ARPOFF v. U.S., Cite as 109 AFTR 2d 2012-XXXX, 02/15/2012

JOHN A. TARPOFF, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

Case Information:

Code Sec(s):      

Court Name:      IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS,

Docket No.:        No. 09 - CV - 00411 DRH,

Date Decided:   02/15/2012.

Disposition:      

HEADNOTE

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Reference(s):

OPINION

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS,

MEMORANDUM & ORDER

Judge: HERNDON, Chief Judge:

I. Introduction

This matter is before the Court on defendant United States of America's renewed motion for judgment as a matter of law and alternative motion for a new trial (Doc. 64). A jury trial was held from March 14–16, 2011, to decide whether plaintiff John A. Tarpoff was personally liable under 26 U.S.C. § 6672 for Social Security and income taxes that his former employer had failed to pay the IRS. The jury found for plaintiff (Doc. 48).

Defendant now moves for renewed judgment as a matter of law under Federal Rule of Civil Procedure 50(b), contending there was not a sufficient evidentiary basis for the jury to have found plaintiff was not a responsible person who willfully failed to pay the taxes. In the alternative, defendant moves for a new trial under Rule 59, claiming that the jury's verdict was against the weight of evidence and that the jury instructions did not sufficiently state the law. For the reasons that follow, defendant's motions are DENIED.

Still pending before the Court is plaintiff's motion for judgment on the jury's verdict and for attorney's fees and costs (Doc. 55), which has been held in abeyance until now. Defendant was previously given 14 days to respond after the Court rendered its decision in today's order (Doc. 62). But in the meantime plaintiff has filed a motion to supplement his pending motion (Doc. 70). The motion to supplement is GRANTED, and instead of 14 days after today's order, defendant will have the customary time to respond to plaintiff's motion (Doc. 55) after the supplement is filed. See SDIL-LR 7.1.

II. Background

Plaintiff John A. Tarpoff was the head cattle buyer at Gateway Beef, LLC, 1 a slaughterhouse and beef-packaging facility. Gateway Beef was formed in September 2003 by the Gateway Beef Cooperative, an organization of farmers and ranchers, together with Brach's Glatt Meat Markets, a grocery store in New York owned by Sam Brach. The Cooperative invested in, and sold cattle to, Gateway Beef, which then produced kosher beef for Brach's Glatt Meat Markets.

Control of Gateway Beef's finances is the crux of this case. Concerning his role at the company, plaintiff testified he was not an owner, officer, shareholder, member, or manager, and that he did not attend meetings of the board of directors (although the bookkeeper believed he did attend them). “[I]t was very evident I was an employee,” he said (Doc. 59, 63:13–19). Sam Brach notified a local bank that plaintiff was not and never had been a manager of Gateway Beef. Plaintiff also testified that he had never made a capital contribution to Gateway Beef. Nevertheless, because he knew all the parties involved, plaintiff filed Gateway Beef's articles of organization with the Illinois Secretary of State, signing them as the “organizer.” The articles described Gateway Beef as managed by its managers, the Cooperative and Brach's Glatt Meat Markets.

Plaintiff was a signatory on both of Gateway Beef's checking accounts. He also filled out three forms for the accounts, called “corporate authorization resolutions,” giving him authority to open accounts, endorse checks, withdraw or transfer funds, and enter into agreements for financial products on behalf of Gateway Beef. These forms affirm that the resolutions in them were made at a meeting of the board of directors. Plaintiff signed the forms above their signature lines, one of which had “Secretary” preprinted under it. The other two said “Manager or Designated Member.”

The office manager and bookkeeper, Marsha Caughron, testified that Brach financed the company and was responsible for all bills. Caughron handled the payroll, accounts payable, accounts receivable, and some sales. She received all the mail, including bills and notices from the IRS, 2 and sent them with printed checks attached overnight to Brach in New York. He would sign some of the checks, then send them back to her. Caughron estimated she would only get a fourth of the checks back. She said Brach's signature was required on all checks and his approval required for the payment of all bills; no one else could approve them. Plaintiff could not sign checks without Brach's approval either, she said. “Mr. Brach was adamant that he was the only one that ever signed checks. He made that very clear” (Doc. 68, 62:11–13). She added that plaintiff had nothing to do with payables or with payroll. At one point, plaintiff had to ask Brach for his own paycheck.

But plaintiff had check-signing authority. He wrote or signed over 1,700 checks from one checking account. 3 Indeed, he signed all of Gateway Beef's checks between January–May 2004, and most checks after that through July 2004, including payroll checks, checks to himself and his company (the Tarpoff Packing Company), and checks to the U.S. Treasury. Plaintiff explained that “whatever checks were given to me, I would look at them, glance at them, and sign them” (Doc. 59, 201:24–25). He looked at the bills provided with the checks to make sure they matched. But he did not ensure that Gateway Beef's accounts had sufficient funds before he wrote a check; he commented, “I had no idea what was in the account” (id., 146:16–18). He never called the bank, asked a bookkeeper to check the balance, or asked to see financial statements. Plaintiff could not recall whether he had ever refused to write or sign a check (id., 162:16–18, 203:1–3). Nonetheless, he ventured that he could have refused and told Brach, “You're on your own. Got to sign everything yourself” (id., 203:4–11).

Plaintiff signed checks in 2004 for Gateway Beef's delinquent 2003 taxes. He testified, however, that he did not know as of March 31 or June 30, 2004, whether Gateway Beef had paid its payroll taxes or whether the checks he'd signed were for delinquent taxes. Nor did he look into whether the payroll taxes had been paid. A pattern of writing the company's payroll checks without inquiring into the taxes continued through July 2004. Even so, plaintiff was aware of an employer's duty to pay withholding taxes; he had paid them himself in the past, as the president of a different company.

Brach directed the hiring and firing of employees at Gateway Beef. He would give instructions to plaintiff, who would then carry them out, working with the unions if necessary. Plaintiff interviewed new employees and suggested new hires to Brach and the Cooperative. With Brach's permission, plaintiff hired his sons when they were home from school. He had also hired employees at Gateway Beef, Inc. (a separate organization) who later became employees of Gateway Beef, LLC.

Gateway Beef lost money throughout its short existence. Plaintiff had advised Brach in the beginning that he expected Gateway Beef to lose $8,000–10,000 per week until improvements to the facilities could be made. Those improvements were never completed, though. At some point, Brach stopped paying the payroll taxes and certain bills. Caughron calculated the payroll tax withholdings and would send the amounts to Brach. She sent him checks to pay the taxes, but he did not return them. When she pressed him on the issue, Brach told her to contact his accountant, Michelle Weiss. So Caughron faxed letters from the IRS to Weiss three or four times per week. She also notified the treasurer of the Cooperative, Bill Boston, that the taxes were not being paid. Caughron said she made statements to plaintiff that Brach was not paying the taxes, though she did not say when.

At least ten checks plaintiff wrote between March–May 2004 bounced. He testified that he only knew about one check at the time, however. As the head cattle buyer, plaintiff attended cattle auctions. At one auction, he wrote a check to Calloway Livestock for about $49,000. A week later when plaintiff returned to the auction barn, one of the owners informed him the Calloway check had bounced. Plaintiff immediately called Brach and others at Gateway Beef, but was unable to reach anyone. He finally spoke with the president of the Cooperative, Rob Meyer. But Meyer too failed to come up with funds to cover the check. Plaintiff then offered to cover it himself, but said he didn't have the money and Gateway Beef would need to pay him back. Meyer guaranteed that plaintiff would have his money back in a few days. Plaintiff was never repaid, however, and ultimately had to refinance his home.

Gateway Beef ceased operations in July 2004, and plaintiff left. Later, after learning some vendors had not been paid, he suspected that the withholding taxes had not being paid either. Toward the end of 2004 or early 2005, Boston told him Brach had not paid the taxes, and Caughron told him she had been receiving the notices from the IRS.

