In the

United States Court of Appeals

For the Seventh Circuit

No. 06-4082

CHARLES E. JEFFERSON,

Plaintiff-Appellant,

v.

UNITED STATES OF AMERICA,

Defendant-Appellee.

Appeal from the United States District Court 

for the Northern District of Illinois, Western Division.

No. 04 C 50291—Philip G. Reinhard, Judge.

ARGUED JANUARY 18, 2008—DECIDED OCTOBER 8, 2008

Before BAUER, WILLIAMS, and SYKES, Circuit Judges.

WILLIAMS, Circuit Judge. Charles E. Jefferson previously

served as the president of the board of directors of a day

care center that owed substantial back taxes to the Internal

Revenue Service. After Jefferson was personally assessed

for the back taxes, he filed suit to recover the amounts

he paid to the IRS. The district court granted the government’s motion for summary judgment, finding that

Jefferson could be assessed for the day care’s tax liability.

Because Jefferson is a “responsible person” under 26 U.S.C.
2 No. 06-4082

§ 6672(a) who “willfully” failed to pay the day care’s taxes,

we agree with the district court, and we affirm.

I. BACKGROUND

Jefferson serves as a state representative in the Illinois

House of Representatives, and until 2001, he served as

president of the board of directors of New Zion Day Care

Center, Inc., a Rockford, Illinois day care facility. Jefferson

filed suit against the IRS to recover a trust fund penalty

of $41,432 that the IRS assessed and collected from him

after New Zion failed to remit federal payroll taxes to

the IRS for the second, third, and fourth quarters of 2000,

and the first and second quarters of 2001.

Jefferson’s position as board president from the early

1980s until June 2001 was voluntary and uncompensated.

He and the other board members were responsible for the

direction of the day care, while Velma Hayes, the paid

director of New Zion from 1982 until 2001, ran New Zion’s

day-to-day operations. As a board member, Jefferson had

the authority to direct and authorize payment of New

Zion’s bills, to authorize payment of its federal tax deposits, to determine its financial policy, and to obtain loans

for New Zion, such as the loan he obtained in 1998 for

a new day care building. Jefferson was also a signatory

on New Zion’s bank accounts and co-signed checks on

behalf of New Zion.

The day care was funded in part by the United Way

organization. In February 1998, the Executive Director of

the United Way informed Jefferson that New Zion was not
No. 06-4082 3

properly paying its payroll taxes. After New Zion lost its

United Way funding, partly because of the unpaid taxes,

Jefferson secured a loan on New Zion’s behalf so the day

care could pay the delinquent taxes. On August 31, 2000,

Jefferson co-signed two checks payable to the IRS, indicating that the checks were for penalty and interest. After

the 1998 delinquency, the board retained an accounting

firm and ordered Hayes to pay any taxes that New Zion

owed to the IRS.

By 2000, New Zion’s financial condition was precarious,

and it failed to pay income and FICA taxes for its employees from April 2000 to June 2001. Hayes informed the

board, including Jefferson, at its monthly meetings that the

day care was unable to pay its bills and tax liabilities. She

also provided the board members with a copy of her

“director’s report” and a “financial report,” and she

maintained a file with the financial reports at New Zion’s

office. Jefferson was aware of this file and instructed

board members to review the financial reports at each

meeting before they were accepted by a majority vote.

On May 13, 2002, the IRS made assessments against

Jefferson and Hayes for the delinquent tax payments.

Jefferson filed suit in the district court to reclaim the

$41,432 he paid to the IRS. The court denied Jefferson’s

motion for summary judgment and granted the government’s motion for summary judgment, finding that

Jefferson was a “responsible person” under 26 U.S.C.

§ 6672 and that he “willfully” failed to pay taxes. The court

also found that Jefferson did not qualify for the “honorary

member” exception of section 6672(e) because he was not
4 No. 06-4082

serving in an honorary capacity at New Zion. Finally, the

court determined that section 904(b) of Public Law 104-168

did not preclude the government from assessing tax

liabilities although it failed to develop materials explaining the circumstances in which Jefferson incurred the

tax liability. Jefferson appeals.

