under twenty six us sixty six seventy two concerning f p a's pass to do with having taxes which resulted in a judgment of four point three million dollars against dr mclendon individually the judgment must be reversed because f p a paid all material funds to the government after dr mcalinden became aware of the unpaid taxes with the exception of a one hundred thousand dollar loan that f p a obtained from documents or payroll purposes even if this loan was on income or as the government has argued it is not sufficient to support the judgment of four point three million dollars against dr mcalinden as a matter of law under twenty six u s c section sixty six seventy two a responsible person who willfully fails to pay over with their withheld taxes may be liable to the government individually under certain circumstances but in order to be liable there must be willful willfulness involves a considered decision to not pay the government the taxes owed evidence by payments made to somebody to creditors other than the i r s after the individual has knowledge of the taxes owed to the government is critically important in this case and the best example of the implementation of that limitation is what this court decided in the barnett vs i r s case in one thousand nine hundred three in that case the taxpayer became aware of the unpaid taxes which were more than six hundred thousand dollars on april twelfth of one thousand nine hundred two during a bench trial the what what evidence came to light was that more than four hundred four hundred ninety two thousand dollars had been deposited into the company's account but the ten the responsible person did not use that money to satisfy the outstanding amounts owed to the government do you think the critical thing is that there was actually over six hundred thousand in withholding that it is not for nine hundred two was deposited after mr barnett found out right so four hundred ninety three was deposited was four hundred ninety two thousand consequently because the taxpayer post awareness did not use those funds to pay the government this court render judgment for that amount only he did not renew her judgment for the full amount of the tax penalty that was determined by the government but what's clear from the record is that the only about that was assessed the only penalty at issue was four point three million and you didn't dispute in the record below that amount that four point three million was the amount of the penalty are funds available and you say there weren't because the monies paid to the i r s were all that we had is that your argument will be my argument judge under under barnett is that if the government's theory is that dr mclendon is liable for the entire four point three million dollars penalty which was their theory then there must be record evidence here that four point three million dollars or more was both available and an income bird at a period of time when dr mcclintock became aware of the taxes owed and that he'd then failed to pay that amount to the government and that's the problem in this case there's absolutely no evidence that any amount of money even approaching four point three million post doctor mclendon awareness was available and on the cupboard and therefore should have been paid to the government  the penalty because as the court pointed out in those opinions there were available and encumbered funds in excess of the amount of of the penalty that's why the full amount of the penalty was affirmed in those decisions what other cases are that say that if you don't pay let's suppose he found out on may ninth and on may fifteenth he had paid one hundred dollar debt to some other creditor than the employees under the se a bill of for one hundred bucks out of the f p a funds that he should be liable for the whole four point three million is there any case that says that you know and that's the problem that's their theory in this case  the question judge davis has it if it is your burden to show what fines to meet the insufficient funds defense built into barnett where did you meet that burden judge in the summary judgment response so the government files record on appeal page one o one their argument was from january two thousand and six to july two thousand and nine dr mcalinden allowed seven point five million dollars to be paid to non i r s creditors at the critical period of time meaning after he became aware so that's their theory for why dr mcclinton should be liable for the entire penalty that's consistent with the attention there's nothing in those other cases that indicates that the defendants came and the taxpayer came in opened up its books which presumably the iris looked at anyway here opened up his book and said here's where the money came in that's all that we had right i mean there's nothing that indicates when the i r s position is you paid this hundred thousand therefore you're liable for the four point three million then i'm don't see how you have to prove that every and you show that this all this other money all these other accounts receivable came in and you paid them diarists i don't see why that doesn't discharge whatever view i had and i agree with you judge and i'm sure you do i think it absolutely does and the and that's the thing here is when the government  its its tail on on here's the argument right i think there are the documents and it has four point three million dollars in liability as the summary judgment nonmoving document clinton come toward to address that argument and to reach your question just all of that was already in the record dr mclennan goes above and beyond that dr mclendon says ok let's get the date of awareness correct the date of awareness is some time mid may two thousand and nine so the relevant inquiry here is what amount of money was paid out in available and on the newcomer funds after may of two thousand and nine in his affidavit and in his deposition testimony dr mclendon swore under oath that no vendors were paid after he became aware of the unpaid taxes he swore under oath that all accounts receivable in the future are pledged to the i r s which notably in the barnett case he didn't even have to do that but he did it and it was pledged he swore under oath that all the existing in future funds were paid to the i r s he didn't just say these things to the summary judgment record demonstrates that in fact two hundred seventy four