The IRS has levied a total penalty of $66,693.02 against plaintiff to recover Gateway Beef's unpaid withholding taxes for the tax periods ending March 31 and June 30, 2004, under 26 U.S.C. § 6672 (Doc. 27, p. 7). Plaintiff brings this suit to recover money the IRS withheld from one of his tax refunds, as well as money he paid under protest, with interest. He also seeks an abatement of the remainder of the penalty. Defendant counterclaims to collect the remainder.

III. Judgment as a Matter of Law

In ruling on a renewed motion for judgment as a matter of law, the district court may: “(1) allow judgment on the verdict, if the jury returned a verdict; (2) order a new trial; or (3) direct the entry of judgment as a matter of law.” Fed. R. Civ. P. 50(b). The court may direct the entry of judgment as a matter of law only if there was not a legally sufficient evidentiary basis for the jury's verdict. Thomas v. Cook Co. Sheriff's Dep't, 604 F.3d 293, 301 (7th Cir.), cert. denied, 131 S. Ct. 643 (2010); Alexander v. Mount Sinai Hosp. Med. Ctr., 484 F.3d 889, 902 (7th Cir. 2007);Tincher v. Wal-Mart Stores, Inc. , 118 F.3d 1125, 1129 (7th Cir. 1997). The question for the court is whether, in light of the evidence, a reasonable jury could have found in favor of the nonmoving party. Marcus & Millichap Inv. Servs. of Chi., Inc. v. Sekulovski, 639 F.3d 301, 313 (7th Cir. 2011). Only if no rational jury could have found for the nonmoving party may the jury's verdict be overturned.Thomas , 604 F.3d at 301; Waite v. Bd. of Trs. of Ill. Cmty. Coll. Dist. No. 508, 408 F.3d 339, 343 (7th Cir. 2005).

The court views the evidence in the light most favorable to the nonmoving party and draws all reasonable inferences in that party's favor. Sekulovski, 639 F.3d at 313;Waters v. City of Chi. , 580 F.3d 575, 580 (7th Cir. 2009). The court may not weigh the evidence or make credibility determinations. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); Thomas, 604 F.3d at 300.

A. Liability Under 26 U.S.C. § 6672

Employers are required to withhold Social Security and income taxes from employees' wages. 26 U.S.C. § 3102, 3402;United States v. Running , 7 F.3d 1293, 1294 [72 AFTR 2d 93-6300] (7th Cir. 1993). Those withholdings must be held in trust for the benefit of the United States. 26 U.S.C. § 7501;Running , 7 F.3d at 1294. If the employer fails to do that, then certain individuals in the company may be personally liable under 26 U.S.C. § 6672. Further, an assessment of a tax deficiency by the IRS is presumed to be correct, so an individual against whom the assessment is made bears the burden of proving it is incorrect. United States v. Kim,111 F.3d 1351, 1357 [79 AFTR 2d 97-2238] (7th Cir. 1997); Running, 7 F.3d at 1297.

To be personally liable, the individual must be (1) a “responsible person” who (2) has “willfully” failed to collect, account for, or pay over payroll taxes to the United States. Jefferson v. United States, 546 F.3d 477, 480 [102 AFTR 2d 2008-6572] (7th Cir. 2008). Such a person is “liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.” § 6672(a). A “person” under this section “includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.” 26 U.S.C. § 6671(b); accord Running, 7 F.3d at 1297. “Corporate office does not, per se, impose the duty to collect, account for and pay over the withheld taxes.” Monday v. United States, 421 F.2d 1210, 1214 [25 AFTR 2d 70-548] (7th Cir. 1970). Rather, the duty “attaches to those with power and responsibility within the corporate structure for seeing that the taxes withheld from various sources are remitted to the Government.” Id. (citingScott v. United States , 354 F.2d 292, 296 [16 AFTR 2d 6087] (1965)). “This duty is generally found in high corporate officials charged with general control over corporate business affairs who participate in decisions concerning payment of creditors and disbursal of funds.” Id. at 1214–15. But officer status, or even employment with the company, is not required. Haffa v. United States, 516 F.2d 931, 936 [36 AFTR 2d 75-5056] (7th Cir. 1975).

B. Responsible Person

Defendant argues first that there was not a legally sufficient evidentiary basis for a reasonable jury to find that plaintiff was not a responsible person at Gateway Beef during the time period at issue. There were many factual disputes in this case, however, as well as credibility issues. The Court finds that nothing rises to an issue of law that must be taken away from the jury.

A person is responsible if ““he retains sufficient control of corporate finances that he can allocate corporate funds to pay the corporation's other debts in preference to the corporation's withholding tax obligations.””Jefferson , 546 F.3d at 480 (quoting Bowlen v. United States, 956 F.2d 723, 728 [69 AFTR 2d 92-783] (7th Cir. 1992));accord Running , 7 F.3d at 1297; United States Internal Revenue Serv. v. Charlton, 2 F.3d 237, 240 [72 AFTR 2d 93-5723] (7th Cir. 1993). It is sufficient if the person has ““significant control over the disbursal of corporate funds.”” Running, 7 F.3d at 1297 (quotingPurdy Co. of Ill. v. United States , 814 F.2d 1183, 1188 [59 AFTR 2d 87-748] (7th Cir. 1987)). Thus more than one person can be responsible. Id. “Having significant control does not mean having exclusive control over the disbursal of funds or the final say over whether taxes or bills are paid.”Thomas v. United States , 41 F.3d 1109, 1113 [79 AFTR 2d 97-668] (7th Cir. 1994). “[T]he key to liability under  section 6672 is the power to control the decision-making process by which the employer corporation allocates funds to other creditors in preference to its withholding tax obligations.”Jefferson , 546 F.3d at 480 (quotingBowlen , F.2d at 728).

Factors indicating a person is responsible include holding corporate office, checkwriting authority (and authority to refuse to write checks), Thomas, 41 F.3d at 1114, serving on the board of directors, Kim, 111 F.3d at 1362, owning stock or holding an entrepreneurial stake in the corporation, Bowlen, 956 F.2d at 728, authority to disburse funds on behalf of the company, the ability to take out loans on behalf of the company, and the ability to hire and fire employees, Charlton, 2 F.3d at 240.

Here, certain points raised by the parties are not relevant. For instance, defendant asserts that plaintiff was the highest-paid individual at Gateway Beef. But “compensation is not the touchstone for liability under section 6672.”Running , 7 F.3d at 1298. Other points include plaintiff's involvement in day-to-day affairs of the company, his close contact with employees and the local bank, his union membership, and his office having once been a storage closet. The ultimate issue is whether plaintiff had sufficient control of Gateway Beef's finances that he could allocate funds to pay Gateway Beef's other debts in preference to its withholding-tax obligations.

So, of somewhat more relevance is defendant's argument that plaintiff “repeatedly” held himself out as the secretary (or member or manager), that he attended meetings of the board of directors, and that he was the sole organizer of Gateway Beef. Besides exaggerating, however, defendant is viewing the evidence in the light most favorable to itself, the moving party, which is incorrect on this motion. The only evidence of officer status was the preprinted bank forms. Plaintiff did not even write the titles on them himself. See Ruth v. United States, 823 F.2d 1091, 1094 [61 AFTR 2d 88-1041] (7th Cir. 1987) (taxpayer signed company documents as “secretary” or “secretary-treasurer”). Plaintiff testified that he was not an officer, member, or manager and that he had never attended a meeting of the board of directors. The jury was entitled to believe him.