II. ANALYSIS 

We review the district court’s grant of summary judgment de novo. Peirick v. Ind. Univ.-Purdue Univ. Indianapolis

Athletic Dep’t, 510 F.3d 681, 687 (7th Cir. 2007). When, as

in this case, the parties have filed cross-motions for summary judgment, “we construe the evidence and all reasonable inferences in favor of the party against whom the

motion under consideration is made.” Samuelson v. Laporte

Cmty. Sch. Corp., 526 F.3d 1046, 1051 (7th Cir. 2008). Summary judgment is appropriate only when the materials

before the court demonstrate “that there is no genuine

issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law.” Fed. R. Civ.

P. 56(c).

A. Jefferson was liable for New Zion’s tax liability

because Jefferson was a responsible person

whose behavior was willful.

1. Jefferson is a “responsible person” under

section 6672.

26 U.S.C. § 6672(a) makes any person who is responsible

for collecting, accounting for, and paying payroll taxes but
No. 06-4082 5

who “willfully” fails to do any of these things “liable to a

penalty equal to the total amount of tax evaded, or not

collected, or not accounted for and paid over.” An individual is considered “responsible” 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.” Bowlen

v. United States, 956 F.2d 723, 728 (7th Cir. 1992) (internal

citation omitted). However, a person need not necessarily

have “exclusive control over the disbursal of funds or have

the final word as to which creditors should be paid so

long as he has significant control” because “the key to

liability under section 6672 is the power to control the

decision-making process by which the employer corporation allocates funds to other creditors in preference to

its withholding tax obligations.” Id. (internal citations

omitted).

Jefferson argues that he is not a “responsible” person

because he did not run the day-to-day operations of New

Zion nor did he handle its financial affairs. We have

held that “merely because a corporate officer has

check-signing responsibilities and his corporation is in

financial trouble, it does not follow that he can be held

liable for any and all failures to pay withholding taxes,”

Wright v. United States, 809 F.2d 425, 428 (7th Cir. 1987), but

Jefferson had significant involvement in New Zion’s

financial affairs that included more than simply writing

checks. He was board president, and had secured loans

for New Zion and directed payment of its taxes in the past.

See Domanus v. United States, 961 F.2d 1323, 1324-25 (7th

Cir. 1992) (member of the board of directors who was
6 No. 06-4082

Jefferson points to our decision in United States v. Running, 7 1

F.3d 1293 (7th Cir. 1993), for the proposition that we can only

consider Jefferson’s behavior in the relevant fiscal quarters in

which liability was assessed in determining if Jefferson is a

“responsible person.” In Running, however, the defendant was

employed at the institution responsible for the taxes for only one

month during the relevant fiscal period. See id. at 1298 (finding

that the defendant was a responsible person despite his brief

tenure). It made sense for us to consider only the time in which

Running was employed by the institution responsible for the

taxes in determining if Running was a responsible person. In

contrast, Jefferson was involved with the day care for over

twenty years and unlike the defendant in Running, there is no

evidence that Jefferson’s involvement with managing the day

care’s finances ceased at any time before or during the relevant

fiscal period. Cf. id. at 1299 (finding that the defendant’s

behavior was not willful because the government produced no

(continued...)

responsible for directing payment of the taxes held to be

a responsible person). He retained an accounting firm to

review the day care’s financial situation, and he also

reviewed the day care’s financial reports at each meeting.

See Barnett v. IRS, 988 F.2d 1449, 1457 (5th Cir. 1993)

(president of a corporation who asked for monthly reports

on the company’s financial situation is a “responsible

person” despite president’s geographical separation

from the office where payroll and tax matters are handled).

Even though Jefferson was not involved in the day-to-day

operations of the day care, he had significant involvement in the financial affairs of the day care sufficient to

make him a “responsible person.”1
No. 06-4082 7

(...continued) 1

evidence that Running was responsible for preparing or filing

the company’s tax returns once he left). Moreover, Jefferson

wrote two checks to the IRS for penalties and back taxes

during the relevant fiscal period.

2. Jefferson’s behavior was willful.

We have defined the term “willful” in the context of

section 6672 to mean “voluntary, conscious and intentional—as opposed to accidental—decisions not to remit

funds properly withheld to the Government.” Domanus,

961 F.2d at 1324. The record indicates that the day care

was, in some respect, trying to address the issue of the

taxes. Jefferson hired an accounting firm after the initial

1998 delinquency and directed Hayes to pay whatever

taxes were owed.

