is not disputed that Elmore was a responsible officer
at Digital when the return for the fourth quarter of 1980 was due, January 31,
1981.
We note parenthetically that the district court was without
jurisdiction to entertain this untimely motion. See Central Microfilm Service
Corp. v. Basic/Four Corp., 688 F.2d 1206, 1211 (8th Cir. 1982) ("[W]hen no
party has timely moved for a new trial, the ten-day limit is strictly
enforced."), cert denied, 459 U.S. 1204 (1983); see also, 6A J. Moore, J.
Lucas & G. Grotheer, Jr., Moore's Federal Practice ¶59.09[3] (2d ed. 1987).
We have recognized, however, that a motion for a new trial is not a
prerequisite to a ground raised in a timely direct appeal. See Sherrill v.
Royal Industries, Inc., 526 F.2d 507, 509 n.2 (8th Cir. 1975).
There is no requirement that these funds be segregated from the
employer's general funds or that they be deposited in a separate account. See
Slodov v. United States, 436 U.S. at 243.
The Court in Slodov clarified that the penalty is not limited to
those persons responsible for the performance of all three of these duties, but
rather extends to those who have a duty to fulfill any one of the listed
functions. 436 U.S. at 250.
The applicable revenue rulings provide that advances made to
salesmen against unearned salary or commission, which the salesmen are not
legally obligated to repay, are treated as wages at the time of payment for
federal employment tax purposes. See
Rev.Rul. 68-239, 1968-1 C.B. 414. If the salesmen are legally
obligated to repay such advances, however, they are not treated as wages at the
time of payment but are considered loans, and, like most earnings on
commission, are treated as wages when the commission is actually earned. See
Rev.Rul. 68-337,
1968-1 C.B. 417.
It is
unclear into which of these categories the advances to Digital's salesmen lie.
What is clear, however, is that, depending upon the categorization of the
advances, the withholding tax liability for the fourth quarter of 1980 may well
include only the advances actually paid or the commissions actually earned at
that time.
© 2011 Thomson Reuters/RIA. All rights reserved.
ELMORE v. U.S., Cite as 61
AFTR 2d 88-975 (843 F.2d 1128), 04/06/1988 , Code Sec(s) 6672
Calvin F. ELMORE, APPELLANT v. U.S., APPELLEE.
Case Information:
|
Code Sec(s):
|
|
|
Court Name:
|
U.S. Court of Appeals, Eighth Circuit,
|
|
Docket No.:
|
No. 86-2260,
|
|
Date Decided:
|
04/06/1988
|
|
Prior History:
|
District Court reversed.
|
|
Tax Year(s):
|
Years 1980- 1981.
|
|
Disposition:
|
Decision for Taxpayer.
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|
Cites:
|
61 AFTR 2d 88-975, 843 F2d 1128, 88-1 USTC P 9267.
|
HEADNOTE
1. ADDITIONS TO TAX AND
PENALTIES—Assessable penalties—100% penalty—failure to collect or pay over
tax—burden of proof and related matters. District court erred in
omitting jury instruction that corporate officer who became responsible after
withholding tax liability had accrued wasn't responsible for payment of that
liability if no unencumbered funds existed when he assumed control. Evidence
indicated that corp. had no unencumbered funds at time officer assumed control
and although he paid wages and costs after taxes for this period had accrued,
evidence didn't show that funds used for these purposes were traceable to trust
funds or that they weren't acquired after officer had attained control. Claims
based on liability of another officer and state determination as to state
withholding taxes were irrelevant.
Reference(s): 1988 PH
Fed. ¶37,367.20(20); 37,367.30(25),(80); 37,367.35(35). Code Sec. 6672 .
OPINION
Eugene G. Sayre, Little Rock, Ark., Atty. for Appellant.
Patricia M. Bowman, Atty., Justice Dept., Wash., D.C., for
Appellee.
Appeal from the United
States District Court for the Eastern District of Arkansas.
Before ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and
BOWMAN, Circuit Judge.
Judge: HENLEY,
Senior Circuit Judge:
This is an appeal from a final judgment entered by the district
court upon a jury verdict finding appellant Calvin F. Elmore liable under
26
U.S.C. §6672 for failure to collect and pay over federal employment taxes
required to have been withheld from the wages of employees of Digital Systems,
Inc. (Digital) during the fourth quarter of 1980 and the first three quarters
of 1981. Elmore challenges only that portion of the judgment holding him liable
for the fourth quarter of 1980. Because we conclude that the district court
erred in omitting a jury instruction, we vacate the judgment and remand for a
new trial as to the quarter in question.
Elmore and his business partner, Ralph S. LaCotts, were each fifty
per cent shareholders in Digital, a corporation located in Little Rock,
Arkansas, primarily engaged in the production and sale of computer software.
LaCotts, a practicing certified public accountant officed in DeWitt, Arkansas,
served as president and treasurer of Digital and, until his death on December
20, 1980, assumed primary responsibility for the management of its daily
business affairs. LaCotts arranged all corporate financing and directed the
bookkeeping and accounting, including the payment of creditors and the
remittance of employment taxes. Elmore served as vice president and secretary and,
prior to LaCotts's death, did not generally participate in day-to-day
operations. Although Elmore was authorized to sign corporate checks, his
principal responsibilities concerned the sales of Digital's computers and
software.
Ordinarily, Vickie Wiley, a bookkeeper hired by the corporation,
prepared Digital's payroll and accounts payable checks as directed by LaCotts
and mailed them to him to sign and file. Likewise, Wiley prepared the quarterly
Form 941 federal employment tax returns and sent them to LaCotts for his
signature.
The Form 941 return prepared for the second quarter of 1980 was
returned to the corporation in Little Rock by the Internal Revenue Service
(IRS) because it had been mailed unsigned. At LaCotts's direction, Elmore, who
was based in Little Rock, signed the return as a corporate officer and mailed
it back to the IRS. At that time, Elmore observed that the form indicated that
the tax liability for the employees' withholding and FICA (social security)
taxes had been deposited, leaving a $0.00 balance due. Elmore testified that he
believed the Form 941 for the third quarter of 1980, which LaCotts also
directed him to sign, had been prepared in an identical manner.
