TAX COURT OPINION

Case: Robert A. Valerino
Docket Number: 9532-11L
Judge: Wells
Opinion Type: bench
Filed: 04/25/2012
Pages: 10

UNITED STATES TAX COURT Washington, D. C. 20217 ROBERT A. VALERINO, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Re spondent . ) ) ) ) ) Docket No. 9532-11L ) ) ) ) O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit the pages of herewith to petitioner and to respondent a copy of the transcript of Thomas B. Wells at Buffalo, New York, on April 10, 2012, containing his oral the conclusion of trial. the above case before Judge the trial of findings of fact and opinion rendered at In accordance with the oral findings of fact ;and opinion, an order and decision will be entered respondent. (Signed) Thomas B. Wells Judge Dated: Washington, D. C. April 25, 2012 PR262012 3 Bench Opinion By Senior Judge Thomas B. Wells Robert A. Valerino v. Commissioner Docket No. 9532-11L April 10, 2012 THE COURT: The Court has decide to render oral findings of fact and opinion and the following represents the Court's oral findings of fact and opinion. This is the case of Robert A. Valerino, Petitioner, v. Commissioner of Internal Revenue, Respondent, Docket No. 9532-11L. This bench opinion is made pursuant to the authority granted by Section 7459 and Rule 152. All section references are to the Internal Revenue Code as in effect for the year in issue and all rule references are to the Tax Court Rules of Practice and Procedure. We must decide whether Respondent's Appeals Office abused its discretion when it upheld Respondent's notice of intent to levy with respect to trust fund recovery penalties pursuant to Section 6672 for unpaid balances due from Western New ork Contractors, Inc. for the quarters ending March 31, 2008, June 30, 2008, September 30, 2008, December 31, 2008, and March 31, 2009 (periods in issue). At the time he filed his petition, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25. Petitioner was a resident of New York. During the Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 periods in issue, Petitioner was the president and sole corporate officer of Western New York Contractors. At a date not disclosed in the record, Western New York Contractors filed for bankruptcy. Because Western New York Contractors failed to pay its full tax liability during the periods in issue, Respondent proposed to assess trust fund recovery penalties against Petitioner. On September 1, 2009, Petitioner completed and signed a Form 4180, report of interview with individual relative to trust fund recovery penalty for excise taxes. On that Form 4180, he reporited that he had received notices regarding Western New York Contractors' tax liabilities but that the.corporation did not have funds to pay the taxes. Additionally, he reported that during the periods in issue :he authorized Western New York Contractors to pay its employees and suppliers. On or.about January 14, 2010, Respondent mailed to Petitìoner a letter 1153, L trust fund recovery penalty letter, proposing an assèssment of trust fund recovery penalties pursuant to Section 6672 against Petitioner as an individual required to collect, account for,and pay over employment taxes for Western New York Contractors. Although Petitioner Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 received the letter 1153 on January 15, 2010, he L failed to submit a protest to Respondent's Appeals Office. On December 6, 2010, Respondent mailed Petitioner a notice of intent to levy and notice of your right to a hearing. Petitioner timely submitted a Form 12153, request for collection due process or equivalent hearing. In a letter submitted with his Form 12153, Petitioner wrote, "I was not in control of the company funds that were needed to pay the tax liability of the corporation. The Internal Revenue Service made no effort to collect the unpaid taxes from the assets or receivables of the corporation." On February 23, 2011, Settlement Officer 28 13 Denise Williams mailed a letter to Petitioner acknowledging that Respondent's Appeals Office had received his Form 12153 and scheduling a telephone conference for March 29, 2011. On March 29, 2011, Ms. Williams held a telephone conference with Petitioner. During the telephone conference, Petitioner explained that Western New York Contractors had filed for bankruptcy and that although there sufficient funds in the 7 bankruptcy¢state of Western New York Contractors that 78 could have satisfied its tax liabilities, Respondent Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 had failed to pursue collection of the tax liabilities during the bankruptcy proceeding. Ms. Williams informed Petitioner that he was liable for the trust fund recovery penalties because he was a responsible person with respect to Western New York Contractors. Petitioner did not.request a collection alternative. Ms. Williams reqdested that Petitioner submit a Form 433-A, collection information statement for wage earners and self-emplo ed individuals, but Petitioner failed to submit a Form 433-A. Ms. Williams determined that it was appropriate to sustain the levy. On April 11, 2011, Respondent ' s Appeal s Office mailed to Petitioner two notices of determination concerning collection actions undbr Section 6320 and/or Section 6330 covering the periods in issue. On April 25, 2011, Petitioner filed a timely petition with this Court, in which he contended that Respondent made no effort to collect Western New York Contractors' tax liabilities during the bankruptcy proceedings and that he is not the responsible person because the corporation's funds were held by the bankruptcy court . A summary judgment decision in this case is appropriate. \ The underlying liabilities in the See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd, 17 F.3d 965 (7th Cir. 1994). Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 7 instant case were assessed under.Section 6672, which imposes penalties for failure to collect, account for and pay over income and employment taxes of employees. Those penalties are commonly known as trust fund recovery penalties and are assessed and collected in the same manner as taxes against a person who is "an officer or employee of the corporation7who as such T8 officer, employee or member is under a duty to perform" the duties referred to in SectionÍ 6672, Section 6671(b). Such persons are referred to as "responsible persons" and the term may be broadly applied. McClure v. Commissioner, T..C. Memo. 2008- 136; see generally Logal v. United States, 195 F.3d 229, 232 (5th Cir. 1999); Barnett v. 12=2., 988 F.2d TRS 1449, 1454 (5th Cir. 1993). Any A person who qualifies as a responsible person under the statute is liable for the penalty; a right of contribution against another responsible person exists but must be claimed separate and apart from proceedings to collect the penalty brought by the United States. Section 6672(d). The liability of the responsible person pursuant to Section 6672 is independent of the employer corporation's duty to pay trust fund taxes. See Hochstein v. United States, 900 F.2d 543, 549 (2nd Cir. 1990). Heritage Reporting Corporation (202) 628-4888 Y8 78 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A taxpayer has the opportunity to dispute the taxpayer's liability for'trust fund recovery 8 penalty when à£ receives a letter 1153. Mason v. he L Commissioner, 132 T.C. 301, 317-318 (2009)(; Sparkman v. Commissioner, T.C. Memo. 2009-308; McClure v. Commissioner, T.C. Memo. 2008-136. Petitioner has not disputed that he received the letter 1153,( but he 8 failed to submit a protest to Respondent's Appeals Office contesting his liability for the trust fund recovery penalties. Accordingly, Petitioner is not entitled to dispute his underlying liability before the Appeals Office or before this Court. See Sparkman v. Commissioner, T.C. Memo. 2009-308. Where the underlying liability is not 6 issue, we review the determination of the Appeals Office for abuse of discretion. See Sego v. Commissioner, 114 T.C. 604, 610 (2000). In reviewing for abuse of discretion, we reject the determination of the Appeals Office only if the determination was arbitrary, capricious or without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 308 (2005), affirmed 469 F.3d 27 (1st Cir. 2006). Petitioner contends that Respondent cannot hold him responsible for Western New York Contractors't x d liability. Although Petitioner is not entitled to Heritage Reporting Corporationi (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 contest his underlying liabilities, we will briefly explain why Petitioner is liable for trust fund recovery penalties. Petitioner was the president and sole corporate officer of Western New York Contractors during the periods in issue and therefore had an obligation to collect, account for and pa over income and employment taxes for the corporation. Sections T8 6671(b), 6672. Pursuant to Section 6672(a), a person in Petitioner's position is liable for a penalty for willfully failing to collect, account for and pay over such tax. In order to satisfy the willfulness requirement, a responsible person need not act out of evil motive or an intent to defraud. United States v. Rem, 38 F.3d 634, 643 (2nd Cir. 1994). Instead, "[$he Y8 principal component of willfulness is knodledge; a responsible person acted willfully within the meaning of "d- 1 6672(a) if he (a) knew of the Êompany's T8 obligation to pay withholding taxes and (b) knew that the company funds were being used for other purposes instead." Id. Accordingly, failures are willful within the meaning of Section 6672(a) if they are "voluntary, consclous and intentional -- as opposed to accidental -- decisions not to remit funds properly withheld to the government." Kalb v. United States, Y8 Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 10 505 F.2d 506, 511 (2nd Cir. 1974) (quoting Monday v. United States, 421 F.2d 1210, 1216 (7th Cir. 1970)). Petitioner acknowledged that he knew Western New York Contractors was obligated to pay the withholding taxes and that it was instead paying other creditors. Accordingly, the willfulness requirement is satisfied. Petitioner also contends that Respondent should not be able to assess the trust fund recovery penalties because Respondent did not seek to pursue Respondent's claim in the bankruptcy court. Again, because Petitioner is not entitled to contest his liability because he failed to protest the letter 1153., but we will nevertheless explain why Respondent was entitled to assess the trust fund recovery penalties against Petitioner despite not (cid:16)041ursuing Respondent's claim in bankruptcy court. The liability of a responsible person under Section 6672 is separate and distinct fro$ the corporation's tax liability. See Hochstein v. United States, 900 F.2d at 549. Accordingly, the fact that Western New York Contractors filed for bankruptcy does not prevent Respondent from assessing Petitioner with trust fund recovery penalties for Western.New York Contractors' unpaid taxes. See Id.; Spivak v. United Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 .17 18 19 20 21 22 23 24 25 11 States, 370 F.2d 612, 616 (2nd Cir. 1990) (Internal Revenue Service ' s compromise of claim against bankrupt corporation did not release individuals from their direct liability). On the basis of the foregoing, we hold that Respondent's Appeals Office did not abuse its discretion by sustaining the levy. Based.upon the foregoing, Respondent's motion for summary judgment will be granted. To reflect the foregoing, an ap ropriate order and decision will be entered. The foregoing represents the Court's oral findings of fáct and opinion in this case . This concludes this case . (Whereupon, at 12:36 p.m., the luench opinion in . the above -entitled matter was concluded . ) // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888