Nevertheless, a person’s behavior is also “willful” under

the statute when that person “recklessly disregarded a

known risk that the taxes were not being paid over.” United

States v. Kim, 111 F.3d 1351, 1357 (7th Cir. 1997). There is

substantial evidence in the record that Jefferson, despite

his efforts to address earlier tax deficiencies, ignored later

signs that the taxes were still unpaid. Jefferson claims that

he was unaware that the taxes were not being paid and

in fact, only signed two checks out of the more than

975 checks issued by New Zion during the relevant fiscal

quarters. Those two checks, however, were to the IRS for

back taxes/penalties. Indeed, the record suggests that

Jefferson was not only aware of New Zion’s history of tax

payment problems, but he was also aware of its current
8 No. 06-4082

Jefferson argues that there is some dispute in the record 2

whether Hayes generated monthly financial reports to the

board during the relevant fiscal periods because there is no

evidence in the record that the board voted on and approved

any reports during that time period. It is not clear whether

Jefferson is arguing that these reports were never prepared or

simply never generated to the board during the relevant time

period. However, Jefferson admitted during his deposition

that the accounting firm prepared financial reports every three

months and that these reports would have been available to the

board. Furthermore, Jefferson stated that at the time that he

wrote the checks to the IRS for back taxes and penalties, which

was during the relevant fiscal periods, he would have been

aware that there were outstanding liabilities due to the IRS.

state—Hayes generated monthly reports that were

given to Jefferson and the other board members at each

meeting, reports that showed a steadily increasing tax

liability. Moreover, Hayes repeatedly informed the

2

board that the day care was having difficulty paying

its bills, including its tax obligations.

By failing to heed these warnings, Jefferson recklessly

disregarded a known risk that the taxes were not being

paid. It is irrelevant whether Jefferson knew the taxes were

going unpaid, as he claims. See id. at 1357-58 (where a

responsible person was deemed to have acted “willfully”

in his failure to pay taxes for past quarters, even though he

was unaware at that time that the taxes were going unpaid). There is sufficient evidence in the record that he

disregarded a known risk given the day care’s past trouble

with the IRS, Hayes’s monthly reports to the board that
No. 06-4082 9

the day care could not cover its expenses, and the reports

generated by the accounting firm detailing the day care’s

deteriorating financial situation. Wright, 809 F.2d at 428 (“if

a responsible officer knows that the corporation has

recently committed such a delinquency and knows that

since then its affairs have continued to deteriorate, he

runs the risk of being held liable if he fails to take any

steps either to ascertain, before signing checks, what the

state of the tax withholding account is, or to institute

effective financial controls to guard against nonpayment”);

Running, 7 F.3d at 1299 (“Recklessness may also be established if a responsible person fails ‘to correct mismanagement after being notified that the withholding taxes

have not been duly remitted.’ ”) (citation omitted).

Like all board members, Jefferson had access to the files

showing the steadily increasing tax liability, but beyond

Jefferson’s directive to Hayes to pay the taxes, there is no

evidence that the board took steps or implemented procedures to ensure that the taxes were actually being paid.

These factors make Jefferson’s failure to pay taxes “willful”

as a matter of law. See id.

 

B. Jefferson is not exempt from the trust fund

recovery penalty.

Jefferson argues that he should not have been assessed

for the trust fund penalty because he was an honorary

and voluntary board member for New Zion who was not

involved in the day care’s day-to-day operations. 28 U.S.C.

§ 6672(e) provides that: 
10 No. 06-4082

No penalty shall be imposed by subsection (a) on

any unpaid, volunteer member of any board of

trustees or directors of an organization exempt

from tax under Subtitle A if such member—

(1) is solely serving in an honorary capacity, 

(2) does not participate in the day-to-day

or financial operations of the organizations,

and

(3) does not have actual knowledge of the

failure on which such penalty is imposed.

While there is not much caselaw discussing this subsection of the statute, there is considerable overlap in determining if a person is an “honorary member” under section

6672(e) and determining if a person is “responsible” under

section 6672(a). By definition, an individual serving in an

honorary capacity and therefore exempt from tax liability

cannot be a responsible person. See 28 U.S.C. § 6672(e)

(stating that individuals who do not participate in the

“financial operations of the organizations” are exempt

from tax liability); Bowlen, 956 F.2d at 728 (responsible

person retains “sufficient control of corporate finances”).

