United States Court of Appeals

For the First Circuit

No. 02-1702

JOSEPH V. STUART,

Plaintiff, Appellant,

v.

UNITED STATES,

Defendant/Third-Party-Plaintiff, Appellee,

FRANKLIN O'DELL,

Third-Party Defendant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. George A. O'Toole, Jr., U.S. District Judge]

Before

Boudin, Chief Judge,

Torruella and Howard, Circuit Judges.

David E. Neitlich, for appellant.

Bethany B. Hauser, Attorney, Tax Division, Department of

Justice, with whom Eileen J. O'Connor, Assistant Attorney General

and Teresa E. McLaughlin, Attorney, were on brief, for appellee.

July 24, 2003
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TORRUELLA, Circuit Judge. Plaintiff-appellant Joseph

Stuart ("Stuart" or "Taxpayer") brought suit in district court

seeking a refund of federal taxes and penalties he paid to the

Internal Revenue Service for the unpaid trust fund taxes of Buyers

Business Network ("BBN"). The district court granted partial

judgment in favor of the IRS with regard to the correctness of the

amounts of the assessments at issue. The remaining issue of

whether Stuart could be held liable for BBN's debt was then tried

to a jury, which rendered special verdicts finding for the IRS on

all counts. Stuart appeals. After careful consideration, we

affirm.

I. BACKGROUND

A. Entities at Issue

Stuart is an experienced businessman who held interests

in numerous operations, including dry cleaning, jewelry, insurance,

restaurant, and publishing businesses. In 1984, he semi-retired,

and in 1989, after he had a heart attack, he transferred his assets

to his wife.

In 1992, Stuart advised his family on the creation of

Maynard Mall Realty Trust ("MMRT") to purchase the physical plant

of the Maynard Mall in Massachusetts. Local building contractor

Thomas Sheridan was the trustee, with Sheridan and three of

Stuart's children as beneficiaries. Stuart also advised his wife

and children in forming Combined Financial, Inc., a corporation
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which held interests in a number of businesses located within the

Maynard Mall and provided financing for some of these businesses.

Stuart's son Greg was originally the president of Combined

Financial, but Stuart became president at some point before the end

of the fourth quarter in 1993, the first of the four quarters

involved in the suit.

BBN was a Maynard Mall tenant. BBN brokered the exchange

of goods and services between small and medium-sized businesses in

return for a commission. Franklin O'Dell, BBN's president,

previously operated a barter company called Bottomline Business

Exchange of New Hampshire ("BBX New Hampshire") with Ralph Butts.

Steve Lichtman and Kevin Dowd had been operating another barter

business in Medford and then at the Maynard Mall known as

Bottomline Business Exchange of Medford ("BBX Medford"). In

December, 1992, O'Dell and Butts agreed with Lichtman, Dowd, and

Combined Financial to consolidate BBX New Hampshire and BBX Medford

at the Maynard Mall as BBN, an 80 percent subsidiary of Combined

Financial. The four men owned equal shares of the remaining 20

percent.

In 1993, O'Dell learned that former BBX Medford had been

in serious financial trouble when it entered the merger, and he

told Stuart of the problem. O'Dell and Stuart held a meeting with

Lichtman and Dowd, and a new agreement was executed on March 5,

1993. Among other things, the new agreement eliminated Lichtman
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and Dowd from BBN ownership and authorized Combined Financial to

intervene in BBN's financial affairs under certain circumstances,

such as if BBN was fiscally imbalanced or mismanaged.

Stuart became a signatory on BBN's bank account on

November 22, 1993, at which time BBN owed Combined Financial over

$400,000. Two signatures were required on any check for more than

$250, and all ten checks Stuart signed for more than $250 were

countersigned by either O'Dell or Robert Minka, Combined

Financial's comptroller.

