# In th e United States Court of Federal Cl aims

No. 10-359T (Filed: March 21, 2017)

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SCOTT B. GANN,

Plaintiff
,

v.

THE UNITED STATES,

Defendant.

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K. Lawson Pedigo , Dallas, TX, f or plaintif f

.

J a s o n Bergmann
, Tax Division, United States Departm ent of J ustice
, W a shington, DC, with whom were Caroline D. Ciraolo
, P rincipal D e p u t y Assistant Attorney G eneral, David I. Pincus
, Chief , Court of Federal Claim s Section, G. R obson Stewart
, Assistant Chief
, and Jason S. S

e l m o nt , Trial Attorney , f

or def endant

ORDER

On Septem

ber 16, 2016, we issued a post-trial opinion in this tax ref u nd suit, f inding that plaintif

f reckle s s l y d isregarded the possibility that his

com pany would f

a il to r em it to the Internal Revenue Service (“IRS”) all of the FICA taxes withheld f

rom em ploy ee p ay checks. The IRS’s im position of a penalty against plaintif

f personally f

o r a willf ul f ailure to pay was thus proper under 26 U.S.C. § 6672 (2012). W e ordered the p arties t o consult a nd propose the proper am ount to be awa rded o n def endant’s c ounterclaim

. Instead, on October 14, 2 0 1 6
, plaintif f m oved f

or reconsideration of our opinion. W e ordered def

endant to respond and a l lowed plaintif f t o f ile a reply

. T he m otion is f ully brief e d. Oral argum ent is unnecessary

.

The basis of p laintif

f ’s m otion is that the pay

r oll t ax am ounts paid to the Reconsideration; 26 U .S.C. § 6672; Trust F u n d Taxes; Trust F und Tax P e n a l t y ; Wi l l f

u l n e s s ; R e c k l e s s Disregard of a Known or Obvious Risk; Im plied Designation.IRS by Hum anity Capital, Inc. (“HCI”) f or the f ourth quarter of 2006 and the f irst and third quarters of 2007 exceeded the am ounts withheld f r om em ploy ee pay d uring those quarters. This, according to p laintif f
, is e v i d e n c e of his subjective intent t o pay at least the trust f und tax owed f

o r those quarters. He argues that h e thus should not be subject to a penalty f or willf ul f ailure to pay the trust f und tax owed f

o r those quarters. That the IRS applied those m onies
to plaintif

f ’s t ax debts dif

f erently
, resulting in a continuing trust f und tax shortf all, ought not be suf

f i cient to im

pute a w illf

ul m o tive to plaintif

f
, he say s. Pl a i ntif f f urther notes that nothing o n the IRS f orm 9 41s in evidence could have alerted plaintif

f to the f act that the IRS was going to apply the am ounts paid over by HCI to non-trust f und liabilities f

irst. A plain reading of th o se f orm s w ould reasonably have led Mr. Gann t o conclude that HCI was pay ing

m ore than the trust f

und tax liability
, he avers. That is f urther e vidence, in his view, that he could not h av e b e e n w i l l f ul i n f ailing to pay during those quarters.

W e d i s a g r e e

. As the governm ent points out in its response to the

m otion, our holding was rooted i n plaintif f ’s f ailure to assure that HCI’s trust f und tax l iabilities were m et af ter the third quarter o f 2005. P laintif f becam e

aware of HCI’s f

ailure to pay all of i ts em

ploy m ent taxes, including trust f u nd portions withheld f

rom e m ploy ee p ay checks, a f

t e r his com

pany received a notice f rom the IRS in Novem

ber 2005 that r elated to the m i ddle two quarters of that y ear. H e quickly re a c h e d a s ettlem e nt agreem e n t w ith the IRS and subsequently subm itted three pay m e nts to s atisf

y HCI’s obligation. W e f

ound that Mr. G ann was thus on notice of the problem going f o r w a r d f rom Novem ber 2005. 1 Gann v. United States
, 128 Fed. Cl. 3 9 4
, 408 (2016). A nd

we f ound, i n light of his r egular involvem ent in the f i nances of the com

pany , that his f ailure t o m onitor the issue af ter then was, at m inim

um , a reckless disregard of the known o r obvious risk that trust f und taxes m ight not b e p aid

