U.S. v. CUDA, Cite as 108 AFTR 2d 2011-XXXX, 10/04/2011

UNITED STATES OF AMERICA, Plaintiff, v. ANTHONY D. CUDA and BRIAN DANKIS, Defendants.

Case Information:

Code Sec(s):      

Court Name:      IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA,

Docket No.:        Civil Action No. 10-617,

Date Decided:   10/04/2011.

Disposition:      

HEADNOTE

.

OPINION

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA,

 amount due to the IRS.” Brounstein v. United States,   979 F.2d 952, 954 [71 AFTR 2d 93-1714] (3d Cir. 1992).

i. The “Responsible Person” Standard

A “responsible person” for the purposes of   § 6672 is any corporate employee or officer with a duty to “collect, truthfully account for, or pay over any tax due the United States.” Greenberg, 46 F.3d at 242–43 (quoting United States v. Carrigan,   31 F.3d 130, 133 [74 AFTR 2d 94-5425] (3d Cir. 1994)). Responsibility arises from an employee's “status, duty, or authority” rather than his or her knowledge. Greenberg, 46 F.3d at 243. To be considered a responsible person under   § 6672, a person does not need to have exclusive control over his or her company's finances, but merely significant control. Vespe, 868 F.2d at 1332.

Significant control is established when a person has the last say or significant input about which bills or creditors are to be paid. Quattrone Accountants, Inc. v. I.R.S.,   895 F.2d 921, 927 [65 AFTR 2d 90-580] (3d Cir. 1989). The Court of Appeals has also held that when determining whether a person has significant control, the following factors should be considered: “(1) the duties of the officer as outlined by the corporate by-laws; (2) the ability of the individual to sign checks of the corporation; (3) the taxpayer's signature on the employer's federal employment or other tax returns; (4) the identity of the officers, directors and shareholders of the corporation; (5) the identity of the individuals who hired and fired employees; and (6) the identity of the individual(s) who were in charge of the financial affairs of the corporation.” Carrigan, 31 F.3d at 133;accord Mitchell , 82 Fed. Appx. at 785. 7

Cuda has admitted that he qualifies as a “responsible person” for purposes of   § 6672. (See Docket No. 37 at 2). Thus, the first element of liability under   § 6672 is not at issue here. The question is whether Cuda's actions were willful, such that he could be exposed to liability.

ii. The Willfulness Standard

Although Cuda does not challenge his status as a “responsible person,” he does argue that he was not willful in SAES's failure to pay its taxes. A willful act for 26 U.S.C. § 6672 purposes occurs when a responsible person makes “a voluntary, conscious and intentional decision to prefer other creditors over the government.” Quattrone, 895 F.2d at 928. This can include paying net wages to employees while there are outstanding payroll taxes. Greenberg, 46 F.3d at 244. Thus, knowledge of unpaid taxes and the conscious decision to pay other creditors before paying the United States constitutes willfulness. See Quattrone, 895 F.2d at 928 (citing Wall v. United States,   592 F.2d 154, 163 [43 AFTR 2d 79-502] (3d Cir. 1979)).

A responsible person can also act willfully when he or she displays “reckless disregard for whether taxes have been paid.” Brounstein, 979 F.2d at 956. The reckless disregard standard is met when the taxpayer: “(1) clearly ought to have known that (2) there was a grave risk that withh[eld] taxes were not being paid and ... (3) he was in a position to find out for certain very easily.”Carrigan , 31 F.3d at 134 (quoting Wright v. United States,   809 F.2d 425, 427 [59 AFTR 2d 87-467] (7th Cir. 1987)). This standard can also be met when a responsible person is given notice that payroll taxes are not being paid, but takes no steps to investigate the situation or correct mismanagement.Greenberg , 46 F.3d at 244 (quoting Morgan v. United States,   937 F.2d 281, 286 [68 AFTR 2d 91-5491] (5th Cir. 1991)).

A responsible person's action or inaction does not need to be performed with bad intent for it to be considered willful.Greenberg , 46 F.3d at 244. It is sufficient that the responsible person acted knowingly or recklessly.Id.

1. Knowledge and Payments to Other Creditors

Cuda claims that “[t]he record establishes that [he] did not have knowledge that taxes were not being paid during 2005.” (Docket No. 37 at 3). A true lack of knowledge would immunize him from liability for the unpaid taxes. However, the Court finds that there is no genuine issue of fact as to whether Cuda was aware of the unpaid taxes. By Cuda's own admission, he was made aware of the IRS demand for payments as early as July 2005. (Docket No. 38 at ¶ 19). 8 With this knowledge, Cuda should have opted to pay SAES's federal taxes. Instead, SAES continued to pay off its other creditors. For example, the United States has submitted checks dated after Cuda admitted to knowledge of the tax obligations. (See, e.g., Docket No. 33-12 at 3–14, 27, 29–34). Cuda testified at his deposition that he signed several checks on dates in September, October, November and December of 2005. (Cuda Dep. at 104:2–111:6). Therefore, checks were signed and issued after Cuda, a “responsible person,” became aware of the unpaid taxes. By Cuda's own admission, some of these checks were signed by him. (Id.). Thus, Cuda was a “responsible person”, (Docket No. 37 at 2), who had knowledge of unpaid taxes, (Docket No. 38 at ¶ 19), and who chose to pay other debtors before paying off SAES's tax liabilities. (See Cuda Dep. at 104:2–111:6; Docket No. 33-12). All of these uncontested facts are derived from Cuda's own deposition or statement of facts. Cuda has, thus, established his liability through his own admissions, and, therefore, there are no disputes over the material facts as to Cuda's liability.

Further, when “an individual has been a responsible person throughout the period when the taxes should have been collected and paid, but did not have knowledge of the tax delinquency until later, he has a duty to pay over all after-acquired funds to the IRS.” In re Branagan,   345 B.R. 144, 168 [97 AFTR 2d 2006-2642] (E.D.Pa. 2006) (citing Vespe, 868 F.2d at 1334). Cuda admits to learning of the unpaid taxes in July 25 – after both the March and June tax periods — and was, therefore, under a duty to pay off these debts with after-acquired funds. As indicated by the copies of checks submitted by the United States, (see Docket No. 33-12; Cuda Dep. at 104:2–111:6), Cuda used the after-acquired funds to pay off other creditors before (or without) paying off the United States. (Id.). Again, the facts are not in dispute and support a finding of liability.

Cuda attempts to protect himself from liability by arguing that he was in some way misled by Dankis or that the Court should not rely on Dankis's testimony. (Docket No. 37 at 3–4). Cuda's arguments are misplaced. First, whether or not Dankis failed to pay taxes, (id. at 4), is not relevant to Cuda's liability. See Hagen, 485 F.Supp.2d at 628 (   Section 6672 “applies to all responsible persons, and not just the most responsible person.”). Assurances of another that taxes will be taken care of is not a defense to liability under   § 6672. Greenberg, 46 F.3d at 244 (citing Denbo v. United States,   988 F.2d 1029, 1033 [71 AFTR 2d 93-1317]–34 (10th Cir. 1993)). Second, the Court's finding of liability is based on Cuda's own admissions, not statements made by Dankis. Assertions, at the summary judgment stage, that are contrary to those made at deposition are not sufficient to create a material dispute of fact. Cf. Martin v. Merrell Dow Pharmaceuticals, Inc., 851 F.2d 703, 705 (3d Cir. 1988) (finding that a party cannot create a dispute of material fact by “flatly contradict[ing]” earlier sworn statements). Once Cuda was made aware of the unpaid taxes, it was his duty to ensure that they were paid — before any other creditors of SAES were paid. He failed in that duty.

c. Recklessness

A responsible party may be found willful for recklessness when the taxpayer “(1) clearly ought to have known that (2) there was a grave risk that withh[eld] taxes were not being paid and ... (3) he was in a position to find out for certain very easily.” Carrigan, 31 F.3d at 134 (quotingWright v. United States ,   809 F.2d 425, 427 [59 AFTR 2d 87-467] (7th Cir. 1987)). In the Court's mind, this is where Dankis's May 2005 e-mail becomes particularly relevant. Cuda admits to receiving an e-mail from Dankis that references Dankis's “irresponsible management with the taxes...” (Docket No. 33-4 at 94:2–14). This e-mail was dated May 18, 2005. (Id. at 94:25–95:2).