Defendant next asserts that plaintiff could open accounts, endorse checks, withdraw funds, and enter agreements for financial products on behalf of Gateway Beef. Further, he wrote or signed over 1,800 checks. Therefore, defendant argues, plaintiff's ability to sign checks gave him the power to direct the finances of Gateway Beef by making decisions about which checks to write and sign. Yet signing checks, even 1,800 checks, is not enough. See Jefferson, 546 F.3d at 481 (finding taxpayer responsible because his significant involvement in financial affairs “included more than simply writing checks”). Plaintiff testified that he did not make decisions about which checks to sign. He only looked at the checks to make sure they matched the bills, then signed them. And Caughron said he had nothing to do with payables. It is apparent that the jury gave greater weight to the witnesses' testimony than to the checks plaintiff wrote.

In reference to one of the factors above, defendant claims plaintiff had the authority to hire and fire employees—that he interviewed potential hires, made suggestions, and hired Caughron, his sons, and a cousin to work at Gateway Beef. By comparison, in Thomas v. United States, two taxpayers were found to be responsible partly because they could hire and fire personnel in their chains of command, possibly subject to “perfunctory” approval by the CEO. 41 F.3d at 1114. Here, plaintiff interviewed, offered suggestions, and carried out Brach's directions, none of which is authority to hire and fire personnel (subject to perfunctory approval). Plaintiff testified he could not hire his own sons for temporary work without Brach's permission. More importantly, though, this factor merely highlights the factual disputes in this case. 4

Defendant next argues that plaintiff “invested” $50,000 in Gateway Beef when he covered the Calloway check. Yet the reasonable inference in plaintiff's favor is that he had solittle control of Gateway Beef's finances he could not even recover his loan money. The jury also heard plaintiff testify that he made no capital contributions and was not an owner or shareholder.

Another factor is the authority to refuse to write checks. Defendant says plaintiff never refused to write or sign a check “even though it was within his ability to do so.” Defendant therefore argues that plaintiff failed to show he could not have impeded Gateway Beef's business by refusing to sign or issue checks. See Thomas, 41 F.3d at 1113. On this theory, plaintiff allegedly “let millions of dollars flow out of Gateway Beef, LLC's accounts to creditors other than the United States, with his lone signature.” But defendant again misstates the evidence by claiming it was within plaintiff's ability to refuse to write or sign checks. Plaintiff did not recall ever refusing. He suggested he probably could have, but that was speculation. Consequently, defendant's conclusion that plaintiff could have impeded the flow of dollars out of the company with his lone signature is unfounded. Further, Brach also signed checks (see, e.g., Doc. 64, Ex. H, p. 49). The jury could have drawn the reasonable inference that he would have signed them himself had plaintiff refused.

And even if plaintiff did have authority to refuse to sign checks, that would not, by itself, constitute significant control over the disbursal of corporate funds. In Thomas v. United States, which defendant cites, the Seventh Circuit found sufficient evidence for a reasonable person to conclude that two of the taxpayers could have impeded the functioning of the company by refusing to sign checks and by refusing to permit the payroll to go forward until the company paid its taxes. 41 F.3d at 1114. They were both officers of the company who supervised accounting, finance, and payroll. Id. They could determine whether to pay bills under $1,000 and could prioritize the payment of bills over $1,000. Id. Here, plaintiff had much less control than those taxpayers. He was not an officer; had no supervisory authority over accounting, finance, or payroll; and did not determine whether to pay or how to prioritize any payments. Similarly, in the other cases defendant cites, the taxpayers found to be responsible were all officers or shareholders of the companies. See Running, 7 F.3d at 1294, 1298 (vice president);Bowlen , 956 F.2d at 728 (owners, officers, and directors); see also Jefferson, 546 F.3d at 481 (president of the board of directors); Purdy Co., 814 F.2d at 1187 (owner); Monday, 421 F.2d at 1215 (officer and owner).

The Court concludes that, in light of the evidence, a reasonable jury could have found plaintiff was not a responsible person. Plaintiff is therefore not liable under § 6672 and defendant's motion for judgment as a matter of law must be denied. Even so, the Court will consider defendant's arguments that plaintiff willfully failed to collect, account for, or pay over payroll taxes to the United States.

C. Willfulness

Defendant sets forth a number of theories attempting to show, as a matter of law, that plaintiff acted willfully. All these theories depend on assertions about plaintiff's knowledge that were contested at trial, however. They depend on credibility issues, which cannot be decided by the Court on this motion.

Under 26 U.S.C. § 6672(a), a person who is responsible for collecting, accounting for, and paying payroll taxes is liable if he “willfully” fails to do any of those things.Jefferson , 546 F.3d at 480. In this context, willful means ““voluntary, conscious and intentional—as opposed to accidental—decisions not to remit funds properly withheld to the Government.”” Id. at 481 (quoting Domanus v. United States, 961 F.2d 1323, 1324 [69 AFTR 2d 92-1193] (7th Cir. 1992)). A responsible person is willful if he pays other creditors after he knows of the employer's failure to pay the withheld funds to the government. Id.;United States v. Kim , 11 F.3d 1351, 1357 (7th Cir. 1997). Willful can also mean that the person ““recklessly disregarded a known risk that the taxes were not being paid over.”” Jefferson, 546 F.3d at 481 (quotingKim , 111 F.3d at 1357); accord Mortenson v. Nat'l Union Fire Ins. Co., 249 F.3d 667, 670 (7th Cir. 2001);Thomas , 41 F.3d at 1114.

Defendant argues that plaintiff knew Gateway Beef had not paid the government and paid other creditors instead, again citingThomas v. United States . 41 F.3d at 1114. Regarding direct knowledge, in Thomas, two of the taxpayers admitted knowing the company was failing to pay its withholding taxes. Id. Here, plaintiff made no such an admission. According to defendant, plaintiff knew about unpaid withholding taxes in the past, had received notices from the IRS, and was “continuously kept informed of the status of the unpaid taxes” (Doc. 64, p. 11). 5 These are not facts in the record, however. 6 The IRS sent notices to Gateway Beef's offices at the packing facility (Doc. 59, 207:20–208:12), plaintiff signed checks for delinquent withholding taxes in 2004, and IRS account transcripts show that delinquent 2003 taxes were paid in 2004. But plaintiff testified he did not know whether Gateway Beef had paid its payroll taxes or whether the checks he'd signed were for delinquent taxes. 7 He was not receiving the IRS notices himself because they went to Caughron, and she passed them along to Brach and his accountant, Weiss, not to plaintiff. Plaintiff claimed that he first learned about the IRS notices and suspected the taxes had not been paid in late 2004, after the tax quarters at issue and after he had left Gateway Beef. These were all facts for the jury to assess.

Taking a different tack, defendant argues that plaintiff knew the withheld taxes were not being paid because he was aware of an employer's duty to pay its withholding taxes, having once paid them himself at a different company. Yet plaintiff still wrote over 1,700 of the 1,900 checks written on Gateway Beef's checking accounts during the defaulted periods, including payroll checks, without paying the taxes. As a result, defendant claims, he would have known that checks were not being written to the government. This is a negligence argument, though. Saying plaintiff was awarein general of an employer's duty to pay its payroll taxes, and what he would or should have known, is different from saying plaintiff voluntarily, consciously, and intentionally decided not to remit funds to the government.

Defendant also argues that plaintiff recklessly disregarded a known risk that the payroll taxes had not been paid. The Seventh Circuit has held that reckless disregard includes gross negligence, meaning the responsible person ““(1) clearly ought to have known that (2) there was a grave risk that withholding taxes were not being paid and if (3) he was in a position to find out for certain very easily.””United States v. Running , 7 F.3d 1293, 1299 [72 AFTR 2d 93-6300] (7th Cir. 1993) (quoting Wright v. United States, 809 F.2d 425, 427 [59 AFTR 2d 87-467] (7th Cir. 1987)).

