Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_06-cv-01365/USCOURTS-casd-3_06-cv-01365-1/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7422 IRS: Refund Taxes

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

RONALD C. SAVONA,

Plaintiff,

CASE NO. 06CV1365 IEG (WMc)

ORDER DENYING

DEFENDANT’S MOTION FOR

SUMMARY ADJUDICATION

[Doc. No. 47, 48, 49]

vs.

UNITED STATES OF AMERICA,

Defendant.

UNITED STATES OF AMERICA,

 Counterclaim

Plaintiff

vs.

RONALD C. SAVONA and KEITH M.

CHRISTIAN,

Counterclaim Defendants.

Presently before the Court is the Government’s Motion for Summary Adjudication. For the

following reasons, the Court DENIES the Government’s motion.

Background

A. Factual Background

This matter involves the assessment of civil penalties against Ronald C. Savona and Keith M.

Christian pursuant to 26 U.S. C. § 6672. 

Christian and Savona served in various executive capacities for Eco Building Systems Inc.

(“Eco”) during 2001 and 2002. On October 13, 2005, the Internal Revenue Service (“IRS”) made an

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assessment of liability arising under 26 U.S.C. § 6672 against Savona, alleging a willful failure to

collect, truthfully account for, and pay over the withheld income taxes of Eco employees for tax

periods in 2001 and 2002. On March 29, 2004, the I.R.S. made an identical assessment against

Christian.

B. Procedural Background

On July 5, 2006, Savona filed his complaint, asserting the IRS’s assessment of tax liability

against him was improper since, under section 6672, he was not a “responsible person,”—i.e., a person

responsible for the payment of withheld taxes—nor had he acted willfully with respect to any failure

of Eco to satisfy its tax liability. (Doc. No. 1.) Savona seeks a refund of amounts paid and a full

abatement of the assessment against him. On September 6, 2006, the Government filed an answer in

which it denies Savona’s allegation that the assessments are improper. (Doc. No. 4.) In addition, the

Government asserts counterclaims against both Savona and Christian for the balance of the tax

assessments that remain unpaid. (Id.) On October 30, 2006, Savona and Christian answered, denying

the validity of the assessments and liability under 26 U.S.C. 6672. (Doc. No. 7; Doc. No. 12) On June

29, 2007, the Government filed a motion for summary judgment on its counterclaims against Savona

and Christian. In an Order dated October 15, 2007, this Court granted summary judgment in favor

of the Government as to Christian, finding that he was a “responsible person” with respect to unpaid

tax liabilities and that he acted willfully in failing to pay withheld taxes. The Court, however, denied

the Government’s motion for summary judgment with respect to Savona, finding a genuine issue of

material fact existed as to both the responsibility and willfulness prongs.

On February 15, 2008, the Government filed a Motion for Summary Adjudication, asking the

Court to make a finding that, if it is determined at trial that Savona was a responsible person, the

United States is entitled to judgment against Savona because he has no defense to the willfulness

prong of 26 U.S.C. § 6672. (Doc. No. 47.) On March 15, 2008, Savona filed an opposition. (Doc.

No. 48.) On April 1, 2008, the Government filed a reply. (Doc. No. 49.) The Court finds the matter

fully briefed and amenable for disposition without oral argument pursuant to Local Rule 7.1(d)(1). 

//

//

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Discussion 

As explained in the Court’s prior order, willfulness, under § 6672, has long been defined as

“a voluntary, conscious and intentional act to prefer other creditors over the United States.” Purcell

v. United States, 1 F.3d 932, 938 (9th Cir. 1993) (quoting Davis v. United States, 961 F.2d 867, 871

(9th Cir. 1992)). Willfulness does not require the intent to defraud the government or any other bad

motive. Davis, 961 F.2d at 871. Rather, any deliberate decision to use corporate funds after receiving

knowledge of a payroll tax deficiency “falls within the literal terms of this Circuit's definition of

willfulness.” Id.

i. Parties’ Arguments

The Government argues willfulness has been established because there is no dispute that

Savona learned of Eco’s outstanding federal payroll taxes through his position as a company executive

and member of the company’s board but then failed to use his authority to sign checks to settle the

liability before any creditors were paid. This failure, argues the Government, constitutes a voluntary,

conscious, and intentional act to prefer other creditors to the Government under the case law of the

Ninth Circuit. 

In his opposition, Savona argues the Government has failed to submit evidence indicating how

he specifically preferred other creditors of Eco over the IRS. 

ii. Analysis

Unlike the numerous cases the Government cites to demonstrate the broad category of conduct

which satisfies the willfulness prong under 6672 and in which the targeted executive did not dispute

his own direct involvement in authorizing, directing, or affecting payment to creditors other than the

IRS, see e.g., Purcell, 1 F.3d 932; Davis, 96 F.2d at 876; Buffalow v. United States, 109 F.3d at 570

(9th Cir. 1997), there is a dispute in this case as to whether Savona directed, approved of, or

personally affected the use of corporate funds to pay expenses other than the outstanding tax liability.

While a finding in the Government’s favor on the “responsible person” prong would establish Savona

had authority and/or the ability to direct payments to the IRS, this would not, by itself, establish that

Savona voluntarily, consciously, and intentionally acted to prefer other creditors and withhold such

payments from the IRS. See United States v. Leuschner, 336 F.2d 246, 248 (9th Cir. 1964) (finding

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The Court notes the existence of some inconsistency in the case law on the issue of which

party has the burden of proof with regards to willfulness under section 6672. Compare United States

v. Jones, 33 F.3d 1137, 1139 (9th Cir. 1994) (noting that in a prosecution under section 6672, the

individual against whom an assessment is made bears the burden of proving by a preponderance of

the evidence that one or both of [the elements of responsibility and willfulness] is not present) with

Klotz v. United States, 602 F.2d 920, 925 (9th Cir. 1979) (“[T]he Government must prove more than

mere negligence [in order to establish willfulness under section 6672]”) (emphasis added) and United

States v. Phillips, 73 F.3d 939, 942 (9th Cir. 1996) (repeating the Klotz quotation uncritically). In

either event, whether the burden be with the Government or Savona, a triable issue of material fact

exists as to whether Savona’s actions after learning of the tax liability constituted a voluntary,

conscious, and intentional act to prefer Eco creditors over the IRS. 

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that where company executive, a responsible person under 6672, did not know that the company

accountant was failing to pay over withholding taxes to the IRS, a fact issue existed as to willfulness

since the facts allowed for the possibility that the executive was merely negligent). Savona denies that

he committed an act preferring other creditors. To the extent the Government relies on his mere

knowledge of the outstanding tax liabilities—coupled with an affirmative finding with regard to

responsibility—to establish willfulness, the Court rejects the Government’s argument. The Court

concludes that even if Savona is found to have been a “responsible person,” a genuine issue of

material fact exists as to whether he undertook a voluntary, conscious, and intentional act to prefer

other creditors to the IRS.1

Conclusion

For the foregoing reasons, the Government’s Motion for Summary Adjudication is DENIED.

IT IS SO ORDERED.

DATED: April 21, 2008

IRMA E. GONZALEZ, Chief Judge

United States District Court

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