Cuda claims that he was confused as to the meaning of this e-mail. (See Cuda Dep. at 94:15–24). It is clear from the record that the responsibilities of office manager were not transferred to Dankis until 2004. (See Dankis Dep. 13:15–22; Benincosa Dep. at 26:14–22). This post-dates Cuda's awareness of SAES's earlier, 2003, tax problems. (Cuda Dep. 39:22–40:8; 67:23–68:12; 68:23–69:13). Thus, Dankis's reference to hisown irresponsible management of taxes in 2005, as distinguished from the 2003 problems that occurred before Dankis took over as office manager, “clearly ought to have” made Cuda aware that “there was a grave risk that withh[eld] taxes were not being paid.”Carrigan , 31 F.3d at 134. Cuda, as Operations Director and Chief, was clearly “in a position to find out for certain very easily.” Id. He did not do so. His failure to do so, regardless of intent, is enough, in this Court's estimation, to establish willful recklessness.Greenberg , 46 F.3d at 244.

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

Internal Revenue Code § 6672(a), provides in pertinent part that: 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.
This rule has been interpreted by the Supreme Court to apply to persons responsible for the collection of third-party taxes, not only persons who perform all three functions of collection, accounting, and paying. "In an action to collect taxes, the government bears the initial burden of proof." That burden is satisfied by the IRS's "deficiency determinations and assessments for unpaid taxes," which are presumed correct "so long as they are supported by a minimal factual foundation." However, "[a] showing by the taxpayer that a determination is arbitrary, excessive or without foundation shifts the burden of proof back to the IRS." For liability determinations under 26 U.S.C. § 6672, a taxpayer may establish that an assessment or determination is without foundation by establishing that he or she (1) is not a "responsible person" (i.e., the party required to collect, truthfully account for, and pay over the tax), and (2) did not willfully refuse to pay the tax. Once the taxpayer rebuts the presumption, the burden reverts to the IRS to show that its determination was correct.

In the Haslett case, an individual who assumed the role of chief executive officer (CEO) of a holding company was a responsible person liable for the unpaid employment tax obligations of a wholly-owned subsidiary for two assessment periods at issue. On becoming a CEO, he also became a "responsible person" within the meaning of the trust fund provisions because he had the authority to control the financial affairs of the subsidiary. He was not relieved of that responsibility even though he took control after the holding company decided to cease paying the subsidiary's trust fund taxes. However, the individual was not responsible with respect to unpaid tax obligations for a period when he was merely a member of the board of directors and had no official role in the subsidiary's operations or any direct control over payment of the subsidiary's taxes. Further, the individual's failure to pay over the taxes was willful. Despite full knowledge of the subsidiary's unpaid tax obligations, he failed to remit the subsidiary's taxes; instead he directed that corporate funds be paid to other creditors.


Bradley A. Haslett, Plaintiff v. United States of America, Defendant. United States of America, Counter-plaintiff v. Bradley A. Haslett, Counter-defendant.

U.S. District Court, Dist. Alas.; 3:06-cv-00150-JWS, February 9, 2009.

[ Code Sec. 6672]






ORDER AND OPINION



[Re: Motions at Docket 72 and 79]



I. MOTIONS PRESENTED


SEDWICK, United States District Judge: At docket 72, defendant and cross-plaintiff United States of America ("government") moves for an order granting summary judgment in its favor and against plaintiff and cross-defendant Bradley A. Haslett ("Haslett") in the amount of $438,971.35 1 in federal tax assessments plus accrued statutory interest and additions from February 28, 2009, less any payment or credits. Haslett cross-moves for summary judgment in his favor at docket 79 and opposes the government's motion at docket 80. The government replies at docket 81. Neither party requested oral argument, and it would not assist the court.


II. BACKGROUND


Winward Electric Services, Inc. ("Winward") was an electrical contracting company originally formed in 1956. In 1999, Winward was purchased by and became a wholly-owned subsidiary of a holding company named CommSpan, Inc. ("CommSpan"). CommSpan was created for the sole purpose of acquiring Winward and three other electrical services companies - Aurora Electric, Inc. ("Aurora"), CTS, and CRA-TEK. At the time of the acquisition, Winward was operated by the following individuals: James Millerberg ("Millerberg"), who served as CEO; Toby Quesinberry ("Quesinberry"), who served as COO; Paul Jacobson ("Jacobson"), who served as CFO; and Dawn Dauber ("Dauber"), who served as Controller. Haslett owned and operated Aurora, but did not play a role in the management of Winward. As a holding company of four electrical services subsidiaries, CommSpan provided management services to the companies it oversaw, and each subsidiary paid management fees to CommSpan in return. 2 CommSpan managed 401(k) plans for the employees of its subsidiaries and ensured that its subsidiaries were covered by appropriate insurance policies. CommSpan also acted to capitalize its subsidiaries.

As a result of the acquisition, all of the subsidiaries' existing shares were extinguished and its shareholders received CommSpan stock in return. In exchange for the Aurora acquisition, Haslett received 805,000 of the 5,400,000 issued shares in CommSpan, which represented the fifth largest block of shares outstanding. Haslett remained in control of Aurora and also assumed a role as a director of CommSpan. CommSpan's other directors were Andrew Hidalgo ("Hidalgo") (who also served as CEO of CommSpan) and David Gerber ("Gerber") (who also served as COO and Secretary of CommSpan). On May 27, 2000, CommSpan's Board of Directors, including Hidalgo, Haslett, and Gerber, participated in a telephone conference to discuss Winward's financial difficulties. Also in attendance was Jacobson, Winward's CFO. During the telephone conference, CommSpan's Board members discussed various ways in which Winward's financial situation could be resolved. The course of action ultimately adopted was to cease making Winward's federal tax payments. Jacobson testified at his deposition that prior to making the decision all participants in the call were aware of the personal liabilities associated with a failure to pay trust fund taxes. Nevertheless, the decision was made because it was the "easiest" and would cause only short-term impact. In the meantime, it was agreed that Jacobson would negotiate a payment plan with the IRS.

Because Haslett was only a director at the time, he denies any role in the decision not to pay taxes for June, July, and August 2000, although he admits he attended the May 27, 2000 telephone conference during which the decision was made. According to Haslett, "the officers of Winward [subsequently] failed to make trust fund deposit[s] on the following pay periods in 2000[:] May 24, May 31, June 7, June 14, June 21, June 28, July 4, July 12, July 26, August 2, August 9, August 16, August 23 and August 30." Prior to this period, CommSpan sought to capitalize Winward by other means. In January 2000, Hidalgo and Gerber negotiated and guaranteed a $2.0 million line of credit for the benefit of Winward. Between January 2000 and September 2000, Jacobsen - CFO of Winward - was the only individual to draw down on the line of credit.

On September 29, 2000, Haslett became CEO of CommSpan. On the same day, Haslett obtained and personally guaranteed an increase in CommSpan's line of credit in the amount of $700,000, $300,000 of which was drawn down to pay Winward's trust fund taxes. 3 Haslett claims that, despite "[r]epeated admonishments," Winward's management ignored him and failed to pay its accumulated trust fund taxes on September 30, 2000 and again on December 31, 2001. Instead, those funds were used to pay other creditors. Winward and CommSpan collapsed in December 2001. After Haslett proved unable to save Winward or CommSpan, he took both entities into bankruptcy. This action and a concurrent action in the District of Utah followed. The Utah action has been stayed pending resolution of Haslett's claims and the claims against him in this court.


