Source: https://law.justia.com/cases/federal/appellate-courts/F2/994/279/271576/
Timestamp: 2020-06-06 05:19:44
Document Index: 632695607

Matched Legal Cases: ['§ 6672', '§ 3102', '§ 6672', '§ 6671', 'art, 818', 'art, 818']

William A. Kinnie, Plaintiff-appellant, v. United States of America, Defendant-appellee, 994 F.2d 279 (6th Cir. 1993) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Sixth Circuit › 1993 › William A. Kinnie, Plaintiff-appellant, v. United States of America, Defendant-appellee
William A. Kinnie, Plaintiff-appellant, v. United States of America, Defendant-appellee, 994 F.2d 279 (6th Cir. 1993)
US Court of Appeals for the Sixth Circuit - 994 F.2d 279 (6th Cir. 1993) Argued May 3, 1993. Decided May 24, 1993
In reviewing a motion for summary judgment, we must consider the evidence in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 2513, 91 L. Ed. 2d 202 (1986); Boyd v. Ford Motor Co., 948 F.2d 283, 285 (6th Cir. 1991), cert. denied, --- U.S. ----, 112 S. Ct. 1481, 117 L. Ed. 2d 624 (1992). Therefore, the facts set forth below are those most favorable to plaintiff Kinnie.
On March 16, 1990, Kinnie filed an action in the district court seeking a refund and tax abatement for the penalty of $137,892.76 assessed for the last quarter of 1985, the first three quarters of 1986, and the second quarter of 1987. The IRS responded by filing a counterclaim seeking the balance of the assessment plus interest from Kinnie. The government then filed a motion for summary judgment which the district court granted in favor of the government in its memorandum opinion of August 7, 1991. 771 F. Supp. 842. The district court entered judgment against Kinnie on October 4, 1991, and ordered Kinnie to pay $84,559.06, the amount remaining of the delinquent trust fund taxes plus interest. Kinnie made a motion to reconsider which the district court denied on April 30, 1992, and this timely appeal followed.1
This court reviews a district court's grant of summary judgment de novo. See Brooks v. American Broadcasting Cos., 932 F.2d 495, 500 (6th Cir. 1991). Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Canderm Pharmacal, Ltd. v. Elder Pharmaceuticals, Inc., 862 F.2d 597, 601 (6th Cir. 1988). As previously stated, we must consider the evidence in the light most favorable to the nonmoving party. Anderson, 477 U.S. at 255, 106 S. Ct. at 2513; Boyd, 948 F.2d at 285.
The requirements for liability under 26 U.S.C. § 6672 are clearly set forth in Gephart v. United States, 818 F.2d 469 (6th Cir. 1987) (per curiam). 26 U.S.C. §§ 3102 and 3402 require that employers withhold from the wages of their employees the employees' social security and federal income taxes. Id. at 472. As previously stated, these taxes are held in trust for the government and are referred to as "trust fund taxes." Id. The monies in the trust fund may not be used for any purpose other than to pay the employees' social security and federal income taxes. Id. 26 U.S.C. § 6672 provides that "any person" who willfully fails to account for and pay over its employees' withholding taxes shall be liable for the full amount not paid over to the government. Id. at 473.2 26 U.S.C. § 6671(b) defines "person" as "an officer or employee of the corporation ... who as such officer or employee ... is under a duty to perform the act in respect of which the violation occurs." Id.
Two requirements must be met before one can be liable under section 6672. The taxpayer must: (1) be a "responsible person" under the statute, and (2) have "willfully" failed to pay over the taxes due. Id. The taxpayer bears the burden of proving that he is not a responsible person under section 6672 and that he did not act willfully in failing to pay over the taxes. McDermitt v. United States, 954 F.2d 1245, 1251 (6th Cir. 1992).
"It is no excuse that, as a matter of sound business judgment, the money was paid to suppliers and for wages in order to keep the corporation operating as a going concern--the government cannot be made an unwilling partner in a floundering business." Collins v. United States, 848 F.2d 740, 741-742 (6th Cir. 1988) (per curiam). The purpose of this statute is "to protect the government against losses by providing it with another source from which to collect the withheld taxes." Gephart, 818 F.2d at 473. "When net wages are paid to the employee, the taxes that were, or should have been, withheld are credited to the employee even if they are never remitted to the government; so the IRS has recourse only against the employer for their payment." Mazo v. United States, 591 F.2d 1151, 1153 (5th Cir.), cert. denied, 444 U.S. 842, 100 S. Ct. 82, 62 L. Ed. 2d 54 (1979).