over to the IRS. I

d. at 408-09; see also Godfrey v. U nited States
, 7 4 8 F .2d

1 Though p laintif

f s aw to it that HCI’s back taxe s w e r e p a i d f o r the second an d third q

uarters of 2005, h is com pany ’ s annual Securities and Exchange Com m ission f iling f or the 2005 y ear showed a large p ay roll tax lia b i lity f or the f ourth quarter. Subsequent quarterly f ilings also showed expanding liabilities, a com ponent of which w ere the unpaid trust f und taxes. There i s n o question that plaintif f was on notice of the problem in Novem ber 2005, and the s ubsequent SEC f ilings s h ow that h e likewise had no reason to think the problem

was solved.

21 5 6 8, 1577 (Fed. Cir. 1984) (“W illf u l conduct m ay also include a reckl e s s disregard of

an ‘obvious and known risk’ that taxes m ight not be rem itted.”) (quoting Feist v. United S tates , 607 F .2d 957, 961 (Ct. Cl. 1 979)). Because he

was a responsible person f or the com

p any , this recklessness m ad e t h e IRS’s im p osition of a penalty proper. Not h i n g in plaintif f ’s m otion f

or reconsideration calls that holding into question.

In plaintif f ’s reply
, h e argues that the I RS’s internal policies regarding how i t applies pay

m ents when a taxpay er h as a m ix of past and current l i a b ilities is a “gotcha” schem e that entraps the u nwary taxpay e r a n d inequitably r esults in the assessm ent o f penalties. In plaintif f ’s view, the f

act t h a t HCI rem itted sum s necessary to m e et the trust f u nd portion of tax obligations f

or p articular quarters, notwithstanding that those p ay m ents were insuf f icient to m e et the total tax owed f or those quarters, ought to prove him
not willf ul f or those periods. The I R S’s own decision regarding how it applies pay m ents to outstanding liabilities should n ot f orm the b a sis o f a f

inding of scienter f or purposes of a p enalty f or w illf ul f ailure to pay taxes, urges plaintif f

.

The law, howeve r , is less sanguine about the consequences of u npaid back taxes. In the quarters challenged by this m otion, HCI’s em ploy m ent taxes

were in a rrears. The IRS’s policy of generally apply i ng pay m ents f irst to nontrust f und liabilities and s econd to trust f und am ounts o wed is n o secret nor is it illegal. See W

e sterman v. United States
, 718 F.3d 743, 749 (8th Cir. 2013). It is a lso not a secret that a taxpay er m ay m a ke an express election to pay trust f und liabilities f

irst by m aking an explicit instruction to the IRS. Id. The f act that plaintif

f m ade no election is not a def ense, nor would it be a def e n se if he was ignorant of

that right. 2

As we held in Septem

ber 2016, plaintif

f had r e a son to know his

com pany w as not m eeting its trust f und tax obligations af

ter N ovem

ber 2005, and h e either chose t o ignore the problem going f o rward or was inexcusably i g n o r ant of it. W e f

ound that reckless a n d u

pheld the IRS’s im

position o f a

2 W e also reject plaintif

f ’ s notion that he m ade an im plied designation by pay ing s um s equal to or greater than the am ounts withheld f rom em ploy ee pay

. See W

esterman , 718 F.3d at 7 50 (rejecting the argum ent that the tim ing and am ount o f a pay

m ent was suf

f icient to establish an e xpress designation by the taxpay e r).

3penalty under 2 6 U.S.C. § 6 672. The f act that the com

pany rem itted sum s n ear

or equal to the am ount of trust f und tax f or particular quarters does not change the general f

act that HCI f

ailed to stay current on its e m ploy m ent taxes during every quarter at issue. The IRS lawf ully applied pay

m ents consistent with its policy
, and the result was a trust f und tax shortf

all f or the quarters challenged by this m otion. In light of p laintif f ’s reckless disrega r d o f t h e potential f or a f ailure t o pay , the im

position of a p enalty was proper. Accordingly
, plaintif f s’ October 14, 2016 m otion f or reconsideration is denied.

Having r e s o l v ed the m otion f o r reconsideration, we again direct the parties to f

ile a joint s tatus report proposing the proper am ount f or judgm ent on def endant’s counterclaim

on or bef ore April 11, 2017.

s/Eric G. Bruggink ERIC G. BRUGGINK Senior Judge

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