Sometime in December, 1980 LaCotts disclosed to Elmore that some
of Digital's [pg. 88-976] employment
tax liability had not been satisfied, but that he was anticipating a loan which
would permit the corporation to be refinanced and the taxes paid. Elmore
testified that this was the first that he learned of the tax arrearage. Elmore
also learned that the Form 941 returns which he had signed for the second and
third quarters of 1980 were erroneous; the requisite funds to cover the
employment tax liability had not in fact been deposited nor had any funds been
sent to the IRS.
After LaCotts's death, Elmore assumed sole responsibility for
corporate affairs. Apparently, throughout 1980 Digital exercised a practice
permitting its salesmen, who were paid on commission, to make "draws"
on the corporation when they needed money. The draws were treated as loans
which were reduced accordingly when commissions were earned. The commissions
were not reported as earned income, however, until a sale was completely
closed. Upon assuming control, Elmore instructed Wiley to bring the commissions
to date. Elmore had Wiley treat all of the sales as closed, which resulted in a
showing of income earned by the salesmen during the fourth quarter of 1980
which had in reality been dissipated in previous quarters. This created an
employment tax liability for these "earnings" alone in excess of
$23,000.00. In addition, Elmore testified that Digital had no unencumbered
funds at the time that he assumed control, and that he was unable to obtain the
financing that LaCotts had hoped to acquire. 1
In August, 1981 Elmore caused Digital to file a petition for
reorganization under Chapter 11 of the Bankruptcy Code. Digital ceased
operating shortly thereafter and the bankruptcy proceeding was dismissed.
Although Elmore paid wages 2 and costs and
filed the quarterly Form 941 returns during the period that Digital was able to
continue operations, no withholding taxes were remitted to the government.
In the fall of 1981, the IRS, pursuant to
26 U.S.C.
§6672, assessed a one hundred per cent penalty in the amount of $54,547.80
against Elmore individually for Digital's unpaid withholding taxes accrued in
the second, third and fourth quarters of 1980, and the first, second and third
quarters of 1981. 3 In March, 1982
Elmore paid $154.40 toward this assessment and then filed with the IRS Form 843
claims for refund of the amount paid and abatement of the balance. In June,
1982 he was notified that these claims had been disallowed.
During this same time, the Arkansas Department of Finance and
Administration proposed to assess a similar one hundred per cent penalty
against Elmore for Digital's failure to remit Arkansas state withholding taxes
from November, 1980 through July, 1981, as provided in Ark. Stat. Ann.
§84-4707, (recodified at Ark. Code Ann. §26-51-916 (1987)). Elmore
protested imposition of this penalty, and after an administrative hearing the
State determined that Elmore was not responsible for the collection,
accounting, or paying over of state withholding taxes at any time prior to
January, 1981.
After receiving notice of the State's determination, Elmore
requested the IRS to again consider his claims for refund and abatement. Before
this request was considered, 4 Elmore
instituted this suit for a refund against the United States; the IRS
counterclaimed for the unpaid balance of its assessment. The case was tried to
a jury. 5 [pg.
88-977] Two
special interrogatories for each taxable quarter were submitted. The
interrogatories directed the jury to indicate for each quarter whether Elmore
was responsible for the collection, accounting, or payment of taxes, and if so,
whether his nonpayment was willful, both of which are essential elements to the
imposition of liability under §6672. The jury found Elmore neither responsible
nor willful for the second and third quarters of 1980, but found him both
responsible and his failure to collect, account, or pay over willful for the
remaining quarters. The district court entered judgment upon the verdict in
favor of the government in the amount of $41,268.77, plus interest.
Thereafter, Elmore moved for partial judgment notwithstanding the
verdict solely as to the fourth quarter of 1980. In his motion, Elmore argued
that he was not liable for this period because he did not become
"responsible" for the payment of withholding taxes within the meaning
of §6672 until December 20, 1980, the date of LaCotts's death. Elmore insisted
that at that time Digital had no unencumbered funds and that the district court
erroneously instructed the jury that a person who is responsible at the time an
employment tax return is due is responsible for any unpaid trust fund taxes for
the entire quarter (Instruction No. 11). 6 Elmore
reasserted the ground upon which he objected to the instruction at trial, its
failure to inform the jury that in Slodov v. United States,
436
U.S. 238 [
42
AFTR2d 78-5011] (1978), the Supreme Court held that a corporate official who
becomes responsible after withholding tax liability has accrued is not
responsible for payment of that liability if no unencumbered funds exist when
he assumes control. Id. at 259-60.
The government resisted Elmore's motion, arguing that Elmore was
responsible during the entire fourth quarter and that once he became aware of
the unpaid taxes, he was required to satisfy that liability with all
unencumbered funds. Moreover, the government stressed that it had introduced
evidence indicating that there were funds in the corporate bank account at the
time of LaCotts's death, and that Elmore did not establish that these funds
were encumbered. Prior to a court ruling on the motion, Elmore also filed an
untimely request that it be treated alternatively as a motion for a new trial.
7 The district
court denied both motions after concluding that the jury's verdict was
supported by substantial evidence. This appeal followed.
On appeal, Elmore argues (1) that Instruction No. 11 was erroneous
because it failed to inform the jury of the circumstances recognized in Slodov;
and (2) that the district court erred in denying his motion for partial
judgment notwithstanding the verdict because of the asserted error in
Instruction No. 11, and because of the court's refusal to admit certain
proffered evidence, which effectively precluded the jury from finding in
Elmore's favor as to the quarter in question.
[1] We begin
our analysis by briefly reciting the principles governing the imposition of
liability under §6672. The Internal Revenue Code requires employers to withhold
income and FICA taxes from their employees' wages.
26 U.S.C.
§§3102 & 3402; Emshwiller v. United States,
565 F.2d
1042, 1044 [
40
AFTR2d 77-6094] (8th Cir. 1977). The withheld funds are to be deposited in a
special trust by the employer for the benefit of the United States, to be periodically
accounted for and paid over.