thousand dollars above that was paid the i r s we showed the chat demonstrated that one hundred sixty one thousand six thirty four was paid to the i r s demonstrated that one hundred thirty four thousand and eighty was paid to the i r s those last two payments by the way make up the three hundred thousand dollars that the government has claimed documents on and somehow didn't prove what happened to those funds it's in the  those funds as all others were paid to the i r s he had other money he wouldn't have to loan money to the to the group if family practice had other money he could have made the payroll if that's what it wanted to do although dr mcalinden knew better he knew that if whatever money was in the account he's pledging it to the iraq's i mean this isn't even come up on summary judgment to begin with which leads me to judge rosenthal being a very careful judge to infer that she was ruling on the only two issues that were race and that was number one incumbrance and number two reasonable cause you know sort of the moral argument and if there had been a third dispositive argument anyway he did not bear his burden to prove that there were other that that were not available funds she wouldn't have she would have ruled on that too i think that that's probably  think were things got off track in this case all comes down to the reply argument that the government filed i think the government realized that dr mclendon clearly defeated the summary judgment or gimme that somehow seven point five or four point to the government and even though he argues that those were encumbered we think that they are an incumbent and that should support liability for the entire penalty as a matter of law is what they said and unfortunately judge rosenthal went with them on that argument but i think it's it's wrong procedurally in such substantively substantively first and foremost because it's contrary to every case out of the fifth circuit that limits a taxpayer's liability to the amount of available and on incumbent funds that come into existence after awareness that the taxpayer does not pay to the government so if that amount here is one hundred thousand one hundred thousand cannot support a judgment for four point three million dollars as a matter of law with the premise is that that is all the money that you showed if my analysis is right that you showed the only money they had was one hundred thousand other than what they gave their us that is correct now they've made issues not and in there is not and i think what's also telling and i think i don't want to point this out is when you look for reconsideration saying wait a minute here the hundred thousand dollar payment under binding to circuit president cannot support a four point three million dollars judgment this is wrong under the law the court denied the motion for reconsideration and the court said something that i think i both interesting and extremely problematic it indicated that dr mclendon had the burden to submit or identify record evidence record evidence showing that he was not liable well the burden of proving that the responsible person did not control sufficient farms to pay the tax liabilities on the taxpayer and you never came pouring that over it but that's that's what i would direct you to the summary judgment response that evidence was clear in the deposition testimony his extensive affidavit where he testified that all money with the exception of the hundred thousand dollars loan was paid to the government that is in the summary judgment record and that's why  reply they seized on this admission concerning the hundred thousand and made this this extra argument that one hundred thousand payment can support liability for the entire penalty that is contrary to this court's binding authority and we  prove that all on encumbered funds were paid to the government after he knew i'm a lump of two thousand why do you have the books and records don't you know the answer to that yourself your honor it was not our burden to prove this is how i summary judgment it's not disputable it's not a matter of burden it can be i mean i don't understand there either you either have a bank balance in the books and records and these checks paid out if you think somehow something to cash was you know siphoned off to an illegitimate purpose i mean but if no checks were paid and you haven't and he swore that nothing was paid and they hired a lawyer or that nothing this is what he company's bank account to pay employees instead of the i r s he and the other doctors also formed discomfited this limited liability company and this team where they put some of their own money didn't like you that went when when was that ever brought up to the court well this is the problem it wasn't speaking because the appellant didn't make this argument he did not make this argument until too late he's claiming that we waged an argument by telling the judge that it was an alternative argument he didn't have to reach but in fact he waved to the argument that there were insufficient funds because it's his burden is part of the willfulness test ask you question because how is it that in every one of the fifth circuit cases including barnett it is always been the case that there were excess of available funds to pay those amounts although in barnett willfulness was not attached to the whole six hundred thousand dollars that was a good it was only attached to the amount that was misdirected allegedly after the person being became aware well that's right and i thought your angle where does it ever say that the taxpayer who seeks a refund under these circumstances is willful and lance he brings forth all the books and records of the company which both sides have looked at by that  time to say that there are no other available funds well your honor then asked the affidavit i respectfully disagree that it's clear from the record that we have everything that we had all the bank statements that when and even if we did he wasn't our burden to go through and look at every deposit and make an accounting that was what the taxpayer should have done and second perhaps more importantly he did not make this argument until his motion for reconsideration well now why didn't he make that that's because he used to brought it up in your reply brief that's it incorrect  i respectfully disagree with that we said in our complaint that he was liable for the entire