B. Assessments

BBN filed form 941 -- "Employer's Quarterly Federal Tax

Returns" -- for the fourth quarter of 1993 and the first quarter of

1994. These returns were signed by O'Dell as BBN's president. The

1993 return shows total wages paid of $67,745.49, with taxes due of

$16,551.04; the 1994 return shows total wages paid of $42,302.50,

with taxes due of $10,639.41. By 1997, unpaid balances of

assessment of trust fund taxes (payroll taxes) remained --

$11,597.97 for the fourth quarter of 1993 and $7,403.23 for the

first quarter of 1996. The IRS then made assessments of $19,001.20

against Stuart and O'Dell because the IRS found that they had

sufficient control over BBN's finances to be held personally

responsible for BBN's withholding tax liability under I.R.C. § 6672

(2000).
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BBN did not file a return for the second or third

quarters of 1994. For the missing quarters, the IRS used BBN's

past returns to prepare substitute returns under I.R.C. § 6020(b),

based on an estimated payroll of $42,492.91. The IRS then made

assessments of $23,498.58 against Stuart and O'Dell. The IRS

retained and applied against the assessments overpayment credits

which the IRS owed Stuart and O'Dell, resulting in the balance due

on the assessment being reduced to $730.94.

C. Litigation Below

The IRS denied Stuart's claim for a refund of the

penalties he paid to the IRS, leading Stuart to bring suit in

federal district court. The Government counterclaimed for the

balance of assessments due and impleaded O'Dell. At the close of

discovery, the Government moved for partial summary judgment

regarding the amounts assessed. Stuart also moved for summary

judgment, contending that the assessment for the second and third

quarters of 1994 was invalid because the amounts of the tax

liabilities for those quarters was estimated. In response, the

Government submitted Certificates of Assessments and Payments as

proof that the assessments were presumptively valid. The

Government also filed a motion in limine to exclude testimony of

IRS personnel regarding the validity of the substitute returns.

The district court denied Stuart's motion for summary

judgment and granted the Government's motion for partial summary
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judgment and its motion in limine. The issue of whether Stuart was

a responsible person who willfully failed to remit the trust fund

taxes to the IRS went to trial. The jury returned special verdicts

for the Government on all counts, finding Stuart both responsible

and willful as to all four tax quarters at issue. Stuart then

filed a motion for a new trial. The district court denied the

motion, and Stuart appeals.

II. CHALLENGE TO AMOUNTS ASSESSED

A. Standard of Review

We review the district court's legal interpretations de

novo; we "overturn its factual findings only if they are clearly

erroneous." Interex v. Comm'r, 321 F.3d 55, 58 (1st Cir. 2003).

B. Analysis

Stuart contends that the district court erred by favoring

IRS assessments with a presumption of correctness because the

underlying substitute returns were without factual foundation,

constructed based upon an irrational theory, unauthorized, and

facially inconsistent.

Stuart's argument is without legal support. The IRS

presented Certificates of Assessments and Payments for the fourth

quarter of 1993 and the first three quarters of 1994, which are

"presumptive proof of a valid assessment." Geiselman v. United

States, 961 F.2d 1, 6 (1st Cir. 1992) (per curiam). This

presumption places the burden of proof on Stuart to show that the
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IRS's determination is invalid. Helvering v. Taylor, 293 U.S. 507,

515 (1935); accord Interex v. Comm'r, 321 F.3d at 58. A

determination is invalid if it is "without rational foundation and

excessive." United States v. Janis, 428 U.S. 433, 441 (1976)

((finding that a naked assessment made without any foundation

cannot be used to calculate an assessment because it was "without

rational foundation and excessive and not properly subject to the

usual rule with respect to the burden of proof in tax cases")

(citations omitted)); accord Interex v. Comm'r, 321 F.3d at 58.