26 U.S.C.
§7501; Hartman v. United States,
538
F.2d 1336, 1339-40 [
38
AFTR2d 76-5510] (8th Cir. 1976). 8
Under the provisions of
26 U.S.C.
§7501, once net wages are paid to an employee, the taxes that were, or should
have been, withheld are credited to the employee as paid regardless of whether
the employer in fact remits these funds to the government. Emshwiller, 565 F.2d
at 1044. Consequently, the government has no recourse [pg.
88-978] against
the employee for an employer's failure to pay withholding taxes. Id. If a
corporate employer fails to remit withholding taxes, however, §6672 permits the
government to recover these lost revenues from the corporate personnel
responsible for either collecting, truthfully accounting for, or paying over
the tax. Slodov, 436 U.S. at 250; Hartman, 538 F.2d at 1340. Pursuant to §6672,
such individuals are personally liable for a penalty equal to the amount of the
delinquent tax. In relevant part, §6672 provides:
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, 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.
Hence, in order for an officer or employee to be held liable under
this section, two requirements must be satisfied: (1) the party assessed must
be a person required to collect, truthfully account for, and pay over the tax,
referred to in the parlance as a "responsible person," 9 and (2) such a
person must havewillfully failed to ensure that the withholding taxes
were paid. Kizzier v. United States,
598 F.2d
1128, 1132 [
44
AFTR2d 79-5001] (8th Cir. 1979); Hartman, 538 F.2d at 1340. We have recognized
that a corporate officer may be deemed responsible if he has significant but
not necessarily exclusive authority concerning corporate decision making and
actions where the payment of federal taxes is involved. Hartman, 538 F.2d at
1340. The term willfully does not connote a bad or evil motive, but rather
means a voluntary, conscious, and intentional act, such as the payment of other
creditors in preference to the United States. Id. at 1341; Emshwiller, 565 F.2d
at 1045.
Highly instructive here is the Supreme Court's interpretation of
§6672 in Slodov,
436 U.S.
238 [
42
AFTR2d 78-5011]. There, the Court considered the liability of an individual who
becomes responsible after the corporation's withholding taxes have accrued, any
funds held in trust have been dissipated, and the corporation has no liquid
assets. The government argued that Slodov was liable under §6672 because he
used funds acquired from carrying on the business after his assumption of
control to pay other creditors. These funds, the government urged, were
impressed with a trust in its favor for satisfaction of the corporation's
overdue employment taxes, and Slodov's willful use of the funds to pay other
creditors violated his obligation to "pay over" to the United States.
Slodov, 436 U.S. at 251.
The Court rejected this argument, and held that a person who may
otherwise be considered responsible does not violate §6672 by willfully using
employer funds for purposes other than satisfaction of overdue employment taxes
if, "at the time he assumed control there were no funds with which to
satisfy the tax obligation and the funds thereafter generated are not directly
traceable to collected taxes referred to by that statute." Id. at 259-60:
see Kizzier, 598 F.2d at 1132-33.
Relying upon Slodov, Elmore argues that the district court erred
in submitting the following instruction (Instruction No. 11):
With
respect to any unpaid employment taxes, a person is responsible so long as he
was responsible for either withholding them, truthfully accounting for them or
paying them over. As I previously instructed you, trust fund taxes that have
not been paid must be paid when the quarterly tax return is filed. A person who
is responsible at the time the employment tax return was due is responsible for
any unpaid trust fund taxes for the entire quarter.
As indicated, Elmore objected to this instruction because it
failed to inform the jury of the circumstances recognized in Slodov.
Before addressing the merits of this contention, we must confront
a procedural problem concerning the preservation of error. Although Elmore
objected to Instruction No. 11 and mentioned Slodov, he did not tender to the
trial court specific language of a requested instruction based upon Slodov.
Nevertheless, we believe Elmore's objection alerted the district court to the
potential error in a timely manner, thereby sufficiently complying with the
dictates of Fed. R. Civ. P. 51. See Lear v. Equitable Life Assurance Society of
the United States, 798 F.2d 1128, 1133 (8th Cir. 1986) ("[W]hile a party
may request an instruction, ordinarily what is necessary in order to preserve the
matter for appeal is to object to the instruction or in some way alert the
district court to a potential error before submission to the jury."),
cert. denied, 107 S.Ct. 953 (1987); cf. Smith v. Honeywell, Inc., 735 F.2d
1067, 1069 (8th [pg. 88-979] Cir.
1983) (error inadequately preserved where counsel did not request instruction
nor alert trial court to the alleged omission in a timely manner), cert.
denied, 469 U.S. 1077 (1984). We will overlook an omission to alert the trial
court to the problem only if the failure to give an instruction constitutes
plain error. Gander v. Mr. Steak of Sun Ray, Inc., 774 F.2d 920, 923 (8th Cir.
1985). The plain error exception to compliance with Rule 51 is " 'confined
to the exceptional case where error has seriously affected the fairness,
integrity or public reputation of judicial proceedings.' " Smith v.
Honeywell, Inc., 735 F.2d 1067, 1069 (8th Cir.) (quoting Rowe International,
Inc. v. J-B Enterprises, Inc., 647 F.2d 830, 835 (8th Cir. 1981)), cert.
denied, 469 U.S. 1077 (1984). It is doubtful at best that plain error has been
demonstrated here, and indeed there is no need for further reference to plain
error since, as indicated, we consider Elmore's objection sufficient to
preserve for review the alleged Slodov error.
Returning to the merits of Elmore's argument, we note at the
outset that Instruction No. 11 properly states the law so far as it goes; as
indicated above, an officer responsible for collecting, accounting for, or
paying over withholding taxes is a responsible person within the meaning of
§6672. In similarity to Slodov, however, the jury here undoubtedly found that a
change in corporate control had occurred. It is extremely likely, particularly
in light of the jury's finding that Elmore was not responsible during the prior
two quarters, that the jury did not consider him responsible until after
LaCotts's death.