four point three million dollars and we said if he paid any creditor other than the iras after he knew that meant he was willful as a matter of law and he barnett own all those cases stand for that proposition it just so happens that proposition due respect not one of them says that you are liable from the beginning of you know where all of history because you have misappropriated because you have misspent a certain amount following the your actual knowledge more specifically i believe with those cases say's that if you are proven to have been willful by paying any creditor other than the iris it i'm curious more generally do other circuits have the barnett limitation capping it only as to available funds or is it all or nothing you're on for the hope for a letter no your honor this is the point i'm trying to make we're not we don't disagree i know you don't i'm just asking you is that a universal rule or is it a fifth circuit only rule no i believe that's the rule and in most of the circuits and but it's a defense it's an insufficient funds defense and exotic and it needs to be raised by the defendant and he's been raised timely by that and this is judge jones earlier question corrected here the arguments made the judge rosenthal was arguably a moral one and then it wasn't in concord it wasn't triggered it's not the when is your view in this record that the first time the barnett insufficient funds defense was raised by the clinton reconsideration ok i think it's fairly clear that he didn't bring it up and then judge rosenthal's twinning answer to that was i don't see that you've it in fact i believe he said you didn't prove it up and he disregarded the blanket statement that we gave the i r s all the money and in part i think he did that because that wasn't true one hundred thousand dollars that came in and was not  did that that's a heck we understand that that is an a very unfortunate anomaly here he gave it out of his own funds so it's not you know you're not arguing that he was part of the fraud in the implication of an otherwise it's vile the man dead you know up i understand that your honor and i and i understand that he's sympathetic for many reasons but the statute as it's written you can make is proof if it goes back to trial according to you  if as the attorney says everything's in the record it would be a simple matter for them to show an accountant however that's sort of my opinion however they didn't do that and they didn't even raise this argument until it was too late so that was our primary argument why this  record was being developed was the government said all you will acknowledge that you've had notice of this in may but you were liable for the and th ordinarily your liability would be cut off except for the fact government position that you put in a hundred thousand dollars with this fake promissory note to pay the employees and therefore because you willfully mis put paid one hundred thousand dollars we're going to hold you liable for the whole thing which raises a good legal argument based on want to barnett and locale and all those cases said right and i thought that was all you said in response to his motion for summary judgment was our motion for some well i thought there were cross motions ok your motion you did not say quote he did not prove there were other available fine no other available which was it would have been his no but he didn't argue that there were insufficient but in time your motion how can he in our house in your mind ok well our motion we said that based on the reckless disregard theory which would have gone back further that there had been deposits into the bank account that would have been sufficient and earlier of course he also said that if he made a payment to any credit there he was then therefore willful and then we come along later and specify for example this hundred thousand dollars was a payment to another creditor how was that a new argument we were not arguing the insufficient  yes you had filed a reply yes i mean i'm just saying i thought i would have thought the judge since that would have been a does in your view a dispositive argument she didn't have to rule on the hundred thousand at all she could have just said he estimated as proof as to the rest of the money that came in or went out of the f p he hasn't made any argument on that you know this side m t s or whatever that company was she didn't actually reach washington well that would have been dispositive overarching incomplete and she didn't have to get into any stuff about one hundred thousand dollars being an incumbrance if your defense say to you is he found out he didn't prove that not a single dime was was mis paid to anyone other than creditors otherwise he didn't prove it and all of it and therefore he loses courts have described the statute as harsh necessarily so they can't ever have this it but you never argued it that way did you we didn't argue that there were more in the funds correct we didn't have to make that argument it was not our burden to make that artist couldn't make that argument because there were no funds that were missed paid the only thing she will ever come up with are eighteen hundred dollars and two thousand and he he says those were coming from completely separate accounts it had nothing to do now you brought up this m t s a separate deal but you have you know you cite nothing about that we are honor and truth i do not aware of any cases that specifically deal with this case with a situation where responsible persons can take money create another shell company or whatnot and funnel payments to pay company expenses but just on the very logical that with any accounts receivable that were created after dr mclennan had knowledge we do not know we don't know how much money was even in that account you lot excuse me you out it did him you out of did the company this has been going on since two thousand and nine when he reported it you never charged him or his state with fraud it's ten years later this is a civil case your honor i understand in the statute of limitations for fraud is five years isn't it not all of the withheld payments are considered trust fund payments so the the the bulk of that we will never recover it's just impossible the statute gives us the right to go after some of the monies that are not paid over but not all of responsible persons can put money into another incident and use it to pay