Document: 56 L.Ed.2d 251 98 S.Ct. 1778 436 U.S. 238 Ike SLODOV, Petitioner,v.UNITED STATES. No. 76-1835. Argued Feb. 22, 1978. Decided May Syllabus Petitioner assumed control of three corporations at a time when delinquency existed for unpaid federal taxes withheld from employees' wages, while the specific funds but not paid had been dissipated by predecessor officers and no liquid assets with which to pay overdue taxes. During six-month period petitioner's acquired sufficient taxes, petitioner used rent, suppliers other creditors, meet current business expenses. On withdrawal corporations' business, he instituted bankruptcy proceeding, in Internal Revenue Service filed claim, including delinquent back under § 6672 Code 1954, imposes personal liability on "[a]ny person required collect, truthfully account for, over any tax imposed this title who willfully fails collect such tax, or attempts manner evade defeat payment thereof . ." The Court Appeals held that was personally liable 6672. While concedes collection, accounting, be during his control, disclaims responsibility respect prior thereto, arguing its conjunctive phrasing made inapplicable him since clearly duty incurred before period. Government maintains statutory language could construed as describing terms their general responsibilities persons potentially statute without regard fulfillment all duties dollars, "responsible person" because sums received were impressed trust favor satisfaction willful use creditors violated statute's "pay over" obligation. Though relying primarily theory liability, suggests also applicable 7501, provides "[w]henever is withhold internal revenue United States, amount shall special fund States [which] assessed, collected, same subject provisions limitations (including penalties) are arose." Held : 1. phrase title" meant limit responsible paying require collection (third-party taxes) it position perform functions employer delinquent. Petitioner's construction lead ready evasion 6672, thus odds purpose assuring third parties Pp. 246-250. 2. Neither nor 7501 impresses after-acquired an withholding absent tracing those therefore using purposes than 253-259. (a) Section intended impose absolute fault failure amounts should have collected so unless failed States. 253-254. (b) Nothing legislative history effect requirement impress cash, makes clear not. Since very reason adding existing law collecting merely debt, whose enacted debt concept prevailed, hardly cash. Although may inform scope there must nexus between created. 254-256. (c) A §§ imposing property interests others would conflict priority rules give secured certain proceeds superior liens. 256-259. 552 F.2d 159, 6 Cir., reversed. Bennet Kleinman, Cleveland, Ohio, petitioner. Steven R. Barnett, respondent. Mr. Justice BRENNAN delivered opinion Court. 1 Petitioner, orthodontist profession, January 31, 1969, purchased stock management engaged food vending business. indebted purchase approximately $250,000 wage Federal Insurance Contribution Act (FICA) wages 31. due, however, previous businesses. After day-to-day expenses operating question decided whether, these circumstances, 26 U.S.C. 6672—which "—for assumption control. Sixth Circuit 159 (1977). We granted certiorari.1 434 817, 54, 54 72 reverse. 2 * case arose filing (IRS) claim proceeding July 1969 real arrangement Chapter XII Bankruptcy Act. facts determined after hearing judge, 74-2 USTC ¶ 9719 (ND Ohio 1974), challenged. managerial Tas-Tee Catering, Vending, Charles Corporations 1969. When bough stock, understood, agreement reflected, outstanding obligation due employee FICA (hereinafter trust-fund taxes). negotiations, sellers represented balances various corporate checking accounts well bills creditors. Relying representation, petitioner, Saturday, February 1, sent four checks IRS Monday, 3, discovered overdrawn stopped checks. Thus, assets, whatever dissipated. 3 immediately advised solicited guidance concerning how proceed. App. 36. There evidence officials they objection continuing operations long obligations met, agreed do endeavor arrearages soon possible. Tr. 37-38. never hold harmless however. 4 To continue operations, deposited account, and, obtain inventory, cash upon delivery. tenure, 31 15, gross receipts approximated $130,000 per week first few months declined thereafter. "established system segregating did, fact, 1969." 30. judge found, concedes, $249,212 defray obligations. No owing periods paid, terminated bankruptcy. II 5 Several taxpayer. Among more important 3102(a) 3402(a) (1970 ed. Supp. V) respectively deduction employees share individual income commonly referred "trust taxes," reflecting Code's provision withholdings collections deemed "special States." 