Again, defendant points to plaintiff's having signed so many checks, including payroll checks, without ensuring the withholding taxes had been paid. According to defendant, plaintiff knew about mismanagement and the past failures to pay the taxes. Or, allegedly, he was in a position to find out for certain very easily because he worked at Gateway Beef every day and could have studied its records or the bank records. He also allegedly knew Gateway Beef was in financial trouble because he had projected losses of $8,000–10,000 per week and at least ten checks were returned for insufficient funds. Defendant concludes that plaintiff clearly ought to have known there was a grave risk the taxes were not being paid.

In a case cited by defendant, United States v. Wright, the taxpayer was the corporate secretary of a small company and one of only three principals. 809 F.2d at 426–27. As such, “[h]e had a right to look at [the company's books] and the knowhow to understand them.” Id. at 427–28. Merely “[a] glance would have revealed the tax delinquencies.” Id. at 428. He also knew the company had a history of not paying its withholding taxes and that its finances continued in a “parlous state.”Id. at 427–28. On those facts, the court of appeals did not find clear error in the district court's conclusion that the taxpayer had acted recklessly in failing to inquire about the taxes. Id. at 428. 8 Here, plaintiff had check-signing authority and was a signatory on the bank accounts. That is not the same as being a corporate secretary or a principal,i.e. , one whose position gives one the right to look at the company's books. It is not known whether merely a glance at the books would have revealed Gateway Beef's delinquencies. And, as discussed earlier, plaintiff did not know about a history of not paying the taxes. There is also little or no evidence he knew the company was losing money. Plaintiff only knew about one of the returned checks (the Calloway check). And predicting losses in the beginning is one thing; a parlous state is another. On these facts, a reasonable jury could have found, quite readily, that plaintiff's actions did not amount to reckless disregard. It is not a question the Court can decide as a matter of law.

Defendant also contends that plaintiff was willful because he used “unencumbered funds” to pay creditors other than the United States. If a responsible person learns that withholding taxes were not paid in past quarters when he was also responsible, he is under a duty to use all unencumbered funds available to the corporation to pay the taxes. Kim, 111 F.3d at 1157 (citing Garsky v. United States, 600 F.2d 86, 91 [44 AFTR 2d 79-5111] (7th Cir. 1979)). A responsible person cannot argue that the actual funds withheld were spent and that funds acquired later were not “trust funds” owed to the United States. Garsky, 600 F.2d at 90. But defendant does not argue that here. Defendant is actually restating a definition of willfulness (paying other creditors after knowing of the employer's failure to pay the withheld funds to the government). This case was not about unencumbered funds because plaintiff did not learn about the unpaid taxes until after Gateway Beef had closed and he had left.

Finally, defendant inserts a paragraph in its brief complaining that plaintiff set forth erroneous theories of the case: that Brach was responsible, and therefore plaintiff was not; that plaintiff only acted on Brach's orders; and that Brach had the final say on which bills were ultimately paid (Doc. 64, p. 14). The Court does not find that plaintiff argued these theories, however, and defendant does not include citations to relevant legal authority and to the record. Since the allegations are not supported by citation, the Court declines to consider them. See SDIL-LR 7.1(d).

Accordingly, the Court finds that a reasonable jury could have found, even if plaintiff was a responsible person, that he did not willfully failed to collect, account for, or pay over payroll taxes to the United States. This forms a separate basis for finding plaintiff not liable under § 6672 and for denying defendant's motion for judgment as a matter of law.

IV. Rule 59 Motion for New Trial

A. The Weight of the Evidence

After a jury trial, the district court may grant a new trial on all or some of the issues “for any reason for which a new trial has heretofore been granted in an action at law in federal court.” Fed. R. Civ. P. 59(a)(1)(A). The motion may be granted if the verdict is ““against the clear weight of the evidence or the trial was unfair to the moving party.””Clarett v. Roberts , 657 F.3d 664, 674 (7th Cir. 2011) (quoting David v. Caterpillar, Inc., 324 F.3d 851, 863 (7th Cir. 2003)); accord Mejia v. Cook Cnty., Ill., 650 F.3d 631, 633 (7th Cir. 2011). In reviewing the motion, the court has the power to “get a general sense of the weight of the evidence, assessing credibility of the witnesses and the comparative strength of the facts put forth at trial.”Mejia , 650 F.3d at 633.

Here, in three sentences, defendant claims that its motion for judgment as a matter of law and its statement of facts show that the weight of the evidence does not support the jury's verdict. Defendant offers no analysis, however, so it waives this argument. E.g., United States v. Adams, 625 F.3d 371, 378 (7th Cir. 2010). In any case, the principal evidence offered by defendant was plaintiff's check-signing authority and the checks bearing his signature. The two witnesses who had actually worked at Gateway Beef testified, credibly, that plaintiff played virtually no role in finances—once, he even had to ask for his own paycheck. And plaintiff did not learn about the delinquent taxes until after Gateway Beef had closed. The Court cannot conclude, given the testimony and facts presented, that the jury's verdict is against the clear weight of the evidence.

B. Jury Instructions

For a new trial to be granted based on an erroneous jury instruction, the moving party must show that the instructions, as a whole, were not sufficient to inform the jury of the applicable law and that an instruction so misled the jury that it prejudiced the moving party. Marcus & Millichap Inv. Servs. of Chi., Inc. v. Sekulovski, 639 F.3d 301, 308 (7th Cir. 2011);Fox v. Hayes , 600 F.3d 819, 843 (7th Cir. 2010);Cruz v. Safford , 579 F.3d 840, 843 (7th Cir. 2009). An instruction can cause prejudice by being confusing or misleading. Cruz, 579 F.3d at 840; Boyd v. Ill. State Police, 384 F.3d 888, 894 (7th Cir. 2004).

Defendant requested the following be given as Instruction No. 22:

A person with check-writing authority is not absolved of liability under § 6672 merely because he wrote checks, or did not write checks, under orders from a superior, even if disobeying a superior's orders would result in termination.

(Doc. 60, 9:5–16). When the Court declined that instruction, defendant objected that the following addition should be made to Instruction No. 17 or 18 instead:

A person need not have the final word as to which creditor be paid so long as he had significant control.

(id., 9:5–16). Defendant citedThomas v. United States , 41 F.3d 1109, 1113 [79 AFTR 2d 97-668] (7th Cir. 1994) and Bowlen v. United States, 956 F.2d 723, 728 [69 AFTR 2d 92-783] (7th Cir. 1992). But the Court denied that “final word” addition because the subject matter had been covered by another instruction and the Court did not want to unduly highlight the issue (Doc. 60, 9:17–19).

Instructions given to the jury included these:

Under the law you are allowed to consider, among other evidence of whether a person is a responsible person, factors including possessing authority to sign checks, ... significant control over a corporation's finances, ....

(id., 27:22–28:3).

The fact that someone else at the corporation may also have been responsible for collecting, accounting for, or paying over withheld taxes will not relieve a person of responsibility. There may be more than one responsible person. Even if another individual is “more responsible” or has more authority over the employer's financial affairs, that does not make another not responsible under Section 6672. Therefore, even if you determine that someone else was more responsible than Mr. Tarpoff, that should have no effect on your determination as to whether Mr. Tarpoff was also responsible.

(id., 28:5–15). The following was Instruction No. 17:

The law provides that a person is a “responsible person” under Section 6672 “if he retains sufficient control of corporate finances such that he can allocate corporate funds to pay the corporation's other debts in preference to the corporation's withholding tax obligations.” Sufficient control does not mean exclusive control.

(id., 29:18–23). The following was Instruction No. 18:

A person need not have “exclusive” control over the corporation's financial affairs or general decision-making in order to be responsible for collecting, accounting for, or paying over the taxes. It is sufficient that a person has significant control. Thus, if his control is exercised jointly with others, the person is no less responsible.

(id., 29:5–10).