Furthermore, the record contains evidence indicating that Digital
had no unencumbered funds at this time. The record reflects that although Digital
may have had a positive balance in its bank account, these funds were
encumbered because the corporation had previously written a number of checks
which remained outstanding. Moreover, aside from the bookkeeping entry
resulting in a showing of earned commissions, 10 the entire tax
liability for the fourth quarter accrued prior to LaCotts's death. Finally,
although the government insists that Elmore should be held liable for the
fourth quarter because he paid wages and costs after the taxes for this period
accrued, the record contains no evidence that the funds used for these purposes
were traceable to trust funds or were otherwise anything but acquired after
Elmore's accession to control.
In these circumstances, we think that the district court erred in
omitting an instruction informing the jury of Elmore's Slodov theory. See
Federal Enterprises, Inc. v. Greyhound Leasing & Financial Corp., 786 F.2d
817, 820 (8th Cir. 1986) (instructions must inform the jury of the pertinent
issues and the permissible ways of resolving them). We have reviewed the
instructions as a whole, Total Petroleum, Inc. v. Davis, 788 F.2d 476, 484 (8th
Cir. 1986), and in the context of the trial, United States v. McMillan, 820
F.2d 251, 256 (8th Cir.), cert. denied, 108 S.Ct. 234 (1987), and conclude that
this error was not cured at any other place in the instructions. Accordingly,
we reverse and remand for a new trial as to the fourth quarter of 1980.
We disagree, however, with Elmore's assertion that the district
court erred in failing to grant his motion for partial judgment notwithstanding
the verdict. An order entering judgment notwithstanding the verdict is proper
only if the evidence points solely in favor of the movant and is susceptible of
no reasonable inferences sustaining the position of the party opposing the
motion. Rule v. Lutheran Hospitals & Homes Society of America, 835 F.2d
1250, 1252 (8th Cir. 1987). We have previously acknowledged the applicability
of this standard in cases involving the assessment of penalties under §6672.
See, e.g., Hartman, 538 F.2d at 1341. We do not believe that this standard has
been satisfied here. The record contains sufficient conflicting evidence to
preclude conclusive establishment of the movant's case. See Simpson v. Skelly
Oil Co., 371 F.2d 563, 565-67 (8th Cir. 1967).
Furthermore, we find Elmore's evidentiary arguments without merit.
Elmore argues that the district court erred in refusing to permit him to
introduce evidence concerning the fact that no §6672 penalty [pg.
88-980] had been
assessed against LaCotts, and in refusing to permit him to inform the jury of
the determination by the State of Arkansas that he was not responsible for the
payment of state withholding taxes until after January 1, 1981. The fact that
no liability had been assessed against LaCotts was irrelevant to Elmore's case;
two or more persons may be jointly and severally liable under §6672. Hartman,
538 F.2d at 1340. No question of contribution or indemnity between Elmore and
LaCotts was presented at trial.
Similarly, we find no abuse of discretion in the district court's
refusal to permit the introduction of evidence concerning the state
determination; the outcome of that proceeding bore no relevance to the question
of Elmore's liability under federal law. Although Elmore attempts to liken this
case to Commissioner v. Estate of Bosch, 387 U.S. 456 [
19
AFTR2d 1891] (1967), in support of his argument in this regard, Estate of Bosch
is inapposite. That case concerned the admissibility of a state determination
where federal tax liability turned upon state law. The situation in the present
case is factually distinct.
In summary, we remand for a new trial with respect to liability
for the fourth quarter of 1980 and, as indicated, for an instruction informing
the jury of the circumstances recognized in Slodov. We have considered Elmore's
additional contentions, and find them without merit.
Reversed and remanded.
During the period that LaCotts managed the daily affairs of the
corporation, it encountered cash flow difficulties because Quantel Corporation,
Digital's primary supplier, required a deposit before Quantel would ship
Digital equipment. Eventually, after Elmore assumed control, Quantel began
demanding advance payment for all equipment ordered and payment of a percentage
of Digital's outstanding debt before any shipments would be made. In order to
satisfy these requirements, Digital ordinarily obtained deposits from its
customers, whose checks were sent directly to Quantel.
The record reflects that immediately after LaCotts's death, Elmore
closed Digital for a two-week vacation; he did not pay any wages during this
period.
The IRS determined the following arrearages for each quarter
respectively:
Taxable
Period Sec. 6672 Penalty Assessed
1980
Second Quarter
................ $ 5,993.14
Third Quarter
................. 7,131.15
Fourth Quarter
................ 28,592.96
1981
First Quarter
................. $ 6,741.40
Second Quarter
................ 4,672.35
Third Quarter
................. 1,416.80
----------
Total
$54,547.80
The IRS informed Elmore that it was unable to entertain his
request for reconsideration at any date prior to the expiration of the statute
of limitations governing this suit.
Both parties filed motions for a directed verdict, upon which the
district court initially reserved ruling, but later overruled.
A quarterly employment tax return is due by the end of the month
following the quarter for which the return is made. 26 C.F.R.
§31.6071(a)-1(a)(1). It is not disputed that Elmore was a responsible officer
at Digital when the return for the fourth quarter of 1980 was due, January 31,
1981.
We note parenthetically that the district court was without
jurisdiction to entertain this untimely motion. See Central Microfilm Service
Corp. v. Basic/Four Corp., 688 F.2d 1206, 1211 (8th Cir. 1982) ("[W]hen no
party has timely moved for a new trial, the ten-day limit is strictly
enforced."), cert denied, 459 U.S. 1204 (1983); see also, 6A J. Moore, J.
Lucas & G. Grotheer, Jr., Moore's Federal Practice ¶59.09[3] (2d ed. 1987).
We have recognized, however, that a motion for a new trial is not a prerequisite
to a ground raised in a timely direct appeal. See Sherrill v. Royal Industries,
Inc., 526 F.2d 507, 509 n.2 (8th Cir. 1975).
There is no requirement that these funds be segregated from the
employer's general funds or that they be deposited in a separate account. See
Slodov v. United States, 436 U.S. at 243.