7501(a). segregated employer's funds, separate bank until Treasury. Because requires 3102(a), requiring only quarterly,2 accumulated quarter can tempting source failing corporation beleaguered creditors.3 Once net employee, credited regardless whether employer, has recourse against payment.4 An is, course, 3102(b) 3403. several means disposal withheld. First, once inexcusably delinquent, IRS, giving hand-delivered notice, thereafter, further deposit within two banking days retained Treasury quarter's end. 7512. Second, past notification, "shall [and] [t]he 7501. Thus employment full range methods available generally. assessment, demand,5 may, therefore, create lien 6321, levy, distrain, sell satisfaction. 6331 6344 V). 7 Third, penalties assessed employer. 6656 penalty 5% underpayment deposited, 7202 7215 provide criminal "collect comply requirements 7512, discussed supra, regarding accounting notice Secretary. 8 Finally, case, effectuating fail "penalty" equal provides, inter alia: 9 "Any thereof, shall, addition provided law, total evaded, accounted over. 10 6671(b) defines "person," "an officer corporation, member partnership, officer, act violation occurs." Also, Code,6 tracks wording punishable felony fine $10,000, imprisonment years. employer-official responsibl both civil equivalent 100% conviction. Only application provision, issue case. III 11 individuals caused persons"7 Government's efforts failed, seeks employees," see Policy Statement P-5-60, Manual, MT 1218-56 (Feb. 25, 1976), them. It situation arises change enterprise, here corporations, expiration quarter, quarters already exists creates our decision. In 12 resigned. Oral Arg. 8. His contention not, consequently predecessors. argues follows necessarily limitation title," discharge (emphasis added). He phrased conjunctive, section if duties—(1) (2) (3) over—were dollars question. See McCullough v. 462 588 (CA 1972). hand, argues, describing, responsibilities, statute, neither inconsistent we reject purpose. 13 Sections designed assure compliance withheld, subjecting decisions delinquency. If 667 given construction, easily evaded changes officials' quarter. end, escape simply resigning position, transferring another decisionmaking end.8 Obversely, assuming end could, incurring dissipate predecessor.9 14 That result, obviously buttressed provision. 1308(c), 1918, 40 Stat. 1143, provided, refuses pay, truly [taxes enumerated 1308(a)] ."10 remained unchanged 1954 successor 1308(c)11 revised present form. Both revision "person" defined 1308(d), succeeded 6671(b), as, When, Congress added modifying "person"—"Any title"—it seeking describe class whom fell attempting clarify type applicable. amendment otherwise "any necessary insure read third-party fai ure which, include direct As House Senate Committees expressed it, "the limited some over, tax."12 applicable, perhaps inartfully, reference This view supported fact Commissioner issued regulation shortly amendment, limiting 22 Fed.Reg. 9148 (1957), now codified Treas. Reg. 301.6672-1, CFR 301.6672-1 15 conclude question.13 16 turn then person, generated purposes. B 17 became contends sales carrying businesses does argue liquidate however; corporations. 26, 28-29, 30-31, 32. think advance moreover, context relation rule 18 (1) 19 effectuate congressional might garner uncollectable, long-term arguably likely frustrate aid IRS's efforts. 20 At owed supplier accounts, extent unencumbered liens lien, satisfy levy sale. But will often apparently did assets. admits practice "flexible," 27, 28, 32, 48, insist discontinue thereby substituting loss least potential recovering financial recovery. nevertheless renders himself inventory even purposes,14 bill remains unpaid.15 21 although interest encourage operation hope receiving attempt remain unpaid, insists personal-liability attached dollar supplier. practical well-counseled contemplating financially recognize borrowed fully doing course unattractive unavailable remitted immediate loss, understandably, here, discourage operate paid. embarks heavy anything compromised efforts, what regards maximizing chances Government, ownership troubled infusion equity funding accompany encouraging facilitating recovery prospective purchaser official ignorant 6672.16 23 noted section, would, effect, make guarantor undertaking precluded cognate Code. 24 cannot "willful failure" itself strong fault. Congress, corporation's generally, way respects policy choice. concession—that obligations—recognizes 25 Recognizing fault, characterizes breach trust, c sh, Moreover, related 7501,17 alia, "amount 1934. 