Stuart did not carry his burden. Instead of presenting

credible evidence that the assessments were without foundation,

Stuart asserts only that the assessments are without foundation

simply because they are based on substitute returns. However,

taxpayers have a duty to maintain adequate records for tax

reporting purposes. I.R.C. § 6001. Where a taxpayer fails to keep

such records, "the government, in attempting to establish a

violation of the income tax law, may reconstruct a taxpayer's

taxable base by any reasonable method." United States v. Morse,

491 F.2d 149, 151 (1st Cir. 1974); accord Cracchiola v. Comm'r, 643

F.2d 1383, 1385 (9th Cir. 1981); United States v. Firtel, 446 F.2d

1005, 1006-07 (5th Cir. 1971) (per curiam). Here, the substitute

returns were based upon a figure slightly lower than the payroll

figures submitted by BBN for the last quarters for which it did

file a return. Stuart argues that these amounts may be high
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because the payroll of a failing business may decline before the

business ceases all operations. Stuart's assertion may well be

correct, but he has not produced any records or other corroborating

evidence to show that this actually occurred at BBN. Consequently,

Stuart has failed to demonstrate that the Certificates of

Assessments and Payments were not reasonable.

III. ATTACK ON JURY VERDICTS

A. Taxpayer Responsibility

The Internal Revenue Code ("Code") requires employers to

withhold federal social security and income taxes from the wages of

their employees and to remit the amounts withheld to the United

States. I.R.C. §§ 3102(a), 3402(b). "The Code [] imposes personal

liability not only upon employers but upon their officers and

agents who are responsible for collecting, accounting for, and

paying over to the government the taxes withheld." Thomsen v.

United States, 887 F.2d 12, 14 (1st Cir. 1989); see I.R.C.

§ 6672(a). When a person required to collect, account for, and pay

over trust fund taxes willfully fails to do so, he is liable for a

penalty equal to the total amount of the unpaid taxes. I.R.C.

§ 6672(a).

The taxpayer bears the burden of proving both that he was

not a responsible person and that his failure to pay over the taxes

was not willful. See Caterino v. United States, 794 F.2d 1, 5 (1st

Cir. 1986). There may be more than one responsible person.
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Harrington v. United States, 504 F.2d 1306, 1312 (1st Cir. 1974).

"Courts have explicitly given the word 'responsible' a broad

interpretation." Caterino, 794 F.2d at 5 (citation omitted). The

controlling inquiry in determining whether the taxpayer should be

held "responsible" is whether the person possessed sufficient

control over corporate affairs to avoid the default. Vinick v.

Comm'r, 110 F.3d 168, 172 (1st Cir. 1997). "In deciding whether an

assessed individual is a 'responsible person' under 26 U.S.C.

§ 6672(a)[], federal courts typically consider various indicia of

responsibility, such as the holding of corporate office, the

authority to disburse corporate funds, stock ownership, and the

ability to hire and fire employees." Adams v. Coveney, 162 F.3d

23, 26 n.1 (1st Cir. 1998).

"Willfulness for purpose of section 6672 means no more

than knowledge that taxes are due and withheld and conscious

disregard of the obligation to remit them." Caterino, 794 F.2d at

6. "Evil motive and specific intent are not necessary elements,"

id., and "delegation will not relieve one of responsibility,"

Harrington, 504 F.2d at 1311. A responsible person acts willfully

if, after becoming aware that the trust fund taxes are not being

paid, knows that other creditors are receiving payment or acts in

"reckless disregard of a known or obvious risk" that trust funds

may not be remitted to the government. Thomsen, 887 F.2d at 17-18.
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Stuart states that the standard "effective power" or

"significant control" tests for the "responsible person" prong of

section 6672 liability are faulty "because there is no limit to the

number of degrees of removal which the power and control tests may

bridge," leading to Stuart being held personally liable when he has

only a very tenuous and indirect formal connection to BBN.

We reject as unfounded Stuart's attack on the standard

tests used to determine section 6672 liability. As discussed

above, the court's analysis looks beyond titles to ascertain

whether the employee had substantial control over corporate

finances. Vinick, 110 F.3d at 172. In determining the employee's

amount of control, courts eschew a mechanical system and consider

a multitude of factors to prevent holding an employee liable where

she did not have power to avoid the default. See Caterino, 794

F.2d at 5.