The Court in Slodov clarified that the penalty is not limited to
those persons responsible for the performance of all three of these duties, but
rather extends to those who have a duty to fulfill any one of the listed
functions. 436 U.S. at 250.
The applicable revenue rulings provide that advances made to salesmen
against unearned salary or commission, which the salesmen are not legally
obligated to repay, are treated as wages at the time of payment for federal
employment tax purposes. See
Rev.Rul.
68-239, 1968-1 C.B. 414. If the salesmen are legally obligated to repay such
advances, however, they are not treated as wages at the time of payment but are
considered loans, and, like most earnings on commission, are treated as wages
when the commission is actually earned. See
Rev.Rul.
68-337, 1968-1 C.B. 417.
It is
unclear into which of these categories the advances to Digital's salesmen lie.
What is clear, however, is that, depending upon the categorization of the
advances, the withholding tax liability for the fourth quarter of 1980 may well
include only the advances actually paid or the commissions actually earned at
that time.
ELMORE v. U.S., Cite as 61
AFTR 2d 88-975 (843 F.2d 1128), 04/06/1988 , Code Sec(s) 6672
Calvin F. ELMORE, APPELLANT v. U.S., APPELLEE.
Case Information:
|
Code Sec(s):
|
|
|
Court Name:
|
U.S. Court of Appeals, Eighth Circuit,
|
|
Docket No.:
|
No. 86-2260,
|
|
Date Decided:
|
04/06/1988
|
|
Prior History:
|
District Court reversed.
|
|
Tax Year(s):
|
Years 1980- 1981.
|
|
Disposition:
|
Decision for Taxpayer.
|
|
Cites:
|
61 AFTR 2d 88-975, 843 F2d 1128, 88-1 USTC P 9267.
|
HEADNOTE
1. ADDITIONS TO TAX AND
PENALTIES—Assessable penalties—100% penalty—failure to collect or pay over
tax—burden of proof and related matters. District court erred in
omitting jury instruction that corporate officer who became responsible after
withholding tax liability had accrued wasn't responsible for payment of that
liability if no unencumbered funds existed when he assumed control. Evidence
indicated that corp. had no unencumbered funds at time officer assumed control
and although he paid wages and costs after taxes for this period had accrued,
evidence didn't show that funds used for these purposes were traceable to trust
funds or that they weren't acquired after officer had attained control. Claims
based on liability of another officer and state determination as to state
withholding taxes were irrelevant.
Reference(s): 1988 PH
Fed. ¶37,367.20(20); 37,367.30(25),(80); 37,367.35(35). Code Sec. 6672 .
OPINION
Eugene G. Sayre, Little Rock, Ark., Atty. for Appellant.
Patricia M. Bowman, Atty., Justice Dept., Wash., D.C., for
Appellee.
Appeal from the United
States District Court for the Eastern District of Arkansas.
Before ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and
BOWMAN, Circuit Judge.
Judge: HENLEY,
Senior Circuit Judge:
This is an appeal from a final judgment entered by the district
court upon a jury verdict finding appellant Calvin F. Elmore liable under
26
U.S.C. §6672 for failure to collect and pay over federal employment taxes required
to have been withheld from the wages of employees of Digital Systems, Inc.
(Digital) during the fourth quarter of 1980 and the first three quarters of
1981. Elmore challenges only that portion of the judgment holding him liable
for the fourth quarter of 1980. Because we conclude that the district court
erred in omitting a jury instruction, we vacate the judgment and remand for a
new trial as to the quarter in question.
Elmore and his business partner, Ralph S. LaCotts, were each fifty
per cent shareholders in Digital, a corporation located in Little Rock,
Arkansas, primarily engaged in the production and sale of computer software.
LaCotts, a practicing certified public accountant officed in DeWitt, Arkansas,
served as president and treasurer of Digital and, until his death on December
20, 1980, assumed primary responsibility for the management of its daily
business affairs. LaCotts arranged all corporate financing and directed the
bookkeeping and accounting, including the payment of creditors and the remittance
of employment taxes. Elmore served as vice president and secretary and, prior
to LaCotts's death, did not generally participate in day-to-day operations.
Although Elmore was authorized to sign corporate checks, his principal
responsibilities concerned the sales of Digital's computers and software.
Ordinarily, Vickie Wiley, a bookkeeper hired by the corporation,
prepared Digital's payroll and accounts payable checks as directed by LaCotts
and mailed them to him to sign and file. Likewise, Wiley prepared the quarterly
Form 941 federal employment tax returns and sent them to LaCotts for his
signature.
The Form 941 return prepared for the second quarter of 1980 was
returned to the corporation in Little Rock by the Internal Revenue Service
(IRS) because it had been mailed unsigned. At LaCotts's direction, Elmore, who
was based in Little Rock, signed the return as a corporate officer and mailed
it back to the IRS. At that time, Elmore observed that the form indicated that
the tax liability for the employees' withholding and FICA (social security)
taxes had been deposited, leaving a $0.00 balance due. Elmore testified that he
believed the Form 941 for the third quarter of 1980, which LaCotts also
directed him to sign, had been prepared in an identical manner.
Sometime in December, 1980 LaCotts disclosed to Elmore that some
of Digital's [pg. 88-976] employment
tax liability had not been satisfied, but that he was anticipating a loan which
would permit the corporation to be refinanced and the taxes paid. Elmore
testified that this was the first that he learned of the tax arrearage. Elmore
also learned that the Form 941 returns which he had signed for the second and
third quarters of 1980 were erroneous; the requisite funds to cover the
employment tax liability had not in fact been deposited nor had any funds been
sent to the IRS.
After LaCotts's death, Elmore assumed sole responsibility for
corporate affairs. Apparently, throughout 1980 Digital exercised a practice
permitting its salesmen, who were paid on commission, to make "draws"
on the corporation when they needed money. The draws were treated as loans
which were reduced accordingly when commissions were earned. The commissions
were not reported as earned income, however, until a sale was completely closed.