10, 1934, ch. 277, 607, 48 768, 3661 (1952 ed.). H.R. 7835, 73d Cong., 2d Sess., Finance Committee, explained: "Under treated trustee proceeded distraint. [607] reported enforcement administrative assessment taxes." S.Rep. 558, 53 (1934). 27 was, Report states, debt" added), 1919 28 argument viewed having modified 6672,18 establishing fiduciary unrelated limits collected." (Emphasis added.) Comparing consistent accepted principle misappropriated into trustee's estate order arise. D. Dobbs, Handbook Law Remedies 424-425 (1973). reasons next 29 30 developed Part II, affords distraint, power hands taxpayer beyond taxpayer's property,19 specifically subordinates property, generally perfected security property.20 For example, established decisional principles subordinate arising lien,21 collateral, pursuant entered filing,22 collateral purchasesmoney mortgage lien.23 consequence, unlikely, involved making payments agreements. Those take form receivable, like interest, when, covers financed party, debtor purchase-money assigning receivable mortgage.24 powerless attach party divert party's Government. Surely intend hammer threat assert interest. IV violate accession satisf ction claims thereafter directly traceable statute.25 portion judgment cross-appeal holding 32 Reversed. 33 REHNQUIST, concurring. 34 I join Court's write separately emphasize part critical disposition them arguments, based different clauses accepted, enable prevail literal clause alone consideration factors. considerable cogency conjunctively, ante, 245, section. agree rejected, appeal outweighed probably narrow disjunctive. 35 Having won point rely disjunctive predecessors time, or, argument, realizing, doubt, foreclosed largely III-B(2) opinion. conclusion respect, stressing perfectly absence word "willful," conjunction "penalty," action tends impede attach. need arisen responsibility. Ante, 254. apparent opinion, notion "fault" little sections Tax Its importation compelled normal canons speak differently meaning "willful" Indeed, inte pretation adopt today factors us it. 36 WHITE, THE CHIEF JUSTICE BLACKMUN join, dissenting part. 37 recognizes, "required ("responsible persons") persons." holds, agree, liabilities occupied "violate[s] 'pay over' 259. From seem automatically follow one becomes subsequent shoes collection. all, difficult comprehend why looking best source, flow coming entities, occurred employees. absolutely nothing distinguishes persons" basis position. thrust III-A Inexplicably, disregard controlling principles, holds accession. 38 adopted urged "might uncollectible" cases this, 251, rejects permits through belief free enterprise promoted subsidize takeover companies. majority deems desirable "changes funding," 253, construes believes goal. Apparently, view, better takeovers social needs appropriated funds. believe exceeds mandate construing conform conclusions American appropriations accomplish substantive ends. lends support insolvent permitted aegis cost States' purely simply, find spent Congress. my error construe diversion uses public ends promote welfare. 39 relies applies flexible approach always concerns operations. purposes, assume properly exercise discretion where appropriate, waive resort company ultimately fail. What establishes, totally unnecessary perception rigid employers run damage economy hinder thing circumstances decide own quite matter prevent valuable tool connection managers convinced far permitting serve rather invitation defraud assumes business' pre-existing concern sale clear, great number companies viable, ongoing enterprises subsidization. Furthermore, businessman minimum acumen most sure affairs arranged uncommitted moment doubt ruling result subterfuges avoid company's investors seriously arrears incentive arrange management, sham real, permit satisfying exposing liability. addition, ownership, formal frequently future 41 remarkable suggestion according Court, failure." concurring REHNQUIST suggests, term jurisprudence, particularly matters, normally connotes conscious omission violates known legal duty. acted knowledge chose apply satisfied showing conduct immoral undefined sense. unsupported intent prove too much instances continuity morally timely fashion. 42 Ultimately, reduced indicates supposed burden proof extraordinary proponents. All able offer, brief excerpt entirely years decided. 