Furthermore, it is undisputed that Jefferson had control

over whether the taxes were paid which, as discussed

above, undermines his argument that he did not participate in the financial operations of the day care. Given

Jefferson’s power over the day care’s financial situation

(co-signatory on checks, approval of financial statements,

ability to get loans), it is clear that he was not serving
No. 06-4082 11

solely in an honorary capacity as president of the board of

directors.

Jefferson also claims that he did not have “actual knowledge of the failure on which such penalty is imposed,” but

even if true, this still does not bring him within the purview of section 6672(e). His failure to implement adequate mechanisms to ensure that the taxes were being

paid and his reckless disregard of Hayes’s warnings that

the day care’s bills were not being paid are actions that led

to the injury that the government complains of here. The

term “honorary” suggests a lack of power, a lack of

responsibility, and a corresponding lack of ability to do

harm—factors that do not apply to the instant case.

C. The IRS is not estopped from assessing the tax

against Jefferson.

Jefferson argues that the government’s failure to comply

with section 904(b) precludes application of the penalty

under section 6672(a). The district court rejected this

argument on the grounds that the language of section

904(b) does not place any restrictions on section 6672(a).

Section 904(b) reads, in pertinent part:

(1) The Secretary of the Treasury . . . shall take such

actions as may be appropriate to ensure that

employees are aware of their responsibilities under

the Federal tax depository system, the circumstances under which employees may be liable for

the penalty imposed by section 6672 of the Internal

Revenue Code of 1986, and the responsibility to
12 No. 06-4082

promptly report to the Internal Revenue Service

any failure referred to in subsection (a) of such

section 6672. Such actions shall include—

(A) printing of a warning on deposit coupon booklets and the appropriate tax returns that certain employees may be liable

for the penalty imposed by such section

6672, and

(B) the development of a special information packet.

(2) Development of explanatory materials.— The

Secretary shall develop materials explaining the

circumstances under which board members of

tax-exempt organizations (including voluntary and

honorary members) may be subject to penalty

under section 6672 of such Code. Such materials

shall be made available to tax-exempt organizations.

104 P.L. 168, 904(b)(1)-(2). It is undisputed that the Secretary has not developed the requisite materials as required

by section 904(b)(2); the issue is whether this is a condition

precedent to the government’s collection of back taxes

under section 6672(a).

“When interpreting statutes, ‘we give words their plain

meaning unless doing so would frustrate the overall

purpose of the statutory scheme, lead to absurd results, or

contravene clearly expressed legislative intent.’ ” Gillespie

v. Equifax Info. Servs., LLC, 484 F.3d 938, 941 (7th Cir.

2007) (citing United States v. Davis, 471 F.3d 783, 787 (7th
No. 06-4082 13

Cir. 2006) (internal citation omitted)). The language of

section 904(b)(2) is written using the mandatory term

“shall” (“The Secretary shall develop materials . . .”) which

means that the promulgation of these materials was not

optional. See Nat’l Ass’n of Home Builders v. Defenders

of Wildlife, 127 S. Ct. 2518, 2532 (2007) (“As used in

statutes . . . this word [shall] is generally imperative or

mandatory”) (citing Black’s Law Dictionary 1375 (6th ed.

1990)); Pittway Corp. v. United States, 102 F.3d 932, 934 (7th

Cir. 1996) (“All statutory interpretation begins with the

language of the statute itself, and where ‘the statute’s

language is plain, the sole function of the courts is to

enforce it according to its terms.’ ”) (citing United States v.

Ron Pair Enterprises, Inc., 489 U.S. 235, 241(1989) (internal

citation and quotation marks omitted)).

In In re Matter of Carlson, 126 F.3d 915, 922 (7th Cir. 1997),

which the district court relied on, the plaintiffs claimed

that the cost of their son’s medical care constituted a

reasonable cause that excused payment of a tax penalty.

Id. In support of this proposition, the plaintiffs relied on

the IRS manual, which discussed circumstances in which

it may be appropriate for the IRS to delay the collection

of a penalty. Id. We rejected this argument, holding that

the rules adopted for the internal administration of the

IRS are not for the protection of the taxpayer so noncompliance with the IRS manual does not render the action of

the IRS invalid. Id. The provision here, however, is different. Styled the “Taxpayer Bill of Rights 2” and passed in

1996, this statute was intended to provide further

protections to taxpayers by establishing the Office of the
14 No. 06-4082

Taxpayer Advocate and provide for greater protections for

taxpayers in a host of different areas. 104 P.L. 168 (1996).