Defendant objects that the instructions given did not sufficiently instruct the jury that the law does not afford a defense to liability to those who rely on orders or authorization from superiors when writing checks, as stated in the proposed Instruction No. 22. Defendant says it is no defense to liability that a person wrote checks, or did not do so, on orders from a superior.

This argument was not made at trial, however, and the meretendering of a proposed instruction is not enough to preserve an objection. Consumer Prods. Research & Design, Inc. v. Jensen, 572 F.3d 436, 439 (7th Cir. 2009);Griffin v. Foley , 542 F.3d 209, 221 (7th Cir. 2008);Schobert v. Ill. Dep't of Transp. , 304 F.3d 725, 729 (7th Cir. 2002). The party must make its objection on the record, “stating distinctly the matter objected to and the grounds for the objection.” Fed. R. Civ. P. 51(c)(1); accord Jensen, 572 F.3d at 439; Schmitz v. Canadian Pac. Ry. Co., 454 F.3d 678, 683 (7th Cir. 2006). And the party must object when given the opportunity to do so, out of the jury's hearing and before the instructions and arguments are delivered. Fed. R. Civ. P. 51(c)(2) & (b)(2); Lewis v. City of Chi. Police Dep't, 590 F.3d 427, 434 (7th Cir. 2009); Griffin, 542 F.3d at 221. Defendant here did not object on the record for a failure to give Instruction No. 22 (nor state distinctly the matter objected to and the grounds for such an objection). Instead, defendant objected that it wanted the addition about having the “final word” given.

Nevertheless, even if a party does not properly object, “[a] court may consider a plain error in the instructions ... if the error affects substantial rights.” Fed. R. Civ. P. 51(d)(2); accord Lewis, 590 F.3d at 434; Jensen, 572 F.3d at 439; Griffin, 542 F.3d at 222. An error affects substantial rights to warrant reversal if it is ““of such great magnitude that it probably changed the outcome of the trial.””Lewis , 590 F.3d at 434 (quoting United States v. Noel, 581 F.3d 490, 499 (7th Cir. 2009);accord Mesman v. Crane Pro Servs. , 512 F.3d 352, 357 (7th Cir. 2008).

But omitting Instruction No. 22 was not a plain error. On the contrary, to say “[a] person with check-writing authority is not absolved of liability” means that check-writing authority makes the person liable, which would have been an error. The instructions given correctly informed the jury that check-writing authority, the “authority to sign checks,” is among the factors to consider. See, e.g., Bowlen, 956 F.2d at 728. Moreover, defendant's argument, that “it is no defense to liability that a person wrote checks or did not write checks” on orders from a superior, is off the mark. In Thomas, the court of appeals declined to hold, as a matter of law, that following orders from a superior absolves a responsible person of liability. Thomas, 41 F.3d at 1115. Specifically, the jury had heard about the taxpayers' allegedly “helpless, subservient roles” to their superior but still found they were both responsible and willful.Id. at 1115–16. The court reviewed the facts (including that the taxpayers supervised finance and accounting) and concluded there was “plenty of evidence” for the jury reasonably to reach its verdict. Id. at 1116. Thus,Thomas actually suggests following orders from a superior could be a viable argument for a taxpayer, depending on the facts. 9 Consequently, the Court does not find that omitting Instruction No. 22 was plain error. This discussion about Instruction No. 22 could end here without considering whether defendant's substantial rights were affected. See Schandelmeier-Bartels v. Chi. Park Dist., 634 F.3d 372, 387 (7th Cir. 2011). But the Court will briefly discuss that below.

Regarding the “final word” addition, defendant claims the jury was not sufficiently informed that the law does not require a person to have final say or the last word on financial activities to be responsible. See Thomas, 41 F.3d at 1113 (citing Bowlen, 956 F.2d at 728) (“[S]ignificant control does not mean having exclusive control ... or the final say over whether taxes or bills are paid.”). While the instructions given did not specifically state the a person need not have the final word, they did convey both that there can be more than one responsible person and that another person may have more authority over financial affairs. Defendant's addition would have been cumulative because a person who has the final wordis a person who has more authority over financial affairs. The instructions also said “[i]t is sufficient that a person has significant control,” which does not suggest the person must have the final word; it suggests having the final word is unnecessary. Therefore, on reviewing the instructions given, the Court finds that they were, as a whole, sufficient to inform the jury of the applicable law.

Defendant refers to its earlier complaint that plaintiff relied on “erroneous theories”; namely, that he acted only on Brach's authority, and that Brach had the final say on which bills were paid. Again, however, defendant waives this point by not citing to the record. Moreover, the Court has already reviewed the considerable evidence about plaintiff's role in the company, as well as the holding in Thomas.

Defendant believes it was prejudiced by the omitted instructions. The jury asked these questions during deliberations:

((1)) What was the procedure for writing, signing, approving checks and mailing checks for the period of January–June 2004?

((2)) Who determines which checks get mailed?

(Doc. 60, 87:12–15). Defendant says those questions show the jury was “hung up on whether, how, and by whom bill payments needed to be approved, and who had final say, via the ability to determine which checks were mailed, and to which creditors.”

When the jury sent out these questions, both parties agreed they were factual issues. Defendant's counsel recommended that the jurors look at everything in evidence, including the testimony and documents (Doc. 60, 88:4–6). The Court prepared the following proposed answer: “You will have to be guided by the evidence presented at trial and any reasonable inferences to be drawn from that evidence” (id., 88:7–10). Defendant had no objection (id., 11–13).

Plaintiff responds that defendant therefore waived this argument. It could have objected to the proposed answer and offered a supplemental instruction. See United States v. Willis, 523 F.3d 762, 775 (7th Cir. 2008) (by agreeing to the court's response to a jury note, appellant waived his objection on appeal); United States v. Askew, 403 F.3d 496, 505 (7th Cir. 2005). Yet defendant is suggesting that the jury's questions are evidence of prejudice, not objecting to the Court's proposed answer. So it would not seem waiver applies.

In addition to waiver, plaintiff responds that defendant is merely speculating about whether the jury was confused, and speculation is not sufficient to support a motion for a new trial. See Schandelmeier-Bartels, 634 F.3d at 387. The Court agrees. It is far from clear the jury was confused about the law. Indeed, the Court still agrees with defendant's response at trial that the jury's questions were factual issues. This case was highly fact specific, and the process of paying bills was not fully explained. For instance, Caughron testified that no one but Brach could sign checks, but plaintiff did actually sign most of the checks. The jury was left to sort out these and (many other) details. The Court cannot speculate about what else the questions might have meant.

Finally, defendant could not have been prejudiced by the omission of the “final word” addition. For one, plaintiff did not argue he would have paid the taxes but someone else had the final word and did not allow it. He claimed that he merely signed the checks put in front of him. And there were many other facts available for the jury to find that plaintiff was not responsible and not willful. Likewise, omitting proposed Instruction No. 22 could not have affected defendant's substantial rights because plaintiff did not argue he would have paid the taxes but his superior ordered him not to. Consequently, even if omitting that instruction was plain error, it was not of such great magnitude that it probably changed the outcome of the trial.

V. Conclusion

For the reasons above, defendant United States of America's renewed motion for judgment as a matter of law and its alternative motion for a new trial (Doc. 64) are DENIED. The Court allows judgment on the jury's verdict. Plaintiff's motion to supplement is GRANTED (Doc. 70).

IT IS SO ORDERED.

Signed this 15th day of February, 2012.

David R. Herndon

Chief Judge

United States District Court

2012.02.15

15:04:13 -06'00'

1

  All references in this order to “Gateway Beef” are to this entity, the limited liability company. The Court will use the full name “Gateway Beef, Inc.” when it refers to that entity. “Gateway Beef Cooperative” will be shortened to the “Cooperative.”

2

  Plaintiff also attested that all mail went to a P.O. Box and was retrieved by the bookkeeper.