III. STANDARD OF REVIEW


Federal Rule of Civil Procedure 56 provides that summary judgment should be granted when there is no genuine dispute about material facts and when the moving party is entitled to judgment as a matter of law. The moving party has the burden to show that material facts are not genuinely disputed. 4 To meet this burden, the moving party must point out the lack of evidence supporting the nonmoving party's claim, but need not produce evidence negating that claim. 5 Once the moving party meets its burden, the nonmoving party must demonstrate that a genuine issue exists by presenting evidence indicating that certain facts are so disputed that a fact-finder must resolve the dispute at trial. 6 The court must view this evidence in the light most favorable to the nonmoving party, must not assess its credibility, and must draw all justifiable inferences from it in favor of the nonmoving party. 7


IV. DISCUSSION


Internal Revenue Code § 6672(a), provides in pertinent part that:
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. 8

This rule has been interpreted by the Supreme Court to apply to persons responsible for the collection of third-party taxes, not only persons who perform all three functions of collection, accounting, and paying. 9 "In an action to collect taxes, the government bears the initial burden of proof." 10 That burden is satisfied by the IRS's "deficiency determinations and assessments for unpaid taxes," which are presumed correct "so long as they are supported by a minimal factual foundation." 11 However, "[a] showing by the taxpayer that a determination is arbitrary, excessive or without foundation shifts the burden of proof back to the IRS." 12 For liability determinations under 26 U.S.C. § 6672, a taxpayer may establish that an assessment or determination is without foundation by establishing that he or she (1) is not a "responsible person" (i.e., the party required to collect, truthfully account for, and pay over the tax), and (2) did not willfully refuse to pay the tax. 13 Once the taxpayer rebuts the presumption, the burden reverts to the IRS to show that its determination was correct. 14

The question before the court is whether Haslett (1) is a "responsible person" (i.e., the party required to collect, truthfully account for, and pay over Winward's trust fund taxes), and (2) willfully refused to pay Winward's trust fund taxes. 15 The government argues that Haslett was a "responsible person" under § 6672 because he was the CEO and a member of the Board of Directors of Winward's parent company, CommSpan. Moreover, the government contends that Haslett's willfulness in refusing to pay Winward's trust fund taxes is apparent because Haslett knew that Winward was delinquent and nevertheless allowed Winward "to use unencumbered funds to pay creditors other than the United States." 16 Because Haslett continued on as CEO of CommSpan in the face of these understood tax delinquencies, the government asserts that he should not be relieved of liability for willfully failing to pay Winward's taxes.

Haslett counters that because he was not Winward's "responsible person" at the time the decision was made to cease paying taxes or at the time the taxes were due, he is relieved of liability. Furthermore, Haslett argues that because he directed the officers of Winward to pay its delinquent taxes, and they refused, he cannot personally be found to have acted willfully in refusing to pay Winward's trust fund taxes. Haslett finally claims that genuine issues of material fact preclude granting summary judgment in favor of the United States because there is a dispute over whether Haslett knew of the tax liabilities at the time they arose and "the law specifically exempts a taxpayer from liability who later steps in after the fact to clean up the mess." 17 The court addresses the parties' arguments below.



A. Whether Haslett was Winward's "Responsible Person"

Whether Haslett was a "responsible person" turns on his status, duty, and authority at the time the CommSpan Board of Directors and Winward's tax assessments became due. 18 "Authority turns on the scope and nature of an individual's power to determine how the corporation conducts its financial affairs; the duty to ensure that withheld employment taxes are paid over flows from the authority that enables one to do so." 19 Although an individual's day-to-day responsibilities may not include financial decision-making or tax matters, that individual may nevertheless be responsible if he or she "has the authority to pay or to order the payment of delinquent taxes." 20 An individual becomes "responsible" under § 6672 if that person "had the authority required to exercise significant control over the corporation's financial affairs, regardless of whether he exercised such control in fact." 21 In short, "'persons' who are 'responsible' for the payment of withholding taxes are those who 'had the final word as to what bills should or should not be paid, and when.'" 22 Joint and several liability therefore attaches to "all those under the duty set forth in the statute." 23

In Slodov v. United States, 24 the Supreme Court created an exception to § 6672 liability intended to "encourage new management to salvage failing businesses" without incurring tax liability for back taxes. 25 If such an exception did not exist, "a wellcounseled person contemplating assuming control of a financially beleaguered corporation owing back employment taxes would recognize that he could do so without incurring personal civil and criminal penalties only if there were available sufficient borrowed or personal funds fully to pay all back employment taxes before doing any business." 26 Therefore, the Court concluded, when the individual who caused the delinquency in tax payments is also a "responsible person" at the time the government attempts to collect from the employer have failed, § 6672 applies to that individual. 27 When, on the other hand, there has been a change in control of the corporation prior to the expiration of a tax quarter, or at a time when a tax delinquency for past quarters already exists, liability may not inure to the new management unless a trust has been impressed under § 7501 prior to the accession of the new "responsible person." 28

Haslett spends much of his brief arguing that the Slodov exception relieves him of responsibility because he took the helm of CommSpan after the decision was made to cease paying Winward's taxes. Although Haslett appears to have been complicit in the CommSpan Board's decision to cease paying taxes by virtue of his presence at the May 27, 2000 telephone conference, he is correct that he was not a "responsible person" at the time the June 30, 2000 tax assessment became due. At that time, Haslett was merely a director of CommSpan and had no official role in Winward's operations and no direct control over whether payment for Winward's taxes was made. Once he assumed the role of CEO of CommSpan in September 2000, on the other hand, Haslett became the individual with "the final word" over payment of the tax assessments dated September 30, 2000 and December 31, 2001. As CEO of CommSpan, Winward's parent company, Haslett's first order of business appears to have been to negotiate an additional $700,000 line of credit for the purpose of relieving Winward's current tax deficit. Moreover, Haslett had authority to control the financial affairs of Winward, including the administration of payroll, 401(k) contributions, and union dues. 29 Haslett even loaned CommSpan $10,000 of his personal assets to pay the interest on the line of credit that was being used to sustain Winward's operations. Haslett's argument that he did not control Winward's finances after he became CEO of CommSpan thus fails. The court concludes, therefore, that once Haslett became CEO, he exercised significant control over the financial affairs of Winward and was among the persons responsible for the tax assessments at issue.



B. Whether Haslett Willfully Refused to Pay Winward's Trust Fund Taxes

Having determined tha Haslett is a "responsible person" for the tax assessment periods ending September 30, 2000 and December 31, 2001, the remaining question is whether Haslett willfully refused to pay Winward's taxes for those periods. "Willfulness, within the meaning of section 6672, has been defined as a voluntary, conscious and intentional act to prefer other creditors over the United States." 30 Neither intent nor other bad motive need be proven; rather, "conduct motivated by a reasonable cause may nonetheless be willful." 31 Where a "responsible person" understands that trust fund taxes are delinquent, and uses corporate funds to pay other expenses, Ninth Circuit precedent requires that the failure to pay withholding taxes be deemed "willful." 32 Although such a standard may, at times, amount to imposing liability for "unwittingly" willful conduct, this proposition is long established in this circuit. 33

Here, Haslett's conduct was not so unwitting. It is undisputed that Haslett assumed control of CommSpan with full knowledge of the May 27, 2000 decision to cease paying Winward's trust fund taxes. Despite his knowledge, Haslett subsequently failed to remit Winward's taxes for an additional two tax assessment periods at the same time he directed that corporate funds be paid out to other creditors. 34 As the Ninth Circuit has noted, "[e]very such payment 'was a voluntary, conscious and intentional act to prefer other creditors over the United States.'" 35 The court concludes therefore that Haslett willfully refused to pay Winward's taxes for the tax assessment periods ending September 30, 2000 and December 31, 2001. Haslett has failed to present any evidence or even a single cogent argument that would support a different conclusion. Haslett is therefore jointly and severally liable for the tax assessment periods ending September 30, 2000 in the amount of $407,321.20 and December 31, 2001 in the amount of $2,343.44. 36 Haslett is not, however, liable for the tax assessment period ending June 30, 2000 because, although Haslett was complicit in the decision to cease paying Winward's taxes, he was not a responsible person at that time.


V. CONCLUSION


For the foregoing reasons, the government's motion at docket 72 is GRANTED in part and DENIED in part, and Haslett's motion at docket 79 is GRANTED in part and DENIED in part consistent with the preceding discussion. The government shall lodge a proposed judgment for the court's consideration within 10 days from the date of this order. Haslett may file comments on the proposed judgment within 10 days from the date it is lodged.