43 purports property. discussion educational value, hand proper place, conceded oral came 4-5. draws exploration "Congress interest," 259, again proves much. mere possibility render despite unencumbered, judicially deleted Even claims, situations many occasions hypothetical statute. recognizes earlier 243-245, remedies superfluous independent supplement employers. 44 has, justification, created yet impeding designated dissent Parts III-B Appeals, appealed decision District reversed, F.2d, 161-163, review sought here. us. Id., 163-165. 31.6011(a)-1(a)(1) 31.6011(a)-4, 31.6011(a)-4 (1977), return requirements. 31.6151(a), 31.6151(a) filing. 31.6011(a)-5, 31.6011(a)-5 monthly returns lieu quarterly direction Director. 7512(b). Sotelo, 268, 277-278, 1795, 1801 n. 275. Moore 465 514, 517 1972); Dillard Patterson, 326 302, 304 1963); Fidelity & Guaranty Co. 201 118, 120 1952). practice. Brief 10-11. Assessment recording office Secretary Treasury, 6203, demand 60 assessment. 6303(a). provides: guilty conviction fined imprisoned years, both, together costs prosecution." refer "person shorthand person." adopting constructions placed decisions. imposition removed explaining "[w]hile made, original). "All elements charge converge." Ibid. so, "converge" asserted fulfill each apart illogic suffers, highly dubious words almost metaphysical distinction suggested choate start inchoate mid-quarter. code situation, lie ordinary principles. 14, 20-21. introduced House, 12863, 65th 1308 (1918), re-enactment law. 1917, 63, 1004, 325-326. Committee completely rewrote major continuously Reports shed light problem Between 1918 renumbering Codes, 11, infra, effected 1924, 234, 1017(d), 344, changed "refuses" "fails," 1017(b), 7202, misdemeanor felony. Under 1939 Code, 1308(c) 2557(b)(4) ed.) (narcotics); 2707(a) (firearms); 1821(a)(3) (documents); 1718(c) (admissions dues). S.Rep.No. 1622, 83d 596 (1954); H.R.Rep. 1337, A420 (1954), U.S.Code Cong. Admin.News pp. 4025, 5245. complete text Report's follows: "This identical bill. similar prescribe title, tax. However, additions fraud 6653, relating negligence fraud, applied offense applicable." nearly identical. Rubin 380 F.Supp. 1176, 1179 (WD Pa.1974), aff'd, 515 507 1975); Louisville Credit Men's Assn., Inc. 73-2 USTC, 9740 (ED Ky.1970); Tiffany 228 700 (N.J.1963). See, e. g., Sorenson 521 325, 327 1975). court reasoned become unlawful preference. reasoning reached finding founded Cf. 3505. augment earmarking collects pays rendering thought credit prevails notified writing solely results enforced methods, honor designation. Manua , 1976). undertake knowing risk confident prospects profitability acceptable. risk-taking occur marginal justify overall deterrent goals "(a) General rule. "Whenever arose. "(b) Penalties. "For violations 7202." well, 6. employers, definitional 7701(a)(1), "construed mean individual, estate, association, corporation," 6671(b). establishes address contentions. regarded informing 6321 "all rights personal, belonging debtor's state Aquilino 363 509, 80 1277, 1365 (1960); Durham Lumber Co., 522, 1282, 1371 (1960). basic 6323, subordinating interests, who, actual acquire retail dealers trade, (less $250) casual sales, securities, motor vehicles virtue local mechanic's 6323(b)(1) (7). 6323(a) "The valid purchaser, holder lienor, creditor meets subsection (f) iled Secretary." 6323(c) existence "commercial transactions financing protected arising, filing, out unsecured obligation." 6323(c)(1)(A)(i) (c)(1)(B). (A commercial includes 6323(c)(2)(C).) 49 Columbia, Uniform Commercial (UCC); amended Lien 1966, Pub.L.No. 89-719, 101, 1125, large "conform laws concepts [the] Code." 1884, 89th (1966). UCC, creditor's UCC 9-301, 9-312. Perfection occurs statement filed, 9-302, attached. U.C.C. 9-303(1). Attachment agreement, value collateral. 9-204. secure advances perfection least, achieved advance. 6323(d) protects later 45 receipt whichever sooner. detailed explanation Coogan, Effect 1966 Upon Security Interests Created 81 Harv.L.Rev. 1369, 1403-1413 (1968). Decisional mortgagee's mortgaged antecedent New Orleans Wall. 362, L.Ed. (1871), notwithstanding lien. recognition reflects contribution prejudice time. enacting preserve priority, (1966), formally Rev.Rul. 68-57, 68-1 Cum.Bull. 553; Counsel's Op.No. 13-60, CCH 1961 Stand. Fed.Tax Rep. 6307 except hereafter noted, possession. 9-304(1). perfects proceeds, perfected. 9-306(3)(a). identifiable perfected, 10-day 9-306(3). dissent's contrary "it employees." Post, 262. unaffected provisions, enforce asset incoming answer acceded

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