3

  Defendant provides a 57-page summary of Gateway Beef's checks written from October 2003–August 2004 (Doc. 64, Ex. H).

4

  Defendant's citation to the record does not indicate who hired either Caughron or plaintiff's cousin (see Doc. 59, 73:16–74:9, 140:3–9, 200:14–201:13). “Allegations of fact not supported by citation may, in the Court's discretion, not be considered.” SDIL-LR 7.1(d).

5

  Defendant presents these allegations in its argument about reckless disregard, but because defendant first asserts that plaintiff knew the taxes had not been paid here (Doc. 64, p. 9), the Court addresses the allegations here.

6

  Defendant's citations to the record are not accurate (see, e.g., Doc. 68, 130:17–24, 146:13–20, 147:2–8), and the Court has made a diligent effort to find the facts alleged, without success.See SDIL-LR 7.1(d).

7

  Defendant asserts that plaintiff never denied knowing that Gateway Beef was failing to pay the withholding taxes. On the contrary, as indicated above, he did deny it.

8

  The court cautioned, “Lest the reach of our decision be exaggerated, we emphasize that merely because a corporate officer has check-signing responsibilities and his corporation is in financial trouble, it does not follow that he can be held liable for any and all failures to pay withholding taxes.”Id. at 428.

9

  Indeed, the court says one of the taxpayers “simply waited too long to quit to shield himself from liability as a matter of law. Had he quit immediately ... or even shortly thereafter, we might find differently.” Id. at 1116.

U.S. v. RUNNING, Cite as 72 AFTR 2d 93-6300 (7 F.3d 1293), 10/13/1993 , Code Sec(s) 6672

---

U.S., PLAINTIFF-APPELLEE v. Marlow P. RUNNING, DEFENDANT-APPELLANT.

Case Information:

[pg. 93-6300]

Code Sec(s):	6672
Court Name:	U.S. Court of Appeals, Seventh Circuit,
Docket No.:	No. 92-3284,
Date Decided:	10/13/1993
Prior History:	District Court reversed.
Tax Year(s):	Years 1984, 1985.
Disposition:	Decision for Taxpayer.
Cites:	72 AFTR 2d 93-6300, 7 F3d 1293, 93-2 USTC P 50568.

HEADNOTE

1. 100% penalty—failure to collect or pay over tax—willfulness. District court improperly imposed 100% penalty without finding that former officer should have known withholding taxes weren't being paid and therefore acted willfully. Former officer was "responsible person" because he provided management and consulting service to nursing home owned and operated by former employer. Facility was current in paying taxes at time of officer's resignation, but failed to pay withholding taxes for last three quarters of year at issue. Officer resigned one month into this time period and worked under contract as consultant for remainder. IRS produced no evidence to show officer was responsible for preparing and filing facility's tax returns after resignation or that he had actual knowledge taxes weren't being paid. Knowledge of financial distress alone didn't equate to knowledge that facility wasn't meeting tax obligations.

Reference(s): ¶ 66,725.04(5) . Code Sec. 6672.

OPINION

Appeal from the United States District Court for the Eastern District of Wisconsin. No. 89 C 478 — Terence T. Evans, Chief Judge.

Before EASTERBROOK and KANNE, Circuit Judges, and ENGEL, Senior Circuit Judge. ^*

Judge: KANNE, Circuit Judge:

The Internal Revenue Code requires employers to withhold federal social security and income taxes from the wages of their employees. See 26 U.S.C. sections 3102 and 3402. The withheld taxes constitute a special fund held in trust for the benefit of the United States. See 26 U.S.C. section 7501(a); Slodov v. United States, 436 U.S. 238, 243 [42 AFTR2d 78-5011], 98 S. Ct. 1778, 1783 (1978). Code section 6672, the so called "100% penalty provision," imposes personal liability on individuals responsible for paying federal withholding taxes from employee wages who willfully fail to do so. The United States government brought this suit to reduce to judgment an unpaid 100% assessment against Ralph Thiel and the appellant, Marlow Running. The district court [pg. 93-6301] entered judgment for the government and Running appealed. We conclude that Running did not willfully fail to remit withholding taxes and therefore reverse.

I

In 1980, Ralph Thiel formed Good Shepherd Health Facilities, Inc., located in Columbus, Wisconsin, to provide ownership and management services to nursing homes. Thiel was president of the company; Marlow Running, who joined Good Shepherd in 1981, and Robert Siebel were corporate officers. Running worked primarily with nursing homes managed by Good Shepherd, assisting with their accounting and financial reporting systems to ensure compliance with Medicare and Medicaid requirements. In 1982, Good Shepherd purchased Bethel Care Center, Inc., which operated a nursing home in Milwaukee. Running served as the vice president of Bethel. At the time of the purchase, both he and Siebel were aware that Bethel had financial problems.

In 1983, Nicki Rieckhoff was hired as Bethel's in-house administrator responsible for the day-to-day management and operation of the facility. Rieckhoff, who had signing authority on Bethel's bank account along with Running, Thiel, and Joanne Gmirek, Bethel's office manager, reported to Running on business matters and to Siebel on operational ones. In general, Rieckhoff paid Bethel's creditors, but testified at trial that she had to get authorization from Good Shepherd to pay any amount over $200.

In the spring of 1984, Running and Siebel, concerned about Good Shepherd's financial condition and the way Thiel was running the company, resigned. Running's resignation letter, dated April 23, 1984, stated that he was resigning "as the Vice-President of Finance and as a Director of Good Shepherd Health Facilities, Inc.[,] effective April 30, 1984." The letter makes no mention of Bethel; Running testified at trial that he assumed his resignation from Good Shepherd was a resignation from the entities it owned and operated.

Upon leaving Good Shepherd, Running and Siebel worked for Health Facilities Consultant, Inc. ("HFC"), in which they owned equal shares. The two formed HFC to provide management and consulting services to health care facilities on a fee for service basis. Running's work for HFC was substantially the same as the work he performed for Good Shepherd, and if relations between Running and Siebel on the one hand, and Thiel on the other, had cooled, they were not chilled. Indeed, HFC arranged to perform consulting services for five nursing homes managed by Good Shepherd. Under the management contracts between Good Shepherd and these facilities, each home would pay Good Shepherd for the consulting work done by HFC; Good Shepherd would pocket 25% of the fee and remit the remainder to HFC. HFC maintained an office in Siebel's home in Colorado. In addition, until March 1985, Running and Thiel shared office space in Columbus that had previously been occupied solely by Good Shepherd. The two men split rent and costs.

On May 1, 1984, HFC entered into a management and consulting agreement with Good Shepherd to manage Bethel. Under the terms of the agreement, HFC was to insure that Bethel complied "with the requirements of any statute, ordinance, law, rule, regulation or order of any governmental or regulatory body having jurisdiction in the premises." In addition, HFC was to "establish, supervise, direct and maintain" Bethel's accounting system; to "purchase the food, beverages, equipment, operating supplies and other material and supplies in the name of" Good Shepherd, and "cause vendors of services, inventory, equipment and supplies" to bill Good Shepherd and Bethel directly, which were to "promptly pay all such bills when due"; and to be responsible for recruiting, hiring, training, compensating, and firing Bethel employees.

For its services, HFC was to receive under the contract a fee of $1.50 per patient per day, but not less than $20,000 annually. There was no testimony that HFC specifically provided the aforementioned services; for what assistance HFC did provide, it was never compensated by Bethel or Good Shepherd.

Rieckhoff, Bethel's administrator, testified that when she called Good Shepherd's office in Columbus she usually spoke to Running, but sometimes spoke with Thiel. Rieckhoff stated that Thiel was out of the office most of the time and Running was more accessible. She also testified that, on approximately a monthly basis, she would get authorization from Running over the phone to make a purchase for more than $200. She assumed that Good Shepherd's corporate office was responsible for the payment of Bethel's withholding taxes because that is where she sent blank copies of the Employer's Quarterly Federal Tax Return forms (Form 941) when they arrived. According to Rieckhoff, Bethel's cash flow grew steadily worse during her tenure.