DATED at Anchorage, Alaska, this 9th day of February 2009.

1 Docket 81 at 7. As explained in the reply memorandum and supported by affidavit, this sum is updated from the $438,617.57 claimed in the motion at docket 72.

2 Haslett testified at his deposition that while Aurora always paid its management fees, CommSpan's other entities did not. Docket 75, Ex. C at 7-8.

3 Docket 75, Exhibit J at 2. The remaining $400,000 of the September 29, 2000 increase was distributed to CRA-TEK. Docket 80 at 4.

4 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

5 Id. at 325.

6 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986).

7 Id. at 255; Soldano v. United States, 453 F.3d 1140, 1143 (9th Cir. 2006) (citation omitted).

8 26 U.S.C. § 6672(a).

9 Slodov v. United States, 436 U.S. 238, 250 (1978).

10 Palmer v. United States, 116 F.3d 1309, 1312 (9th Cir. 1997) (citing United States v. Stonehill, 702 F.2d 1288, 1293 (9th Cir. 1983)).

11 Palmer, 116 F.3d at 1312.

12 Id. (citing Helvering v. Taylor, 293 U.S. 507, 515-16 (1935)).

13 U.S. v. Jones, 33 F.3d 1137, 1139 (9th Cir. 1994).

14 Keogh v. Comm'r, 713 F.2d 496, 501 (9th Cir. 1983).

15 Jones, 33 F.3d at 1139.

16 Docket 73 at 18.

17 Docket 80 at 15.

18 Purcell v. United States, 1 F.3d 932, 937 (9th Cir. 1993).

19 Id.

20 Id.

21 Id.

22 Id. at 936.

23 Id. at 937.

24 Slodov, 436 U.S. at 252-53.

25 Davis v. United States, 961 F.2d 867, 874 (9th Cir. 1992).

26 Slodov, 436 U.S. at 252-53.

27 Id. at 245-46.

28 Id. Were a trust of funds collected prior to the accession of a new "responsible person" impressed under 26 U.S.C. § 7501, that individual may violate § 6672 by failing to pay over those previously collected funds. However, § 7501 does not impress a trust on after-acquired funds, and that individual consequently does not violate § 6672 by using those funds for purposes other than the satisfaction of trust fund tax claims, as long as those funds are not directly traceable to the collected taxes. See Slodov, 436 U.S. at 259-60.

29 Docket 73 at 7.

30 Davis v. United States, 961 F.2d 867, 871 (9th Cir. 1992) (internal quotations omitted).

31 Id. (citations omitted).

32 Phillips v. United States, 73 F.3d 939, 942 (9th Cir. 1996).

33 Id.

34 Haslett even failed to direct the funds he secured from Key Bank on September 29, 2000, which were obtained for the purpose of paying Winward's back taxes, to pay Winward's back taxes.

35 Purcell, 1 F.3d at 938.

36 Docket 82 at Exhibits B and C.

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

E.A. Cella, DC, 80-1 USTC ¶9369.

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

S. Philipson, DC, 55-1 USTC ¶9466.

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

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

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

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

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

B.H. Hoeniger, DC, 76-1 USTC ¶9296.

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

E.B. David, DC, 83-1 USTC ¶9259.

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

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

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

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

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

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

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

R.E. Couture, DC, 74-2 USTC ¶9706.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

D.C. Stull, DC Tex., 2000-1 USTC ¶50,168. Aff'd, per curium, CA-5 (unpublished opinion), 2001-1 USTC ¶50,333, 252 F3d 436.

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

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

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

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

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

D.M. Chapman, CA-9 (unpublished opinion), 2001-1 USTC ¶50,380, 7 FedAppx 804, rev'g and rem'g and unreported District Court decision.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

An individual who held no ownership or entrepreneurial stake in debtor corporations was not a responsible person with regard to those corporations' failure to pay over withheld federal taxes. She could not sign checks without the prior authorization of the president and sole shareholder of the corporations and had no power or authority to hire or fire employees. Although she was the secretary of the debtor corporations, the duties that she performed were ministerial and administrative in nature. All of the authority and control over the corporations' administration and finances resided with the president, and the tasks she performed were executed solely upon his instructions.

L.M. Benitez, DC PR, 2006-2 USTC ¶50,598.

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

G. Hartman, BC-DC Pa., 2007-2 USTC ¶50,747, 375 BR 740.

The chairman of a corporation was a responsible person who willfully failed to collect, account for and pay over the withheld income and employment taxes of the corporation. The IRS's evidence showed that he had the ability to sign checks, hire and fire employees, and sign the corporation's tax returns. He owned stock in the corporation, was ultimately responsible for making financial decisions and directed payment to the corporation's creditors despite knowledge of the corporation's unpaid employment taxes. However, a genuine issue of material fact existed as to whether another corporate officer, the CEO, had sufficient authority over the corporation's financial affairs to be considered a responsible person for purposes of the trust fund recovery penalties.

R.C. Savona, DC Calif., 2007-2 USTC ¶50,788.

The CEO and the Chief Financial Officer of a trucking company were both responsible persons who were jointly and severally liable for the trust fund recovery penalties in connection with the company's failure to pay its federal employment tax obligations. Both officers acted willfully when they made numerous voluntary and intentional payments to creditors despite having knowledge that the employment taxes were unpaid. Both exercised significant control over the disbursement of company's funds, had active day-to-day involvement in the business and had full authority to sign checks and Form 941 tax returns.

J.M. Horovitz, DC Pa., 2008-1 USTC ¶50,186, 543 FSupp2d 441.

The founder, shareholder and officer of a corporation was liable for the trust fund recovery penalty because he exercised significant control over the corporation's day-to-day activities and participated in the decision to hire or fire management employees and accountants in charge of the corporation's payroll operations. He also reviewed weekly and monthly financial statements, personally guaranteed payments to vendors and directed checks to be written and expenses to be paid.

C.B. Erwin, DC N.C., 2008-1 USTC ¶50,258.

The owner and the bookkeeper of a limited liability company (LLC) were liable for trust fund recovery penalties in connection with the operation of a restaurant. The owner was a responsible person because she organized the LLC, entered into a lease agreement for the restaurant, obtained a liquor license and failed to make a timely election for the LLC to be taxed as a corporation. Further, the bookkeeper was also a responsible person because he had the authority to sign checks for the restaurant, to make and authorize bank deposits, to identify and calculate the amount to be withheld for federal payroll taxes, to authorize payment of federal tax deposits and to authorize payroll checks. Moreover, he acted willfully because he knew about the delinquent taxes and voluntarily paid other creditors before paying the government.

D.M. Seymour, DC Ky., 2008-2 USTC ¶50,406.

An individual who was the president, director, Chief Executive Officer and majority shareholder of a corporation was liable for the trust fund recovery penalty assessed against him in connection with the corporation's unpaid withholding taxes. The individual was a "responsible person" with respect to the corporation because he had complete authority over every aspect of the corporation's finances, including the sole authority to hire and fire employees, take out loans, sign contracts and checks, withhold income and FICA taxes from wages and pay those taxes to the government.

J.C. Tornes, DC Ohio, 2008-2 USTC ¶50,431.

The majority stockholder of two retail optometry companies was not entitled to a refund of the trust fund recovery penalty he paid to the IRS in satisfaction of the companies' unpaid withholding taxes. The individual was a responsible person because he exercised significant control over the companies' finances, had check-signing authority and the authority to sign the companies' employment tax returns. Furthermore, more than one person can be a responsible person with respect to liability for unpaid taxes.

L.H. Joel, DC Ky., 2008-2 USTC ¶50,451.

The director, shareholder and secretary-treasurer of a closely held corporation was liable for the trust fund recovery penalty assessed against her in connection with the corporation's unpaid withholding taxes. The individual was a responsible person because she was involved in the corporation's business operations, had check signing authority, attended meetings to discuss the corporation's cash-flow problems, had access to the corporation's financial records and books and knew of the corporation's tax problems. Although her responsibilities did not typically include the payment of withholding taxes and she did not believe that it was within her control, she had the power to pay the corporation's withholding taxes.