Upon assuming control, Elmore instructed Wiley to bring the commissions to
date. Elmore had Wiley treat all of the sales as closed, which resulted in a
showing of income earned by the salesmen during the fourth quarter of 1980
which had in reality been dissipated in previous quarters. This created an
employment tax liability for these "earnings" alone in excess of
$23,000.00. In addition, Elmore testified that Digital had no unencumbered
funds at the time that he assumed control, and that he was unable to obtain the
financing that LaCotts had hoped to acquire. 1
In August, 1981 Elmore caused Digital to file a petition for
reorganization under Chapter 11 of the Bankruptcy Code. Digital ceased
operating shortly thereafter and the bankruptcy proceeding was dismissed.
Although Elmore paid wages 2 and costs and
filed the quarterly Form 941 returns during the period that Digital was able to
continue operations, no withholding taxes were remitted to the government.
In the fall of 1981, the IRS, pursuant to
26 U.S.C.
§6672, assessed a one hundred per cent penalty in the amount of $54,547.80
against Elmore individually for Digital's unpaid withholding taxes accrued in
the second, third and fourth quarters of 1980, and the first, second and third
quarters of 1981. 3 In March, 1982
Elmore paid $154.40 toward this assessment and then filed with the IRS Form 843
claims for refund of the amount paid and abatement of the balance. In June,
1982 he was notified that these claims had been disallowed.
During this same time, the Arkansas Department of Finance and
Administration proposed to assess a similar one hundred per cent penalty
against Elmore for Digital's failure to remit Arkansas state withholding taxes
from November, 1980 through July, 1981, as provided in Ark. Stat. Ann.
§84-4707, (recodified at Ark. Code Ann. §26-51-916 (1987)). Elmore
protested imposition of this penalty, and after an administrative hearing the
State determined that Elmore was not responsible for the collection,
accounting, or paying over of state withholding taxes at any time prior to
January, 1981.
After receiving notice of the State's determination, Elmore
requested the IRS to again consider his claims for refund and abatement. Before
this request was considered, 4 Elmore
instituted this suit for a refund against the United States; the IRS
counterclaimed for the unpaid balance of its assessment. The case was tried to
a jury. 5 [pg.
88-977] Two
special interrogatories for each taxable quarter were submitted. The
interrogatories directed the jury to indicate for each quarter whether Elmore was
responsible for the collection, accounting, or payment of taxes, and if so,
whether his nonpayment was willful, both of which are essential elements to the
imposition of liability under §6672. The jury found Elmore neither responsible
nor willful for the second and third quarters of 1980, but found him both
responsible and his failure to collect, account, or pay over willful for the
remaining quarters. The district court entered judgment upon the verdict in
favor of the government in the amount of $41,268.77, plus interest.
Thereafter, Elmore moved for partial judgment notwithstanding the
verdict solely as to the fourth quarter of 1980. In his motion, Elmore argued
that he was not liable for this period because he did not become
"responsible" for the payment of withholding taxes within the meaning
of §6672 until December 20, 1980, the date of LaCotts's death. Elmore insisted
that at that time Digital had no unencumbered funds and that the district court
erroneously instructed the jury that a person who is responsible at the time an
employment tax return is due is responsible for any unpaid trust fund taxes for
the entire quarter (Instruction No. 11). 6 Elmore
reasserted the ground upon which he objected to the instruction at trial, its
failure to inform the jury that in Slodov v. United States,
436
U.S. 238 [
42
AFTR2d 78-5011] (1978), the Supreme Court held that a corporate official who
becomes responsible after withholding tax liability has accrued is not
responsible for payment of that liability if no unencumbered funds exist when
he assumes control. Id. at 259-60.
The government resisted Elmore's motion, arguing that Elmore was
responsible during the entire fourth quarter and that once he became aware of
the unpaid taxes, he was required to satisfy that liability with all
unencumbered funds. Moreover, the government stressed that it had introduced
evidence indicating that there were funds in the corporate bank account at the
time of LaCotts's death, and that Elmore did not establish that these funds
were encumbered. Prior to a court ruling on the motion, Elmore also filed an
untimely request that it be treated alternatively as a motion for a new trial.
7 The district
court denied both motions after concluding that the jury's verdict was
supported by substantial evidence. This appeal followed.
On appeal, Elmore argues (1) that Instruction No. 11 was erroneous
because it failed to inform the jury of the circumstances recognized in Slodov;
and (2) that the district court erred in denying his motion for partial
judgment notwithstanding the verdict because of the asserted error in
Instruction No. 11, and because of the court's refusal to admit certain
proffered evidence, which effectively precluded the jury from finding in
Elmore's favor as to the quarter in question.
[1] We begin
our analysis by briefly reciting the principles governing the imposition of
liability under §6672. The Internal Revenue Code requires employers to withhold
income and FICA taxes from their employees' wages.
26 U.S.C.
§§3102 & 3402; Emshwiller v. United States,
565 F.2d
1042, 1044 [
40
AFTR2d 77-6094] (8th Cir. 1977). The withheld funds are to be deposited in a
special trust by the employer for the benefit of the United States, to be
periodically accounted for and paid over.
26 U.S.C.
§7501; Hartman v. United States,
538
F.2d 1336, 1339-40 [
38
AFTR2d 76-5510] (8th Cir. 1976). 8
Under the provisions of
26 U.S.C.
§7501, once net wages are paid to an employee, the taxes that were, or should
have been, withheld are credited to the employee as paid regardless of whether
the employer in fact remits these funds to the government. Emshwiller, 565 F.2d
at 1044. Consequently, the government has no recourse [pg.
88-978] against
the employee for an employer's failure to pay withholding taxes. Id. If a
corporate employer fails to remit withholding taxes, however, §6672 permits the
government to recover these lost revenues from the corporate personnel
responsible for either collecting, truthfully accounting for, or paying over
the tax. Slodov, 436 U.S. at 250; Hartman, 538 F.2d at 1340. Pursuant to §6672,
such individuals are personally liable for a penalty equal to the amount of the
delinquent tax. In relevant part, §6672 provides:
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, 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.