Kinnie argues that he cannot be deemed responsible for paying of the taxes during the quarters at issue because that duty was delegated to Blinstrub. However, there may be more than one person deemed a "responsible person" within a corporation. Gephart, 818 F.2d at 473. Moreover, one who possesses significant control over the company's financial affairs may not escape liability by delegating the task of paying over the taxes to someone else. Gustin v. U.S. I.R.S., 876 F.2d 485, 491 (5th Cir. 1989); Thomsen v. United States, 887 F.2d 12, 17 (1st Cir. 1989).
The record reveals that as of September 1986, EMTS had on hand $27,601.86 of unencumbered assets with which it could have paid the tax delinquency. Therefore, Kinnie argues that the judgment entered against him should not have exceeded the amount of $27,601.86 because that was all the corporation had on hand at the time he first learned of the tax delinquency. He further argues that any funds acquired after the date that he first learned of the tax delinquency ("after-acquired funds") cannot be used to determine his liability under section 6672. In support of this argument, Kinnie relies on Slodov v. United States, 436 U.S. 238, 98 S. Ct. 1778, 56 L. Ed. 2d 251 (1978). In Slodov, the Supreme Court held that a trust to pay preexisting tax liabilities could not be imposed on all cash received by the corporation after the taxpayer assumed control of the corporation and after he became responsible and willful under section 6672. Id. at 259-60, 98 S. Ct. at 1791.
The issue of whether after-acquired funds may be considered in determining the liability of a responsible person who willfully fails to pay over employee withholding taxes to the IRS is an issue of first impression in this circuit. However, several other circuits have addressed this issue, and all have rejected Kinnie's interpretation of Slodov. There are several cases directly on point. See Davis v. United States, 961 F.2d 867, 871-78 (9th Cir. 1992), cert. denied, --- U.S. ----, 113 S. Ct. 969, 122 L. Ed. 2d 124 (1993); Honey v. United States, 963 F.2d 1083, 1088-89 (8th Cir.), cert. denied, --- U.S. ----, 113 S. Ct. 676, 121 L. Ed. 2d 598 (1992); Garsky v. United States, 600 F.2d 86, 90-91 (7th Cir. 1979); Mazo, 591 F.2d at 1154.
The Supreme Court in Slodov based its decision in part on the rationale that to hold a taxpayer personally liable to the extent of after-acquired funds for taxes owed during a time in which he was not a responsible person would be to discourage new investors from attempting to salvage a failing business, which, if the salvage effort were successful, would enable the government to collect more in delinquent taxes than if the business failed. Slodov, 436 U.S. at 252-253, 98 S. Ct. at 1787-1788. The Supreme Court also explained that section 6672 which is violated only by a "willful failure" imposes liability only where there is personal fault. Id. at 254, 98 S. Ct. at 1788.
The present case is clearly distinguishable from Slodov and is directly analogous to the previously cited circuit court cases. Kinnie was a responsible person at all times during which the tax delinquency accrued; he was an original investor and to hold him personally liable for an amount based on after-acquired funds would not have discouraged a new investor from attempting to save EMTS' failing business. Moreover, a degree of personal fault can be attributed to Kinnie in that he failed to fulfill his responsibilities during the time that the tax delinquency accrued. The only case which Kinnie cites to the contrary is Matter of King, 91-2 U.S.; Tax Cas. (CCH) P50, 330, 68 A.F.T.R.2d (P-H) 5249, 1991 WL 281726 (Bankr.S.D. Ala. 1991). In this case, the court held that the taxpayer was personally liable under section 6672 only to the extent of unencumbered funds on hand at the time he learned of the tax delinquency even though the taxpayer had been a responsible person under the statute during the time that the tax delinquency accrued. 1991 WL 281726 at * 3 -* 4.
The government also argues that under Revenue Ruling 79-284, a taxpayer's designation regarding how a payment must be allocated must be in writing in order to be binding upon the IRS. An agency's interpretation of a statute it administers is entitled to deference. CenTRA, Inc. v. United States, 953 F.2d 1051, 1055 (6th Cir. 1992). "Although a revenue ruling 'is not entitled to the deference accorded to a statute or a Treasury Regulation,' a revenue ruling is entitled to some deference unless 'it conflicts with the statute it supposedly interprets or with that statute's legislative history or if it is otherwise unreasonable.' " Id. at 1056 (citation omitted). Weight is given to the IRS' reading of its Revenue Ruling because " 'it expresses the studied view of the agency whose duty it is to carry out the statute.' " Id. (citation omitted).
Revenue Ruling 73-305 clearly indicates that a taxpayer must provide written instructions for the application of voluntary payments before the government will be bound by the taxpayer's instructions. It is the IRS' policy to apply nondesignated or improperly designated employment tax payments to the employer's employment tax liability first before applying such payments to the trust fund portion of the tax liability. See Internal Revenue Service, Policy Statement P-5-60, reprinted in Internal Revenue Manual (CCH) 1305-15; see also United States v. Schroeder, 900 F.2d 1144, 1146 n. 1 (7th Cir. 1990).