N. Noronha, DC Ky., 2008-2 USTC ¶50,554.

The president of a company was liable for the trust fund recovery penalties assessed against him. The individual was the responsible person with respect to the company since he had the sole authority to write and sign checks on corporate accounts and to hire and fire personnel.

C.C. Anuforo, DC Minn., 2008-2 USTC ¶50,584.

The owner of a company was liable for the trust fund recovery penalty (TFRP). The individual maintained the company's books, prepared its financial statements, authorized payment of its bills and payroll, reviewed federal income tax returns and prepared and signed federal payroll tax returns. He acted willfully because he had reason to know that the taxes were not being paid and failed to exercise his authority to ensure their payment. Despite knowledge of the tax deficiencies, he regularly directed that payments be made to creditors other than the IRS.

S.O. Johnson, DC Ill., 2008-2 USTC ¶50,585.

The president of the board of directors of a tax-exempt organization was not entitled to a refund of federal employment and withholding taxes he paid from his personal funds. Although his position was voluntary and uncompensated, and although he was not involved in the day-to-day operations of the day care center, the individual had enough involvement in and control over the organization's financial affairs to qualify him as a "responsible person" within the meaning of Code Sec. 6672.

C.E. Jefferson, CA-7, 2008-2 USTC ¶50,587.

The owners of three companies and their employee, a certified public accountant (CPA), serving as the vice president of finance for those companies, were all responsible persons for purposes of the trust fund recovery penalty. The owners were the founders, officers, board members, and equal shareholders of each of the three companies. They had check-signing authority, could hire and fire employees, could exercise control over the companies' finances, including the payment of payroll taxes, and were intimately involved in running the companies. Although the CPA/employee had no check-signing authority, he supervised the accounting department, oversaw the preparation of checks, including payroll and federal tax deposit checks and had the authority to direct the accounting department to draft checks to the IRS instead of to other creditors. Further, the individuals acted willfully when they made payments to other creditors despite knowing that the trust fund taxes remained unpaid.

S.P. Davis, Sr., DC La., 2008-2 USTC ¶50,613.

The secretary and treasurer of a corporation was liable for the trust fund recovery penalty assessed against him in connection with the corporation's unpaid withholding taxes. The individual was a "responsible person" because he exercised significant control over the day-to-day management of the corporation and over the company's payroll, had the power to write checks on behalf of the corporation, had the authority to hire and fire employees, sign corporate income tax and payroll tax returns and to determine which creditors to pay and when.

W.M. Cheatle, DC Va., 2009-1 USTC ¶50,139.

Unpaid employment tax assessments against the president and vice-president of two health care companies were reduced to judgment. The individuals were responsible persons because they had the authority to sign checks, hire and fire employees, determine corporate financial policy, and authorize the payment of bills.

J.A. Rineer, DC Tex., 2009-1 USTC ¶50,149.
Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax: Willfulness: Evidence of willfulness, penalty imposed

Where the evidence showed that the decision of the taxpayer as the responsible officer of the corporation not to have the corporation pay over to the Government withheld employees' taxes was a voluntary, conscious, and intentional act to prefer other creditors of the corporation over the Government, such evidence was proof of the "willful" acts calling for the imposition of the statutory penalty imposed against the responsible officer. Proof of criminal intent was not necessary in a civil action designed to insure payment to the Government of a tax already collected or deducted.

E.J. Bloom, CA-9, 59-2 USTC ¶9772, 272 F2d 215. Cert. denied, 363 US 803.

H.C. Frazier, CA-5, 62-2 USTC ¶9535, 304 F2d 528.

E.L. Stout, DC, 66-1 USTC ¶9372, vacating 66-1 USTC ¶9279.

R.W. Monday, CA-7, 70-1 USTC ¶9205, 421 F2d 1210. Cert. denied, 400 US 821.

E.R. Griswold, DC, 63-1 USTC ¶9147, 209 FSupp 98.

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

J.P. Emshwiller, Jr., DC, 76-2 USTC ¶9802. Aff'd and rem'd, CA-8, 77-2 USTC ¶9744, 565 F2d 1042.

L.R. Marsh, DC, 76-2 USTC ¶9734.

D.H. Shepherd, DC, 76-2 USTC ¶9765.

M.F. Bedford, DC, 77-1 USTC ¶9308.

I. Mazo, CA-5, 79-1 USTC ¶9284, 591 Fd 1151. Cert. denied, 100 SCt 82.

R.F. Neu, DC, 77-1 USTC ¶9332.

H. Anderson, DC, 77-2 USTC ¶9701.

N. Copperman, DC, 78-2 USTC ¶9579.

D. Goodman, 78-2 USTC ¶9565.

R.C. Morley, DC, 78-2 USTC ¶9576.

Sweetser, DC, 77-2 USTC ¶9470.

R.H. Brown, CA-5, 79-1 USTC ¶9285, 591 F2d 1136.

R.G. Kizzier, CA-8, 79-1 USTC ¶9373, 598 F2d 1128.

W.R. Hornsby, CA-5, 79-1 USTC ¶9188, 588 F2d 952.

N.I. Newell, Jr., DC, 79-1 USTC ¶9178.

W. Waychoff, DC, 79-2 USTC ¶9602.

V. Bradford, BC-DC, 83-2 USTC ¶9625, 35 BR 166.

E.A. Kappas, DC, 83-2 USTC ¶9683, 578 FSupp 1435.

R.J. McGlothin, CA-6, 83-2 USTC ¶9658, 720 F2d 6.

W.L. Summers, BC-DC, 84-1 USTC ¶9149.

C.E. Thompson, BC-DC, 84-1 USTC ¶9207, 37 BR 211.

R.O. Johnson, DC, 84-1 USTC ¶9236, 583 FSupp 127.

L.A. Farris, Jr., ClsCt, 84-1 USTC ¶9263.

R.J. Gray, DC Kan., 84-1 USTC ¶9419, 586 FSupp 1127.

M. Schlauch, DC Ohio, 84-1 USTC ¶9431.

P.W. Verdung, DC Ill., 84-1 USTC ¶9324.

Berman, DC, 67-2 USTC ¶9665, 277 FSupp 646.

R.A. Hanes, DC Okla., 84-2 USTC ¶9597.

J.E. Ronholt, DC Wash., 84-2 USTC ¶9678.

G.F. Howard, DC Ky., 84-2 USTC ¶10,012.

W. Kraus, DC N.Y., 85-1 USTC ¶9310.

W.M. Flemister, Jr., BC Ga., 85-1 USTC ¶9333, 48 BR 427.

R.D. Grant, DC Vt., 85-1 USTC ¶9385.

W. Carr, DC Ill., 85-2 USTC ¶9542.

A.M. Senall, BC-DC Fla., 86-1 USTC ¶9119, 55 BR 517.

C.J. Caterino, CA-1, 86-1 USTC ¶9452, 794 F2d 1.

D.L. Mulee, DC Ill., 86-2 USTC ¶9783, 648 FSupp 1181.

S.R. Wright, CA-7, 87-1 USTC ¶9130, 809 F2d 425.

H. Schwinger, DC N.Y., 87-1 USTC ¶9174, 652 FSupp 464.

L. Grover, DC Mass., 88-1 USTC ¶9360, 691 FSupp 1572.

W.W. Timmons, DC Tex., 88-1 USTC ¶9332.

A. Konduros, DC Mich., 88-1 USTC ¶9324.

D.M. Malone, DC Neb., 87-2 USTC ¶9641.

D.L. Samp, DC Ill., 88-1 USTC ¶9141.

D. Steen, DC Fla., 88-1 USTC ¶9113.

J.N. Bowen, CA-5, 88-1 USTC ¶9164, 836 F2d 965.

F.A. Collins, CA-6, 88-1 USTC ¶9386, 848 F2d 740.

E.R. Hanshaw, BC-DC Fla., 89-1 USTC ¶9126, 94 BR 753.

K. Burdg, DC Mo., 89-1 USTC ¶9140.

M. Marshall, DC Ill., 89-1 USTC ¶9150.

D.K. Staats, DC Ill., 89-1 USTC ¶9366.