Hence, in order for an officer or employee to be held liable under
this section, two requirements must be satisfied: (1) the party assessed must
be a person required to collect, truthfully account for, and pay over the tax,
referred to in the parlance as a "responsible person," 9 and (2) such a
person must havewillfully failed to ensure that the withholding taxes
were paid. Kizzier v. United States,
598 F.2d
1128, 1132 [
44
AFTR2d 79-5001] (8th Cir. 1979); Hartman, 538 F.2d at 1340. We have recognized
that a corporate officer may be deemed responsible if he has significant but
not necessarily exclusive authority concerning corporate decision making and
actions where the payment of federal taxes is involved. Hartman, 538 F.2d at
1340. The term willfully does not connote a bad or evil motive, but rather
means a voluntary, conscious, and intentional act, such as the payment of other
creditors in preference to the United States. Id. at 1341; Emshwiller, 565 F.2d
at 1045.
Highly instructive here is the Supreme Court's interpretation of
§6672 in Slodov,
436 U.S.
238 [
42
AFTR2d 78-5011]. There, the Court considered the liability of an individual who
becomes responsible after the corporation's withholding taxes have accrued, any
funds held in trust have been dissipated, and the corporation has no liquid
assets. The government argued that Slodov was liable under §6672 because he
used funds acquired from carrying on the business after his assumption of
control to pay other creditors. These funds, the government urged, were
impressed with a trust in its favor for satisfaction of the corporation's
overdue employment taxes, and Slodov's willful use of the funds to pay other
creditors violated his obligation to "pay over" to the United States.
Slodov, 436 U.S. at 251.
The Court rejected this argument, and held that a person who may
otherwise be considered responsible does not violate §6672 by willfully using
employer funds for purposes other than satisfaction of overdue employment taxes
if, "at the time he assumed control there were no funds with which to
satisfy the tax obligation and the funds thereafter generated are not directly
traceable to collected taxes referred to by that statute." Id. at 259-60:
see Kizzier, 598 F.2d at 1132-33.
Relying upon Slodov, Elmore argues that the district court erred
in submitting the following instruction (Instruction No. 11):
With
respect to any unpaid employment taxes, a person is responsible so long as he
was responsible for either withholding them, truthfully accounting for them or
paying them over. As I previously instructed you, trust fund taxes that have
not been paid must be paid when the quarterly tax return is filed. A person who
is responsible at the time the employment tax return was due is responsible for
any unpaid trust fund taxes for the entire quarter.
As indicated, Elmore objected to this instruction because it
failed to inform the jury of the circumstances recognized in Slodov.
Before addressing the merits of this contention, we must confront
a procedural problem concerning the preservation of error. Although Elmore
objected to Instruction No. 11 and mentioned Slodov, he did not tender to the
trial court specific language of a requested instruction based upon Slodov.
Nevertheless, we believe Elmore's objection alerted the district court to the
potential error in a timely manner, thereby sufficiently complying with the
dictates of Fed. R. Civ. P. 51. See Lear v. Equitable Life Assurance Society of
the United States, 798 F.2d 1128, 1133 (8th Cir. 1986) ("[W]hile a party may
request an instruction, ordinarily what is necessary in order to preserve the
matter for appeal is to object to the instruction or in some way alert the
district court to a potential error before submission to the jury."),
cert. denied, 107 S.Ct. 953 (1987); cf. Smith v. Honeywell, Inc., 735 F.2d
1067, 1069 (8th [pg. 88-979] Cir.
1983) (error inadequately preserved where counsel did not request instruction
nor alert trial court to the alleged omission in a timely manner), cert.
denied, 469 U.S. 1077 (1984). We will overlook an omission to alert the trial
court to the problem only if the failure to give an instruction constitutes
plain error. Gander v. Mr. Steak of Sun Ray, Inc., 774 F.2d 920, 923 (8th Cir.
1985). The plain error exception to compliance with Rule 51 is " 'confined
to the exceptional case where error has seriously affected the fairness,
integrity or public reputation of judicial proceedings.' " Smith v.
Honeywell, Inc., 735 F.2d 1067, 1069 (8th Cir.) (quoting Rowe International,
Inc. v. J-B Enterprises, Inc., 647 F.2d 830, 835 (8th Cir. 1981)), cert.
denied, 469 U.S. 1077 (1984). It is doubtful at best that plain error has been
demonstrated here, and indeed there is no need for further reference to plain
error since, as indicated, we consider Elmore's objection sufficient to
preserve for review the alleged Slodov error.
Returning to the merits of Elmore's argument, we note at the
outset that Instruction No. 11 properly states the law so far as it goes; as
indicated above, an officer responsible for collecting, accounting for, or
paying over withholding taxes is a responsible person within the meaning of
§6672. In similarity to Slodov, however, the jury here undoubtedly found that a
change in corporate control had occurred. It is extremely likely, particularly
in light of the jury's finding that Elmore was not responsible during the prior
two quarters, that the jury did not consider him responsible until after
LaCotts's death.
Furthermore, the record contains evidence indicating that Digital
had no unencumbered funds at this time. The record reflects that although
Digital may have had a positive balance in its bank account, these funds were
encumbered because the corporation had previously written a number of checks
which remained outstanding. Moreover, aside from the bookkeeping entry
resulting in a showing of earned commissions, 10 the entire tax
liability for the fourth quarter accrued prior to LaCotts's death. Finally,
although the government insists that Elmore should be held liable for the
fourth quarter because he paid wages and costs after the taxes for this period
accrued, the record contains no evidence that the funds used for these purposes
were traceable to trust funds or were otherwise anything but acquired after
Elmore's accession to control.
