Thursday, May 12, 2011



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:

<>
Code Sec(s):
Court Name:
U.S. District Court, Dist. of Nebraska,
Docket No.:
8:06CV750; 8:08CV530,
Date Decided:
03/01/2010.
Prior History:
Affirmed at (2011, CA8) 107 AFTR 2d 2011-1518. Later proceeding at (2010, DC NE) 107 AFTR 2d 2011-1847. Earlier proceeding at (2010, DC NE) 105 AFTR 2d 2010-898, 2010-1 USTC ¶50245.
Tax Year(s):
Years 1998, 1999, 2000, 2001, 2002.
Disposition:
Decision for Govt.

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

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEBRASKA,

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



1

It should be noted that the Oppligers did pay two quarters of payroll taxes.



2

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:

<>
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.

26 U.S.C. §6672(a).

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.



1

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.



2

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.



3

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



4

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.



5

Both parties filed motions for a directed verdict, upon which the district court initially reserved ruling, but later overruled.



6

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.



7

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).



8

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.



9

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.



10

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):
6672
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.

26 U.S.C. §6672(a).

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.



1

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.



2

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.



3

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



4

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.



5

Both parties filed motions for a directed verdict, upon which the district court initially reserved ruling, but later overruled.



6

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.



7

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).



8

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.



9

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.



10

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):
6672
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.

26 U.S.C. §6672(a).

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.



1

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.



2

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.



3

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



4

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.



5

Both parties filed motions for a directed verdict, upon which the district court initially reserved ruling, but later overruled.



6

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.



7

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).



8

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.



9

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.



10

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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