On June 18, 1984, Good Shepherd sent a memorandum to each of its administrators describing a "change in corporate structure." [pg. 93-6302] The memo, which lists Thiel, Running, and Siebel as the authors, states, in part:

For some time, we have been discussing the proper way to structure Good Shepherd for maximum effectiveness to both secure additional facilities through purchase or leasing, as well as operating a management and consulting entity both for Good Shepherd facilities and for others who may need such a service. After considerable thought, we have seperated [sic] the two major functions into two seperate [sic] corporations, which, while cooperating very closely with one another, are legally seperate [sic] and distinct from one another.

What is now in place for each facility is an agreement between Good Shepherd, as the owner, lessee, or primary contractor, and Health Facility Consultants, Inc., as the management firm responsible for the day to day ongoing management of each facility. Good Shepherd continues its ultimate obligation for the facility, and HFC will act as its agent in each situation concerning the operation of the facility.

One impact of this change is a realignment of the three of us between the two corporations. Ralph will remain as President of Good Shepherd, and will continue to concentrate on expansion to new areas, and financing of the projects. Marlow and Bob have moved to Health Facility Consultants, with Bob serving as President, and Marlow as corporate Secretary and Treasurer, as well as remaining in charge of facility accounting and business office operations.

While under the agreements, this change makes the administrators responsible to HFC, your relationship with each of us should remain unchanged. For any questions or concerns about the lease or property related issues, including the facility financing, Ralph remains the resource. For questions about the facility accounting, business office, insurance, or related issues, Marlow remains the individual in charge, and for any other operational questions or concerns, please contact Bob.

Also in June 1984, Rieckhoff learned that the monthly Medicaid reimbursement due from the state of Wisconsin, which was ordinarily used to cover Bethel's payroll for the second half of each month, had been attached by the IRS. Rieckhoff testified that, to the best of her knowledge, this was the first time she was made aware of any problems with the IRS, though she did not recall if she was told why the IRS had attached the Medicaid reimbursement or the amount of money involved. Asked how she responded to the news of the attachment, Rieckhoff stated that she "called Columbus right away and ... talk[ed] to I believe it was Marlow Running." She told Running that the monthly Medicaid check was not forthcoming and that, as a result, she had no money to meet the payroll. Asked by counsel for the government if she notified Running "about the information [she] had received with regard to federal employment taxes," Rieckhoff said, "I don't recall at that time. Basically I, well, I knew that the money had been attached but I had no idea the amounts of moneys [sic] or what was due."

Bethel failed to pay federal withholding taxes for the second, third, and fourth quarters of 1984, and the first two quarters of 1985. Pursuant to section 6672, the IRS assessed taxes against Running in the amount of $136,615.12 for the last three quarters of 1984 and the first quarter of 1985. The government also made assessments against Thiel, Good Shepherd, and HFC in the amount of $147,535.34, for the last three quarters of 1984 and the first two quarters of 1985. In April 1989, the government brought suit against Running, Thiel, Good Shepherd, and HFC to reduce the unpaid portions of the assessments to judgment.

At trial, the government abandoned its claims against the two corporations because they were defunct. The district court found that Thiel, as "the person most in charge of the overall operation of Bethel," was responsible for paying Bethel's federal withholding taxes for the five quarters with which he was charged and had willfully failed to do so. Turning to Running, the court found that he was "significantly involved in the operation" of Bethel. In particular, the court determined that Running was an officer of Bethel who had management responsibilities under the 1984 managing and consulting agreement between HFC and Good Shepherd. According to the court, this documentary evidence, together with the testimony of Rieckhoff, "seal[ed] his fate." However, the court found that Running was able, in time, to put sufficient distance between himself and Bethel's operation, in "sort of a weaning situation," to absolve him of liability for some of the quarters charged by the government. Accordingly, the court found Running liable for the assessments made against him for the second and third quarters of 1984, but not for the fourth quarter of 1984 and the first quarter of 1985. Final judgment against Thiel in the amount of $240,594.77, and against Running in the amount of $75,438.73, was entered on August 11, 1992. Only Running appeals. We have jurisdiction under 28 U.S.C. section 1291. [pg. 93-6303]

II

Title 26 U.S.C. section 6672(a) states:

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 for a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. ...

"Person," as used in section 6672(a) "includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs." 26 U.S.C. section 6671(b).

There is a dispute between the parties over who bears the burden of proving responsibility and willfulness under section 6672. "In this circuit, as in others, '[i]t is axiomatic that ... the Commissioner's tax deficiency determinations are to be presumed correct.' " United States v. Schroeder, 900 F.2d 1144, 1148 [65 AFTR2d 90-998] (7th Cir. 1990) (quoting Barnes v. Commissioner, 408 F.2d 65, 68 [ 23 AFTR2d 69-895] (7th Cir.), cert. denied, 396 U.S. 836, 90 S. Ct. 94 (1969)). Thus, we think it well settled that, "once the government presents an assessment of liability, the taxpayer bears the burdens of production and persuasion" with respect to both the responsibility and willfulness issues. Ruth v. United States, 823 F.2d 1091, 1093 [61 AFTR2d 88-1041] (7th Cir. 1987). See also Schroeder, 900 F.2d at 1148; Sawyer v. United States, 831 F.2d 755, 758 [60 AFTR2d 87-5713] (7th Cir. 1987); Kinnie v. United States, 994 F.2d 279, 283 [71 AFTR2d 93-1979] (6th Cir. 1993); Barnett v. IRS, 988 F.2d 1449, 1453 [71 AFTR2d 93-1614] (5th Cir. 1993); Hochstein v. United States, 900 F.2d 543, 546 [65 AFTR2d 90-937] (2d Cir. 1990), cert. denied, __ U.S. __, 112 S. Ct. 2967 (1992). Thus we turn to the only question presented by this case, namely, whether the district court's findings on these two issues are clearly erroneous. Wright v. United States, 809 F.2d 425, 426 [59 AFTR2d 87-467] (7th Cir. 1987); Raba v. United States, 977 F.2d 941, 943 [70 AFTR2d 92-6151] (5th Cir. 1992); Caterino v. United States, 794 F.2d 1, 3 [ 58 AFTR2d 86-5158] (1st Cir. 1986), cert. denied, 480 U.S. 905, 107 S. Ct. 1347 (1987).

"A person is responsible under section 6672 if he retains 'control of finances within the employer corporation: the power to control the decision-making process by which the employer corporation allocates funds to other creditors in preference to its withholding tax obligations.' " Sawyer, 831 F.2d at 758 (quoting Haffa v. United States, 516 F.2d 931, 936 [36 AFTR2d 75-5056] (7th Cir. 1975)). See also Monday v. United States, 421 F.2d 1210, 1214 [25 AFTR2d 70-548] (7th Cir.), cert. denied, 400 U.S. 821, 91 S. Ct. 38 (1970). "It is sufficient that the person involved have significant control over the disbursal of corporate funds." Purdy Co. of Ill. v. United States, 814 F.2d 1183, 1188 [ 59 AFTR2d 87-748] (7th Cir. 1987). See also Ruth, 823 F.2d at 1094; Adams v. United States, 504 F.2d 73, 75 [34 AFTR2d 74-5962] (7th Cir. 1974), cert. denied, 421 U.S. 991, 95 S. Ct. 1998 (1975). Significant does not mean exclusive, however; more than one individual can be a responsible person within the meaning of the statute. Bowlen v. United States, 956 F.2d 723, 728 [69 AFTR2d 92-783] (7th Cir. 1992); Wright, 809 F.2d at 427; Adams, 504 F.2d at 75-76; Monday, 421 F.2d at 1214; Elmore v. United States, 843 F.2d 1128, 1134 [61 AFTR2d 88-975] (8th Cir. 1988).