In these circumstances, we think that the district court erred in
omitting an instruction informing the jury of Elmore's Slodov theory. See
Federal Enterprises, Inc. v. Greyhound Leasing & Financial Corp., 786 F.2d
817, 820 (8th Cir. 1986) (instructions must inform the jury of the pertinent
issues and the permissible ways of resolving them). We have reviewed the
instructions as a whole, Total Petroleum, Inc. v. Davis, 788 F.2d 476, 484 (8th
Cir. 1986), and in the context of the trial, United States v. McMillan, 820
F.2d 251, 256 (8th Cir.), cert. denied, 108 S.Ct. 234 (1987), and conclude that
this error was not cured at any other place in the instructions. Accordingly,
we reverse and remand for a new trial as to the fourth quarter of 1980.
We disagree, however, with Elmore's assertion that the district
court erred in failing to grant his motion for partial judgment notwithstanding
the verdict. An order entering judgment notwithstanding the verdict is proper
only if the evidence points solely in favor of the movant and is susceptible of
no reasonable inferences sustaining the position of the party opposing the
motion. Rule v. Lutheran Hospitals & Homes Society of America, 835 F.2d
1250, 1252 (8th Cir. 1987). We have previously acknowledged the applicability
of this standard in cases involving the assessment of penalties under §6672.
See, e.g., Hartman, 538 F.2d at 1341. We do not believe that this standard has
been satisfied here. The record contains sufficient conflicting evidence to
preclude conclusive establishment of the movant's case. See Simpson v. Skelly
Oil Co., 371 F.2d 563, 565-67 (8th Cir. 1967).
Furthermore, we find Elmore's evidentiary arguments without merit.
Elmore argues that the district court erred in refusing to permit him to
introduce evidence concerning the fact that no §6672 penalty [pg.
88-980] had been
assessed against LaCotts, and in refusing to permit him to inform the jury of
the determination by the State of Arkansas that he was not responsible for the
payment of state withholding taxes until after January 1, 1981. The fact that
no liability had been assessed against LaCotts was irrelevant to Elmore's case;
two or more persons may be jointly and severally liable under §6672. Hartman,
538 F.2d at 1340. No question of contribution or indemnity between Elmore and
LaCotts was presented at trial.
Similarly, we find no abuse of discretion in the district court's
refusal to permit the introduction of evidence concerning the state determination;
the outcome of that proceeding bore no relevance to the question of Elmore's
liability under federal law. Although Elmore attempts to liken this case to
Commissioner v. Estate of Bosch, 387 U.S. 456 [
19
AFTR2d 1891] (1967), in support of his argument in this regard, Estate of Bosch
is inapposite. That case concerned the admissibility of a state determination
where federal tax liability turned upon state law. The situation in the present
case is factually distinct.
In summary, we remand for a new trial with respect to liability
for the fourth quarter of 1980 and, as indicated, for an instruction informing
the jury of the circumstances recognized in Slodov. We have considered Elmore's
additional contentions, and find them without merit.
Reversed and remanded.
During the period that LaCotts managed the daily affairs of the
corporation, it encountered cash flow difficulties because Quantel Corporation,
Digital's primary supplier, required a deposit before Quantel would ship
Digital equipment. Eventually, after Elmore assumed control, Quantel began
demanding advance payment for all equipment ordered and payment of a percentage
of Digital's outstanding debt before any shipments would be made. In order to
satisfy these requirements, Digital ordinarily obtained deposits from its
customers, whose checks were sent directly to Quantel.
The record reflects that immediately after LaCotts's death, Elmore
closed Digital for a two-week vacation; he did not pay any wages during this
period.
The IRS determined the following arrearages for each quarter
respectively:
Taxable
Period Sec. 6672
Penalty Assessed
1980
Second Quarter
................ $ 5,993.14
Third Quarter
................. 7,131.15
Fourth Quarter
................ 28,592.96
1981
First Quarter
................. $ 6,741.40
Second Quarter
................ 4,672.35
Third Quarter
................. 1,416.80
----------
Total
$54,547.80
The IRS informed Elmore that it was unable to entertain his
request for reconsideration at any date prior to the expiration of the statute
of limitations governing this suit.
Both parties filed motions for a directed verdict, upon which the
district court initially reserved ruling, but later overruled.
A quarterly employment tax return is due by the end of the month
following the quarter for which the return is made. 26 C.F.R.
§31.6071(a)-1(a)(1). It is not disputed that Elmore was a responsible officer
at Digital when the return for the fourth quarter of 1980 was due, January 31,
1981.
We note parenthetically that the district court was without
jurisdiction to entertain this untimely motion. See Central Microfilm Service
Corp. v. Basic/Four Corp., 688 F.2d 1206, 1211 (8th Cir. 1982) ("[W]hen no
party has timely moved for a new trial, the ten-day limit is strictly
enforced."), cert denied, 459 U.S. 1204 (1983); see also, 6A J. Moore, J.
Lucas & G. Grotheer, Jr., Moore's Federal Practice ¶59.09[3] (2d ed. 1987).
We have recognized, however, that a motion for a new trial is not a
prerequisite to a ground raised in a timely direct appeal. See Sherrill v.
Royal Industries, Inc., 526 F.2d 507, 509 n.2 (8th Cir. 1975).
There is no requirement that these funds be segregated from the
employer's general funds or that they be deposited in a separate account. See
Slodov v. United States, 436 U.S. at 243.
The Court in Slodov clarified that the penalty is not limited to
those persons responsible for the performance of all three of these duties, but
rather extends to those who have a duty to fulfill any one of the listed
functions. 436 U.S. at 250.
The applicable revenue rulings provide that advances made to
salesmen against unearned salary or commission, which the salesmen are not
legally obligated to repay, are treated as wages at the time of payment for
federal employment tax purposes. See
Rev.Rul.
68-239, 1968-1 C.B. 414. If the salesmen are legally obligated to repay such
advances, however, they are not treated as wages at the time of payment but are
considered loans, and, like most earnings on commission, are treated as wages
when the commission is actually earned. See
Rev.Rul.
68-337, 1968-1 C.B. 417.
It is
unclear into which of these categories the advances to Digital's salesmen lie.
What is clear, however, is that, depending upon the categorization of the
advances, the withholding tax liability for the fourth quarter of 1980 may well
include only the advances actually paid or the commissions actually earned at
that time.
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