B. Sufficiency of the Evidence

Stuart contends that the jury had insufficient evidence

to find him a "responsible person" who acted willfully in not

remitting the payroll tax. Stuart did not move for a judgment as

a matter of law at the close of the evidence. "When a litigant has

foregone a timely motion for judgment as a matter of law, the court

of appeals normally will not consider the legal sufficiency of the

evidence." Faigin v. Kelly, 184 F.3d 67, 76 (1st Cir. 1999); see

also 9A Wright & Miller § 2536 (2003) (noting "[i]t is thoroughly
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established that the sufficiency of the evidence is not reviewable

on appeal unless a motion for judgment as a matter of law was made

in the trial court"). We will only review the insufficiency of the

evidence in a case of "plain error apparent on the face of the

record that, if not noticed, would result in a manifest miscarriage

of justice" or where "the verdict is totally without legal

support." 9A Wright & Miller § 2536; see Faigin, 184 F.3d at 76

(stating "the court of appeals retains a modicum of residual

discretion to inquire whether the record reflects an absolute

dearth of evidentiary support for the jury's verdict").

In the case before us, not only is plain error absent,

the record contains ample evidence to support jury findings of

willfulness and responsibility under the Code. Consequently, we

dismiss Stuart's sufficiency of the evidence arguments.

C. Attack on Verdict

Stuart preserved his right to seek relief from the

verdict by making a motion for a new trial, which the trial court

denied. We review a denial for a motion for a new trial under an

abuse of discretion standard, in which "[w]e reverse only if the

verdict is so seriously mistaken, so clearly against the law or the

evidence, as to constitute a miscarriage of justice." Transamerica

Premier Ins. Co. v. Ober, 107 F.3d 925, 929 (1st Cir. 1997).

(quotation marks and citation omitted). We review the district
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court's denial of a new trial for abuse of discretion, and view the

evidence in the light most favorable to the nonmoving party. Id.

The jury's verdicts were not against the great weight of

evidence. In fact, there was substantial evidence from which the

jury could infer that under the Code Stuart was a responsible

person who acted willfully in failing to remit the payroll taxes.

For example, while Stuart was not an officer, director or

shareholder of BBN, the jury could have inferred Stuart had the

requisite control of BBN because Combined Financial was BBN's 80%

shareholder, and Stuart served as president and then as a director

of Combined Financial. The jury also could have considered Stuart

to be the true owner of Combined Financial and the Maynard Mall.

Although Stuart transferred his assets to his wife and children,

there was evidence that he retained actual control. For example,

he made the decision to buy the Maynard Mall building and testified

that his wife, the formal owner of Combined Financial's interest in

BBN, was unaware of who owned stock in Combined Financial.

The jury could also have inferred that Stuart exerted

significant managerial control over BBN's affairs. While Stuart

claimed little involvement in BBN's operations, O'Dell testified

Stuart was at the Maynard Mall five to six days per week and

attended regular Monday meetings. Stuart was involved in the

negotiation of the new BBN Agreement, which gave Combined Financial
1 Stuart argued in part below that the verdict was against the

clear weight of the evidence because of the district court's

allegedly erroneous and prejudicial ruling granting the

Government's motion in limine to exclude testimony of IRS personnel

regarding the validity of the substitute returns. However, Stuart

forfeits his opportunity to appeal this issue because he failed to

make an attempt to develop this argument in his brief. Twomey v.

Delta Airlines Pilots Pension Plan, 328 F.3d 27, 33 n.4 (noting

that issues alluded to perfunctorily without any developed argument

are deemed waived on appeal).

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the power to direct BBN's financial affairs if the business was not

properly managed.

As to willfulness, the jury could have inferred that

Stuart acted willfully in not ensuring that BBN's taxes were paid

by coupling Minka's testimony that Stuart knew the payroll taxes

had not been paid with Stuart's failure to show that he

investigated or corrected the mismanagement. Alternatively, the

jury could have inferred willfulness from testimony that Stuart

knew that other creditors, such as Combined Financial and Maynard

Mall, were being paid even though the payroll taxes had not been

paid. Consequently, we find that the district court did not abuse

its discretion in denying Stuart a new trial.1

IV. CONCLUSION

For the reasons stated above, we affirm.