[1] The district court found Running liable for the second and third quarters of 1984, thus we review the record for evidence of Running's responsibility and willful failure to pay withholding taxes for those periods. We point out that Running was employed by Good Shepherd for only one month, April, in this time period. The remaining five months he worked for HFC, which had a contract with Good Shepherd to provide consulting and management services to Bethel.

The district court concluded Running was a responsible person because he was an officer of Bethel, he possessed management responsibilities under the management and consulting agreement between Good Shepherd and HFC, and (based on Rieckhoff's testimony) had sufficient control over the facility's financial affairs. Running contends the document listing him as the Secretary-Treasurer of Bethel, a United States Department of Health and Human Services Ownership and Control Interest Disclosure Statement, was prepared before he resigned from Good Shepherd and is thus irrelevant because his resignation from Good Shepherd was also a resignation from the entities controlled by Good Shepherd. The district court was entitled to find otherwise. Running's [pg. 93-6304] resignation letter makes no mention of Bethel, and there is no evidence that he ever renounced his position in that facility.

Running also complains that the May 1984 management and consulting agreement was never followed and that he never benefited financially under the agreement. True, HFC may not have been paid for any services provided under the agreement, but compensation is not the touchstone for liability under section 6672. Moreover, while HFC may never have performed the services specified in the agreement, the contract expressly charged HFC, and thus Running, with certain responsibilities. These included insuring Bethel's compliance "with the requirements of any statute, ordinance, law, rule, regulation or order of any governmental or regulatory body having jurisdiction in the premises," as well as supervising the facility's accounting system.

More importantly, though Running disputes Rieckhoff's testimony that she was required to get approval from Columbus for expenditures over $200 and on occasion received that approval from Running, the district court could logically conclude that this assistance came within the ambit of the management and consulting agreement and was, contrary to Running's assertions, more than sporadic. Running's real complaint is that the district court credited Rieckhoff's testimony over his own. We will not disturb the district court's credibility determinations, however. The finding that Running was a responsible person because he was an officer of Bethel, had contracted with Bethel to oversee its accounting operation, and participated in some decisions concerning the payment of creditors and the disbursal of Bethel's funds, is not clearly erroneous.

Whether Running acted willfully is more problematic. In Monday, we held that the term "willfully" in section 6672 referred to "voluntary, conscious, and intentional — as opposed to accidental — decisions not to remit funds properly withheld to the Government." 421 F.2d at 1216. See also Garsky v. United States, 600 F.2d 86, 91 [44 AFTR2d 79-5111] (7th Cir. 1979). We recently reaffirmed this definition in Domanus v. United States, 961 F.2d 1323 [69 AFTR2d 92-1193] (7th Cir. 1992), where we rejected the argument that Monday's definition was incorrect and that to establish willful conduct under section 6672, a civil tax statute, there must be proof of an intentional violation of a known legal duty, the standard applied in criminal tax prosecutions. ¹

Rather, a responsible person acts willfully when he permits funds of the corporation to be paid to other creditors when he is aware that withholding taxes due to the government have not been paid. Bowlen, 956 F.2d at 729; Purdy Co. of Ill., 814 F.2d at 1188; Garsky, 600 F.2d at 91. "Liability does not depend upon the presence of bad motive or the specific intent to defraud the Government or deprive it of revenue." Monday, 421 F.2d at 1216. Indeed, the willfulness requirement of section 6672 may be satisfied if the responsible person acts with a reckless disregard of a known risk that the trust funds have not be remitted to the government. Sawyer, 831 F.2d at 758; Garsky, 600 F.2d at 91; Monday, 421 F.2d at 1215. Reckless disregard in this context is tantamount to gross negligence and is established if the responsible individual "(1) clearly ought to have known that (2) there was a grave risk that withholding taxes were not being paid and if (3) he was in a position to find out for certain very easily." Wright, 809 F.2d at 427. Recklessness may also be established if a responsible person fails "to correct mismanagement after being notified that the withholding taxes have not been duly remitted." Garsky, 600 F.2d at 91.

In the case before us, the district court determined that Thiel had acted willfully, but made no such finding with respect to Running. ² Running maintains that he knew of Bethel's financial problems early on, but "rather than subject[ ] himself to the obvious risk that the employment taxes may go unpaid, he resigned." He insists that, at the time of his resignation, Bethel was current in paying withholding taxes. Thereafter, notwithstanding his phone conversations with Rieckhoff about certain expenditures, he was unaware Bethel had not paid taxes for the second and third quarters of 1984. According to Running, once he left Good Shepherd he was "no longer privy to the information pertaining to employment tax deposits nor was he in a position to find out for certain" Bethel's tax situation.

In support of his argument, Running points out that Bethel's 1983 Annual Federal Unemployment Tax Return (Form [pg. 93-6305] 940), which he signed, was timely filed. However, Bethel's Quarterly Tax Return (Form 941) for the first quarter of 1984, which was due on April 30, 1984, was signed by Thiel and filed late. ³ The quarterly returns for the remainder of 1984, signed either by Cheryl Bass, Bethel's office manager, or Rieckhoff, were filed late, and show that no employment taxes had been deposited.

In response, the government has produced no evidence that Running was responsible for preparing or filing Bethel's tax returns once he left Good Shepherd, or that he actually knew Bethel had not paid its withholding taxes for the second and third quarters of 1984, yet directed or approved payments to other creditors. Rather, the government argues that Running's actions amounted to reckless disregard of a known risk that withholding taxes had not been paid. See Wright, 809 F.2d at 427. The government makes much of Running's admission that he was aware of Bethel's financial problems while employed by Good Shepherd, but knowledge of financial distress, without more, does not equate to knowledge that the facility was not meeting its tax obligations.

The only evidence summoned by the government to fill the gap is Rieckhoff's June 1984 telephone call in which she thought she told Running that the monthly Medicaid check was not forthcoming and she lacked funds to meet the payroll. However, Rieckhoff was uncertain if she told Running why the check was not on its way, and there is no evidence that she ever informed him of Bethel's tax delinquencies. Moreover, although the record does not disclose why the IRS attached the June 1984 Medicaid check, it is clear that this action did not relate to the quarters for which Running was found liable. The second quarter return was not due until July 31; the third quarter return until October 31. The attachment possibly related to the first quarter, but the government did not assess taxes against Running for that period. On this record, we are unable to conclude that Running ought to have known that Bethel was not paying withholding taxes and therefore acted willfully. The government's offerings do not remedy the absence of a district court finding on the issue of willfulness under section 6672. Accordingly, the decision of the district court is Reversed.

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^*

  The Honorable Albert J. Engel, Senior Circuit Judge for the Sixth Circuit, is sitting by designation.

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¹

  Domanus dealt specifically with the meaning of the term "willfully" in section 6672, and did not address the burden of proof in an action under that statute.

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²

  Moreover, we are unable to identify any facts supporting the district court's conclusion that, over time, Running "put enough distance between himself and the actual operation of Bethel to escape some of the responsibility sought to be imposed upon him by the government." The record does not indicate that Running's contact with Bethel after his resignation changed appreciably from May of 1984 through the beginning of 1985.

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³

  We note that this return was due on April 30, 1984, the effective date of Running's resignation. That total deposits were less than Bethel's tax liability subtracts somewhat Running's claim that, while he was employed by Good Shepherd, Bethel was current in paying withholding taxes. Nevertheless, the return shows that substantial amounts of employment taxes were deposited during that quarter. The total tax liability for this period was $54,849.87; total deposits equalled $42,850.00. Furthermore, we do not think these figures are particularly relevant to the issue before us because the government did not assess taxes against Running for the first quarter of 1984.

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