R. Brown, DC Colo., 89-1 USTC ¶9210.

H.D. Summers, DC Ida., 89-1 USTC ¶9239.

R.Y.S. Lee, DC Hawaii, 89-2 USTC ¶9393.

D.A. Byers, BC-DC Colo., 89-2 USTC ¶9439.

E.A. Landau, DC Ill., 89-2 USTC ¶9444.

J. Carter, DC N.Y., 89-2 USTC ¶9446, 717 FSupp 188.

Quattrone Accountants, Inc., DC Pa., 89-2 USTC ¶9538.

W.L. Schlanger, DC Calif., 89-2 USTC ¶9626.

R.H. Clements, BC-DC Wyo., 90-1 USTC ¶50,224.

R. Bond, Jr., DC Pa., 90-2 USTC ¶50,551.

P. Mason, BC-DC Mass., 90-2 USTC ¶50,516.

G. Seachrist, DC W.Va., 91-1 USTC ¶50,019.

E.W. Carlson, DC Utah, 91-1 USTC ¶50,262.

N. Novick, DC Wash., 91-1 USTC ¶50,250.

B.N. Sims, BC-DC Fla., 91-2 USTC ¶50,306.

L.R. Miller, DC Iowa, 91-1 USTC ¶50,141.

F. Bogard, DC Tex., 91-1 USTC ¶50,222. Aff'd, CA-5 (unpublished opinion 5/4/92).

E.T. Williams, CA-11, 91-1 USTC ¶50,285.

W.A. Kinnie, CA-6, 93-1 USTC ¶50,311, 994 F2d 279.

D.J. Turnbull, CA-5, 91-1 USTC ¶50,196.

F. Hawley, BC-DC Wash., 98-1 USTC ¶50,439.

R.A. Powers, CA-2 (unpublished opinion), 2001-1 USTC ¶50,338, aff'g an unreported District Court decision.

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

P. Thosteson, CA-11, 2002-2 USTC ¶50,649, 304 F3d 1312.

A bankrupt debtor's objection to the IRS's claim for the trust fund recovery penalty was improperly granted by the Bankruptcy Court. The debtor admitted to being a responsible person, but the Bankruptcy Court found that he was not willful in his failure to pay employment taxes because he cooperated with the IRS in its efforts to collect the taxes. However, the debtor's cooperation was irrelevant to the issue of willfulness. The debtor engaged in voluntary, conscious and intentional acts that established willfulness. The debtor knew that the withholding taxes were due, yet he paid other creditors before the IRS. Additionally, he continued to pay salaries, including a lower salary for himself.

C. Beltran, DC Fla., 2004-2 USTC ¶50,416, 316 BR 371, rev'g and rem'g an unreported Bankruptcy Court decision.

The chairperson of a corporation's board of directors and the corporation's largest shareholder was a "responsible person" for purposes of the corporation's unpaid employment taxes and was liable for the trust fund recovery penalty. He satisfied the willfulness requirement because he knew of the corporation's unpaid taxes and made no effort to urge other members of the board to pay the IRS, rather than other creditors.

T.C. Turner, DC Wash., 2006-1 USTC ¶50,238.

A corporation's former president and owner failed to prove that the IRS's penalty assessment against him for nonpayment of the corporation's withholding taxes was erroneous. He admitted that he was a responsible person. Further, he failed to take timely and purposeful steps to verify that the corporation's taxes were being paid, despite being the only person in control of the corporation's financial decisions and after receiving 14 notices from the IRS informing him that the corporation had not paid the taxes. Instead, he paid his employees and other creditors. However, the penalty assessment against his wife, a former employee of the corporation, was erroneous because she was not a responsible person and her conduct not willful.

J.H. Boyajian, DC N.J. (unpublished opinion), 2007-1 USTC ¶50,186.

The president of a company was liable for trust fund recovery penalties assessed against him. The individual was the responsible person with respect to the company, and he acted willfully when he voluntarily and intentionally diverted resources that should have been held in trust for the government to pay other creditors. His argument that his failure to pay trust fund taxes was a consequence of an employee's embezzlement of company funds was not a legally recognized defense. The individual did not have the legal option to withhold a portion or all of the trust fund taxes in order to sustain the company's viability.

C.C. Anuforo, DC Minn., 2008-2 USTC ¶50,584.

6672 Trust fund penalty

Among the factors indicative of the requisite authority over the corporate taxpayer's finances or general decision making to qualify an individual as a "responsible person," are:
whether the employee (1) served as an officer of the company or as a member of its board of directors; (2) controlled the company's payroll; (3) determined which creditors to pay and when to pay them; (4) participated in the day-to-day management of the corporation; (5) possessed the power to write checks; and (6) had the ability to hire and fire employees.

Charles B. Erwinv. United States Of America,

U.S. District Court, Mid. Dist. N.C.; 1:06CV59, March 18, 2008.

[ Code Sec. 6672]

Assessment: Employment withholding taxes: Failure to pay taxes: Willfulness: Trust fund recovery penalty: Responsible person. --


The founder, shareholder and officer of a corporation was liable for the trust fund recovery penalty assessed against him in connection with the corporation's unpaid withholding taxes. The individual was a "responsible person" with respect to the corporation because he exercised significant control over the corporation's day-to-day activities, hired or fired management employees and accountants in charge of the corporation's payroll operations, reviewed weekly and monthly financial statements, personally guaranteed payments to vendors and directed checks to be written and expenses to be paid. Further, the individual acted willfully because he had reason to know that the taxes were not being paid, but directed that payments be made to creditors other than the IRS.




ORDER


BEATY, Chief Judge: This matter is before the Court on the Recommendation from the United States Magistrate Judge [Document #55] granting summary judgment in favor of the United States for unpaid payroll withholding taxes owed by GC Affordable Dining, Inc. ("GCAD"), a corporation in which Plaintiff was a shareholder, pursuant to 26 U.S.C. §6672. Plaintiff brought suit against the United States for the recovery of tax penalties assessed against him. The United States filed a Counterclaim against Plaintiff for a trust fund recovery penalty, plus interest, in the amount of $264,579.00, representing the payroll taxes required to be withheld from GCAD employees' wages during four quarters: the third quarter of 1998 and the first, second, and third quarters of 1999. The United States subsequently filed a Third-Party Complaint against Stephen C. Coggin ("Coggin"), William G. Pintner ("Pintner"), James Barry Light ("B. Light"), and Hartsell B. Light, Jr. ("H. Light") alleging the same claims alleged against Erwin [Document #9]. On September 19, 2007, the United States filed a Motion for Summary Judgment against Erwin on his claims as well as its counterclaims against Erwin [Document #45]. Erwin then filed a cross Motion for Summary Judgment against the United States on its counterclaims against him [Document #46]. On November 27, 2007, Magistrate Judge Dixon recommended that the Court deny Erwin's Motion for Summary Judgment and grant the United States' Motion for Summary Judgment [Document #55].

Within the time provided by 28 U.S.C. §636, Counsel for Plaintiff objected to the Recommendation. This Court reviewed de novo the Objections and the portions of the Magistrate Judge's Recommendation to which objection was made, and has made a determination which is in accord with the Magistrate Judge's decision. The Court will therefore adopt the Magistrate Judge's Recommendation.

Consequently, the Court will order that Plaintiff's Motion for Summary Judgment be denied, and that the United States Motion for Summary Judgment against Plaintiff Charles B. Erwin be granted. As a result of this determination, Plaintiff Erwin's claims against the United States will be dismissed and judgment will be entered in favor of the United States on its counterclaims against Plaintiff Erwin. 1

Because all claims by and against Plaintiff Erwin have now been resolved, the only remaining claims are those claims brought by the United States against the Third Party Defendants, Stephen C. Coggin, William G. Pintner, James Barry Light, and Hartsell B. Light, Jr. However, the United States has filed a Motion pursuant to Federal Rule of Civil Procedure 54(b) for Entry of Final Judgment Against Plaintiff Erwin and a Motion to Stay further proceedings against the Third Party Defendants [Document #67]. Plaintiff Erwin and Defendants Pintner, B. Light and H. Light all consent. 2 Having considered this motion, the Court finds that all of the claims by and against Plaintiff Erwin have been resolved, but that the United States' claims against the Third Party Defendants in this case remain unresolved. The Court further finds that there is no just reason for delay of the entry of final judgment as to the claims by and against Plaintiff Erwin. Therefore, the United States' motion will be granted and final judgment as to Plaintiff Erwin pursuant to Rule 54(b) will be entered contemporaneously herewith. Further, the Court concludes that a Stay as to the United States' claims against the Third Party Defendants in this case is appropriate pending final resolution of any appeal by Plaintiff Erwin.



RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE


DIXON, United States Magistrate Judge: This matter is before the court on cross motions for summary judgment filed by Plaintiff Charles B. Erwin (doc. no. 46) and Defendant United States of America (doc. no. 45). Plaintiff filed this action after paying a portion of the amount allegedly due under a trust fund recovery penalty for unpaid payroll withholding taxes for GC Affordable Dining, Inc, ("GCAD"), assessed against him pursuant to 26 U.S.C. §6672. The government counterclaimed for a total of $264,579 in unpaid assessments, penalties and interest for the fourth quarter of 1998 and the first three quarters of 1999. The motions have been fully briefed and the matter is ripe for disposition. Because there has been no consent, I must address the motions by way of a recommendation. For the following reasons, it will be recommended that the court grant Defendant's motion for summary judgment and deny Plaintiff's motion for summary judgment.




II. Discussion



A. Summary Judgment Standard


Summary judgment is appropriate when there exists no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Zahodnick v. International Bus. Machs. Corp., 135 F.3d 911, 913 (4th Cir. 1997). The party seeking summary judgment bears the burden of initially coming forward and demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met its burden, the non-moving party must then affirmatively demonstrate that there is a genuine issue of material fact which requires trial. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). There is no issue for trial unless there is sufficient evidence favoring the non-moving party for a fact-finder to return a verdict for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); Sylvia Dev. Corp. v. Calvert County, Md., 48 F.3d 810, 817 (4th Cir. 1995). Thus, the moving party can bear his burden either by presenting affirmative evidence or by demonstrating that the non-moving party's evidence is insufficient to establish his claim. Celotex Corp., 477 U.S. at 331 (Brennan, J., dissenting). When making the summary judgment determination the court must view the evidence, and all justifiable inferences from the evidence, in the light most favorable to the non-moving party. Zahodnick, 135 F.3d at 913; Halperin v. Abacus Tech. Corp., 128 F.3d 191, 196 (4th Cir. 1997).


B. Liability under 26 U.S.C. §6672


Federal law requires that employers withhold from their employees' paychecks their shares of federal social security taxes and income taxes. See 26 U.S.C. §§3102(a) and 3402(a). The employer holds the withheld taxes `in trust' for the United States and must pay them over to the government on a regular basis. If an employer withholds the taxes from its employees but fails to remit them, the government must nevertheless credit the employees for having paid the taxes and seek the unpaid funds from the employer. The relevant statute, 26 U.S.C. §6672(a), 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.

Liability under section 6672, thus, requires proof that the actor (1) was a "responsible person" under a duty to collect, account for, and pay over trust fund taxes, and (2) willfully failed to discharge his duty. Turpin v. United States, 970 F.2d 1344, 1347 (4th Cir. 1992). A party is not presumed to be a "responsible person," however, merely on the basis of his title. See O'Connor v. United States, 956 F.2d 48, 51 (4th Cir. 1992) (titular authority is not sufficient; substance of circumstances must demonstrate that officer exercises and uses authority over financial affairs or is under a duty to do so.) The Fourth Circuit has stated that, in determining responsibility under section 6672, the "crucial inquiry [is] whether the person had the effective power to pay taxes - that is, whether he had the actual authority or ability, in view of his status within the corporation, to pay taxes owed." Plett v. United States, 185 F.3d 216, 219 (4th Cir. 1999) (quoting Barnett v. I.R.S., 988 F.2d 1449, 1455 (5th Cir. 1993)). Among the factors indicative of the requisite authority over the corporate taxpayer's finances or general decision making to qualify an individual as a "responsible person," are:
whether the employee (1) served as an officer of the company or as a member of its board of directors; (2) controlled the company's payroll; (3) determined which creditors to pay and when to pay them; (4) participated in the day-to-day management of the corporation; (5) possessed the power to write checks; and (6) had the ability to hire and fire employees.

Id. These factors are to be evaluated together; no single factor is dispositive or determinative of authority. Barnett, 988 F.2d at 1455. There can be more than one person in a corporation who qualifies as a "responsible person", Plett, 185 F.3d at 219, and section 6672 applies to all responsible persons, not just the most responsible person. Turnbull v. United States, 929 F.2d 173, 178 (5th Cir. 1991).

1. Responsible person

Crediting all factual assertions which favor Plaintiff, the court nonetheless concludes that as to who is the "responsible person" under 26 U.S.C. §6672, no genuine issue of material fact precludes summary judgment for the Government, and summary judgment is therefore appropriate.

Upon review of the substance of Plaintiff's authority within GCAD, and applying the Plett factors, it is clear and beyond genuine issue that Plaintiff had the authority to direct that the tax payments be made. Concrete indications of Plaintiff's authority include the fact that he was involved in most, if not all, of the major decisions regarding GCAD, including lease negotiations, and hiring of the management team and the accountants who performed services for GCAD. In fact, all but one of the Plett factors go in the Government's favor.

a. Board of Directors

While an individual's title is not necessarily determinative, it is a factor to be considered. O'Connor, 956 F.2d at 50. Plaintiff here was a founder, shareholder and officer of GCAD. He started as a one-third shareholder, but by 2000 he owned 100 percent of the GCAD stock. He also served as Secretary and Treasurer during the entire period, and as Vice-President in the late 1990s and President as of February 1, 2000. This factor clearly favors the Government's position that Plaintiff was a "responsible person."

b. Control of company payroll

Plaintiff admits that, on several occasions, he and the other shareholders attempted to infuse capital into the corporation to pay the delinquent payroll taxes. In fact, Plaintiff admits that when he "learned that the Light Brothers had not satisfied [the withholding tax] obligations the shareholders raised capital and remitted $150,000 to the Light Brothers, expressly instructing the Light Brothers to cure the tax deficiency." (Plaintiff's memo in support of s.j. 12). Clearly, then, Plaintiff viewed himself (together with the other shareholders) to be responsible for payment of the payroll taxes and further had the authority to order that the taxes be paid. There is no evidence that Plaintiff himself personally oversaw the payroll, but there is evidence that he participated in the decision to hire the accountants who took care of the day-to-day payroll operations. Moreover, in late 1999, Plaintiff put his own management company, Chelda, in charge of GCAD's accounting functions, including payroll and withholding tax matters. (Pl. dep. 212.)

c. Payment of creditors

The evidence also shows that Plaintiff had decision-making authority over which creditors would be paid. He signed personal guarantees to several food vendors, ensuring that those bills would be paid. In his deposition, Plaintiff admitted that lease payments and food vendors were paid out of gross receipts which were available even in 2000 to pay down the tax delinquency. Barry Light, one of GCAD's accountants, testified that Plaintiff regularly gave instructions as to which creditors should be paid, and at one point at the end of 1998, Plaintiff and Coggin instructed Light to pay rents and expenses "but nothing on the taxes." (Barry Light dep. 78). While Plaintiff may not have exercised his authority on a daily basis, he clearly had the power to direct which payments were made and when they would be made.

d. Participation in day-to-day management

Plaintiff was involved in many facets of the GCAD operations from its startup in 1994 to the close of business in 2001. Plaintiff participated in the hiring and firing of GCAD's managers and accountants. He also participated in decisions regarding restaurant locations, negotiation of leases and other contracts, and personally guaranteed payments to food vendors so that they would extend credit to GCAD. In addition, Plaintiff admits that he reviewed weekly sales figures and monthly financial statements and visited the GCAD restaurants and met with the restaurant managers. According to Barry Light, daily sales figures for each store were faxed to Plaintiff and Coggin every day. (Barry Light dep. 68.) In fact, Barry Light and Pintner regarded Plaintiff's involvement to be on a daily basis. (Pintner dep. 33-34; Barry Light dep. 68.) Pintner testified that he "didn't do anything without [Coggin and Plaintiff's] awareness." (Pintner dep. 33.) Plaintiff testified that he reviewed the federal income tax returns for GCAD. (Pl. dep. 124.) Plaintiff clearly was more than a "passive investor" in GCAD. His participation in the operations of the corporation qualifies him as a responsible person.

e. Check-writing authority

There is no evidence in the record that Plaintiff had authority to write or sign checks on behalf of GCAD. Nevertheless, it is clear that, in light of his many roles in the corporation, he had the authority to direct checks be written and expenses be paid, and that he in fact exercised that authority on many occasions.

f. Hiring/firing authority

The final Plett factor is whether the individual had the authority to hire and fire employees. Plaintiff was actively involved in the hiring and firing of Markley, Pugal, Pintner, and the Light Brothers, all of whom were management employees or, in the case of the Light Brothers, individuals performing professional services to GCAD. There is no evidence that Plaintiff was involved in the hiring and/or firing of the individual restaurant managers or employees, but his participation in the hiring of the corporate managers clearly shows that he had authority over employment decisions.