the company's expenses in that case in fact as the taxpayer points out that they actually put their own money into the company's account and then paid it but the court said that's not the point the point is it's the use to which the funds are put and they use this money to pay company expenses grants and utilities and so on rather than paying  available without billboard and that's a that's an important statement that was my understanding of the record but it would be very important if there's a different way to look at this i apologize that i don't have a definitive answer but i don't believe i just not sure whether every bank statement of every account for every period an issue is in the record we got this original position was that dr mclendon transfers were reckless significant before he knew but he should have known because he was reckless then there were the two hundred thousand dollar transfer once he knew and then after dissolution of liquid ation of this company he created another company which then implicates if it attention whatsoever to the financial side and according to the docs and the record this this c p a or controller or whoever was he was like all operating with with virtually no supervision whatsoever that is a recipe for disaster and and disaster ensued i mean he didn't ever prepare regular financial statements for the company there was no oversight even when they were several employees including d a matter of law under any circus i believe in the local case which you wrote judge davis did hold that the burden of proof regarding willful this is on the taxpayer and that includes liable for part of this yes in a barnett the taxpayer made a showing of how many how much funds were available there's nothing in the record about that there just isn't well i believe that he must have raised to and to take care that things were going properly and that the financial operations were up to snuff and that in fact the taxes were being paid which is frequently a danger in a corporation where only one person has control over the finances you know what the what the government said is the government are net they make i don't wish to be thought that i'm misreading misstating the facts and  attacking people without basis to go on appeal for it no nineteen the government makes no claim to any unencumbered assets that the company may have pose they're asked to as of april twelfth the government only focuses on assets received after that date in other words what they were talking about was accounts receivable that hadn't come in as of the particular date which had to do with the amount of will like to address to some of the points that were raised by the government first of all this this notion about when the government raised this already with the hundred thousand dollars can support what the government or to you when they responded to the motion for reconsideration this is from their own greets at page record eight seventy four the united states said quote the united states in it replug inform the court that if it agreed that the hundred thousand dollars paid to the employees was from unencumbered funds that mcclinton would have acted willfully and that was there were you meant that it should support the entire judgment they conceded that that issue was raised with time in the the government's argument was that dr mcalinden allowed seven point five million an amount in excess of the penalty to be paid after he became aware of the taxes so dr mclendon has to look at what is the argument for why i should be liable for  four point three million government says that the relevant time post awareness i allowed seven point five million to be paid to somebody other than the i r s i'm going to defeat that notion and that's precisely what dr mcclelland in dead and in particular when dr mclennan points out of the pins to the iris that supports his sworn testimony sworn affidavit that everything was paid to the i r s with the exception of the hundred thousand dollars loan the idea that he somehow didn't meet any burden of proof to demonstrate that the company didn't have available and and unencumbered funds at that point to pay the government it makes no sense of course he met that burden if that was his work if the if the company has no funds other than one hundred thousand then he's met his burden of proof that the company doesn't have any other available funds to pay the government the government exactly a lot of folks and records to the government put in in connection with their motion for s judgment among other things the government could be energy operating bank accounts that's their exhibit four for july of two thousand and nine they attached in support of their key summary judgment it i mean let me just read from your argument attached as exhibit a for the front pages of the big statements for one a family banks accounts for each month from january two thousand and six through jane july two thousand not so they attached all these statements from the after that date those shades are vouched for by the government and they show no funds that were available to the i r s i don't want to misrepresent the record i think that some some of the payments that closing down it's was made after that the cut off of the july statement but it's in the record nevertheless and what i'm saying all i'm saying is that under standard rules of deposition testimony cited to the court in the affidavit where dr mcalinden swore and his whole argument was premised on the idea that we paid everything to the government all vendors were cut off the only exception is the hundred thousand mcclellan's argument at the time reasonably so is not that you know you therefore enter judgment against me for a hundred thousand his argument was from our perspective the hundred thousand is encumbered you don't get that either that doesn't support the theory that government files response in changes their theory out right and says if you find one hundred thousand is is one cumbered which you should do that supports liability for the entire penalty as a matter of law and that statement as a matter of law to the court the court excepted it and it is fundamentally false one hundred thousand does not under any case particularly physical authority support the imposition of a four point three million dollars penalty the opposite is true as a matter of law and that's why this court must reverse ok thank you