Even though section 904(b) was adopted for the protection of the taxpayer, we decline to adopt a blanket rule

that the IRS’s failure to comply with section 904(b) automatically renders its actions invalid. Such a rule would

estop the IRS from collecting an otherwise lawful penalty

from individuals who were not prejudiced by the IRS’s

failure to promulgate these materials. In Pittway, for

example, the IRS failed to pass regulations interpreting a

statute after a mandate to do so from Congress fifteen

years earlier, but we held that the plaintiff was still

liable under the plain language of the statute. 102 F.3d at

936. We noted, however, that “in a statute less clear on its

face, failure to promulgate regulations as Congress orders

could result in a provision not enforceable due to the

Secretary’s failure.” Id. To avoid circumventing the IRS’s

lawful functions, we have required that the taxpayer

show prejudice where the IRS has violated its regulations

or congressional statutes in attempting to collect taxes or

penalties. See In re Carlson, 126 F.3d at 922 (adhering to the

general principle that “[p]rocedures in the Internal Revenue Manual . . . do not confer rights on taxpayers” but

finding that there may be circumstances in which undue

hardships, because of the IRS’s lapse, may justify a person’s failure to pay taxes); see also Philadelphia & Reading

Corp. v. Beck, 676 F.2d 1159, 1163 (7th Cir. 1982) (finding

that assessments made against a taxpayer should be

enjoined where the IRS did not comply with the statutory

notice requirements and this violation prevented the

taxpayer from seeking relief in the Tax Court, but finding
No. 06-4082 15

that an injunction is not required where the “taxpayer

has no interest in contesting its taxes in the Tax Court

and there is no other irreparable hardship caused by a

violation”). Consistent with this precedent, we find that if

the IRS’s failure to promulgate documents which it was

legally obligated to provide prejudices the taxpayer, this

failure precludes application of the penalty.

While it is certainly unfortunate that the IRS has failed

to develop these materials in the more than ten years

since this statute was passed, Jefferson has not shown any

prejudice from the IRS’s failure to provide these documents. Indeed, New Zion has previously faced tax liability

and nothing was said about the IRS’s failure to promulgate

these materials at that time. Jefferson has not shown that

had he been in possession of these materials, he would

have paid the tax; instead, his argument on appeal is that

he did not know of New Zion’s escalating tax liabilities.

Therefore, we find that the IRS is not estopped from

recovering the penalty against Jefferson.

D. The IRS’s failure to turn over evidence does not

preclude summary judgment. 

Finally, Jefferson argues that the IRS’s failure to turn over

evidence raises an issue of material fact that precludes

summary judgment. Jefferson claims that it is possible

the missing evidence would definitively show he was

an honorary board member and that he had no actual

knowledge of New Zion’s unpaid payroll taxes. However,

given his extensive involvement in New Zion’s financial

affairs and his reckless disregard of the day care’s escalat-
16 No. 06-4082

ing tax liability, we are not persuaded that this evidence

would have had any impact on Jefferson’s liability.

Jefferson also argues that the IRS lost documents relevant

to other New Zion board members. While section 6672(d)

allows contribution from other “responsible” persons,

Jefferson has not shown that the assessment against him

was without foundation, that these documents would

exculpate him, or that any of the other board members

were involved with New Zion’s financial affairs to the

same extent as him and Hayes. See 330 West Hubbard

Restaurant Corp. v. United States, 203 F.3d 990, 995 (7th Cir.

2000) (“the IRS’s tax assessment is presumed correct”);

Ruth v. United States, 823 F.2d 1091, 1094 (7th Cir. 1987) (“In

general, courts will not look behind an assessment to

evaluate the procedure and evidence used in making the

assessment. Rather, courts conduct a de novo review of the

correctness of the assessment, imposing the risk of

nonpersuasion on the taxpayer.”) (internal citation omitted). Because of the overwhelming evidence in the record

that Jefferson was properly assessed as a “responsible

person” and further, that he turned a blind eye to New

Zion’s increasing tax liabilities, we are simply not persuaded that these documents would make any difference in the outcome.

III. CONCLUSION

The judgment of the district court is AFFIRMED.

10-8-08