In analyzing these factors, the court is cognizant that no one factor is controlling, and, indeed, that the salient, deciding point is whether Plaintiff had the effective power to see that the taxes were paid. The evidence clearly shows that Plaintiff had that power, stemming from his actual authority and ability, in view of his status as a founder, director, officer and shareholder and his day-to-day involvement in GCAD. Simply because Plaintiff may not have been present on a daily basis does not change the fact that at any point, by virtue of his authority, Plaintiff could have had substantial input into financial decisions of the corporation, and in fact, on numerous occasions he exercised that authority. Based upon the evidence set forth, supra, Plaintiff clearly falls within the parameters of a "responsible person" under section 6672. 8

2. Willfulness

To determine whether a responsible person "willfully" failed to collect, account for or remit payroll taxes to the United States, the court must "inquire whether the `responsible person' had `knowledge of nonpayment or reckless disregard of whether the payments were being made.' " Plett, 185 F.3d at 219 (citing Turpin, 970 F.2d at 1347). A responsible person's intentional preference of other creditors over the United States with knowledge of the nonpayment of payroll taxes establishes his willfulness as a matter of law. Plett, 185 F.3d at 219; United States v. Pomponio, 635 F.2d 293, 298 (4th Cir. 1980). An intentional preference is shown by establishing that the responsible person knew of or recklessly disregarded the existence of an unpaid payroll tax deficiency. Plett, 185 F.3d at 219; Turpin, 970 F.2d at 1347. One way in which willfulness may be established is to show that the responsible person made a "voluntary, conscious and intentional decision to prefer other creditors over the Government." Greenberg v. United States, 46 F.3d 239, 244 (3rd Cir. 1994).

Plaintiff asserts that because he was relying on "seasoned professional" accountants, he "had no reason to think that GCAD's IRS obligations were not being satisfied." (Pl. memo in support of s.j. 18). By the end of 1998, however, Plaintiff knew or had strong reason to know that GCAD was undergoing a financial crisis. In fact, in December 1998 Plaintiff learned that the Light Brothers had failed to make payroll tax deposits for a prior quarter. Plaintiff then made capital contributions and "strongly admonished" the Light Brothers to make timely tax payments in the future. His failure to monitor the situation after first becoming aware of the Light Brothers' actions is simply indefensible.

Even assuming, as Plaintiff claims, that he was not aware of the tax deficiencies until August 1999, his actions after that period show willfulness. During the third quarter of 1999, GCAD's payroll tax liability increased by $163,000, yet the corporation only made two tax deposits totaling $7,118.24. Thus, the withholding tax deficiency at the end of the third quarter of 1999 was over $150,000. Plaintiff made a capital contribution of $50,000, but GCAD still owed over $100,000 for that quarter. Moreover, prior deficiencies from 1998 and the first two quarters of 1999 were not satisfied. During this entire period, however, other creditors were paid and substantial sales revenues were generated. To be sure, GCAD was struggling financially; Plaintiff asserts that rents and expenses were paid just to keep the doors open. Nevertheless, as the court noted in Greenberg, "[i]t is no defense that the corporation was in financial distress and that funds were spent to keep the corporation in business with the expectation that sufficient revenue would later become available to pay the United States." 46 F.3d at 244. It must also be noted that Plaintiff himself raised funds to pay the first tax deficiencies. At the very least, at that point, and as an officer and shareholder of the company actively involved in many corporate decisions, Plaintiff was on notice that tax liability was an issue which might again be a problem in the future and that it was critical to stay on top of the matter and prevent future tax delinquency. After all, "the government cannot be made an unwilling partner in a business experiencing financial difficulties." Thibodeau v. United States, 828 F.2d 1499, 1506 (11th Cir. 1987).

Although not yet addressed by the Fourth Circuit, courts in other circuits have held that even if a "responsible person" is unaware that withholding taxes have gone unpaid in past quarters, a responsible person who becomes aware that taxes have gone unpaid in past quarters in which he was also a responsible person, is under a duty to use all "unencumbered funds" available to the corporation to pay those back taxes. See Thosteson v. United States, 331 F.3d 1294, 1300-01 (11th Cir. 2003); United States v. Kim, 111 F.3d 1351, 1357 (7th Cir. 1997); Honey v. United States, 963 F.2d 1083, 1089 (8th Cir. 1992); Mazo v. United States, 591 F.2d 1151, 1157 (5th Cir. 1979). This duty extends not only to funds available to the corporation at the time the responsible person becomes aware, but also to any unencumbered funds acquired thereafter. Thosteson, 331 F.3d 1294. As explained by the Eleventh Circuit:
If the responsible person fails to use such unencumbered funds to satisfy the past unpaid liability, he is deemed personally liable for the taxes that went unpaid in the past while he was responsible. The responsible person deemed liable for the unpaid liability of past tax quarters is considered to have "willfully" failed to pay over the taxes for those past quarters, even though he was unaware at that time that the taxes were going unpaid.

Thosteson, 331 F.3d at 1301. Plaintiff was under a duty to reduce GCAD's accrued tax liability with funds acquired after the taxes had been withheld and the funds, presumably, were dissipated. Thus, once Plaintiff was made aware of the unpaid tax liability, payments made to creditors other than the IRS constituted willful violations of section 6672.

Plaintiff, relying on Turpin v. United States, 970 F.2d 1344 (4th Cir. 1992), argues that his knowledge of GCAD's past tax deficiency "does not, as a matter of law, establish that he acted willfully with respect to the next deficiency." (Pl. memo. in resp. to def. m.s.j. 16-17). Plaintiff's reliance on Turpin, however, is misplaced, because the plaintiff in that case was found, by a jury, to have neither known of nor to have recklessly disregarded the corporation's tax deficiency. Plaintiff here clearly knew of the tax deficiency as of August 1999, and there is evidence that GCAD generated over $5 million in gross receipts after that date. These funds were used to pay other creditors, including landlords and food vendors, together with employee wages, while the tax deficiencies remained unpaid. Moreover, even after the initial deficiencies were brought to Plaintiff's attention, he continued to entrust the financial management of the corporation to the Light Brothers, whom he knew to be unreliable. Under these facts, Plaintiff's reckless disregard demonstrates willfulness as a matter of law for the purposes of summary judgment.


III. Conclusion


Because Plaintiff is a responsible person under section 6672 and he willfully failed to pay withheld taxes to the IRS, IT IS RECOMMENDED that the motion of the United States for summary judgment (doc. no. 45) be GRANTED and Plaintiff's motion for summary judgment (doc. no. 46) be DENIED .

1 Plaintiff filed an action seeking a refund of tax penalties and related interest assessed to him under 26 U.S.C. §6672. Because the reasoning of the Magistrate Judge's Recommended decision applies equally to the claims by Plaintiff Erwin against the United States and the counterclaims by the United States against Plaintiff Erwin, and because the Magistrate Judge recommended granting the United States' Motion for Summary Judgment in its entirety, all of Plaintiff Erwin's claims against the United States will be dismissed.