Opinion ID: 558053
Heading Depth: 2
Heading Rank: 2

Heading: Payroll Taxes

Text: 18 The Internal Revenue Code requires employers to withhold federal income and social security taxes from their employees' wages. 26 U.S.C. Sec. 3102, 3402. These funds are held in trust for the United States. 26 U.S.C. Sec. 7501(a). If these trust funds are not then paid over to the United States, section 6672(a) 5 of the Code imposes a penalty 6 equal to the unpaid taxes on any person required to collect, account for, and pay over the withheld taxes, who willfully fails to do so. Gustin v. United States, 876 F.2d 485, 491 (5th Cir.1989). Thus, liability for the section 6672 penalty is established if the person is a responsible person who willfully fails to pay over the withheld taxes. Id.
19 Foster claims that the jury verdict holding that he was a responsible person under section 6672(a) was against the great weight of the evidence and therefore the district court erred in denying his motion for a new trial. This court reviews the denial of a motion for a new trial for an abuse of discretion. See Deloach v. Delchamps, Inc., 897 F.2d 815, 820 (5th Cir.1990). 20 Whether Foster is a responsible person under section 6672(a) turns on his status, duty, and authority. See Wood v. United States, 808 F.2d 411, 415 (5th Cir.1987). This circuit has generally taken a broad view of who qualifies as a responsible person under section 6672(a). Id. The crucial inquiry is whether the individual had the effective power to pay the taxes. Howard v. United States, 711 F.2d 729, 734 (5th Cir.1983). Therefore, this statute applies to all responsible persons, not just to the most responsible person. Id. at 737. 21 This court considers the following factors when determining who is a responsible person: (1) holding an office or owning stock in the corporation; (2) managing the day-to-day operations of the business; (3) making decisions as to disbursement of funds and payment of creditors; and (4) check-signing authority. See, e.g., Howard, 711 F.2d at 734; Neckles v. United States, 579 F.2d 938, 940 (5th Cir.1978) (person involved in organization of corporation, who was regarded by some as boss, and who signed checks and had significant control over disbursement of corporate funds, was a responsible person). 22 Although Foster apparently concedes that there is evidence that he was a responsible person under section 6672(a) for the first and second quarters of 1981, he insists he was not a responsible party for the third and fourth quarters. Foster notes that in August 1981 he moved his office to another location and alleges that he subsequently had little contact with DJT. Foster maintains that he did not have sufficient control of DJT to procure payment of its third and fourth quarter taxes and was therefore not a responsible person. 23 We find, however, that the location of Foster's office does not determine whether he was a responsible party. The evidence indicated that even after Foster moved his office, his responsibilities at DJT did not significantly change. The DJT employees still perceived Foster as the boss during this period. In addition, although Foster maintains he resigned as president of DJT in February 1981, on May 5, 1981, he signed two letters to the Texas Department of Human Resources in his capacity as president of DJT. 24 Additionally, Foster had the authority to sign checks on DJT's accounts throughout 1981, even though the last check he apparently signed on this account was dated August 1981. Foster also signed checks on Big Sky's accounts made out to DJT so that DJT could pay their joint expenses, including payroll. Indeed, in December 1981 Foster directed that Big Sky send a check to DJT, specifying that only specific employees were to be paid. Moreover, Turnbull argued in his own defense at trial that to his knowledge Foster met with IRS agents in August and October to arrange for payment of back payroll taxes. Although Foster disputes this testimony, the jury was entitled to weigh Turnbull's credibility and infer that Foster at least had authority at that time to enter into such an agreement. 25 It is apparent from the record that the jury was presented with sufficient evidence from which to conclude that Foster was a responsible party during the relevant time period. Foster's check signing authority and ability to negotiate a settlement with the IRS indicate that Foster had the ability to effect payment of the payroll taxes throughout 1981. Therefore, the district court's denial of Foster's motion for a new trial was not an abuse of discretion.
26 As stated earlier, section 6672(a) only imposes liability on a responsible person if that person willfully failed to collect, account for, or pay over the withheld employment taxes. Under this statute, willfulness requires a voluntary, conscious, and intentional act, but not necessarily a bad motive or evil intent. Gustin, 876 F.2d at 492. The government normally proves willfulness through evidence that the responsible person paid other creditors with knowledge that payroll taxes were due at the time to the United States. Id.; see also Wood, 808 F.2d at 415. Willfulness also encompasses reckless disregard of a known or obvious risk that trust funds would not be paid over to the United States. See, e.g., Mazo v. United States, 591 F.2d 1151, 1154 (5th Cir.) (reckless disregard includes failure to investigate or to correct mismanagement after being notified that taxes were due), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). 27 Foster argues that he could not have willfully failed to pay DJT's employment taxes unless he knew the taxes were unpaid. He contends that the government did not present evidence to the jury that he knew of the unpaid taxes before October 1981, during the fourth quarter of 1981. Since Foster maintains that he was only a responsible party during the first two quarters of 1981, and he did not know that the taxes had not been paid until October, he argues that he cannot be held liable under section 6672(a) for any of the unpaid taxes in 1981 because he was never both a responsible party and one who willfully failed to pay DJT's taxes. Foster argues that the district court therefore erred in failing to grant his motion for new trial because the jury verdict on his willfulness was against the great weight of the evidence. 28 Foster's argument fails for several reasons. First, we have determined that Foster was a responsible person for all four quarters of 1981. Therefore, the government did not have to prove that he knew about the unpaid taxes before October 1981 in order to hold Foster liable for willfully failing to pay the taxes for all four quarters of 1981. Even if the trust funds for the other quarters had already been dissipated by the time Foster learned that DJT had not paid the payroll taxes for the previous quarters, Foster nevertheless had a duty to apply any available unencumbered funds to reduce the payroll tax liability. See Mazo, 591 F.2d at 1154. 29 In addition, there was evidence in the record that Turnbull informed Foster of the unpaid taxes as early as April 1981 and again in August 1981. Even though Foster disputes this testimony, the jury was entitled to credit it. Moreover, there was also disputed testimony in the record that Foster met with IRS agents in August of 1981 and reached an agreement regarding the payment of the past due payroll taxes. 30 Evidence was introduced at trial indicating that Foster paid other creditors with knowledge that the payroll taxes were due. For example, after Foster relocated his office, he did in fact send money from Big Sky to DJT to pay DJT's expenses, but this money was apparently never enough to pay all outstanding expenses plus payroll taxes. Foster testified that throughout 1981 he authorized checks to pay other DJT expenses, including outstanding loans, lease obligations, and utilities. In addition, in December 1981, after Foster concedes that he knew about the payroll tax deficiency, Foster directed Big Sky to send a payroll check to DJT, with instructions that DJT only pay certain employees. 31 Even if Foster did not knowingly pay other DJT creditors, the government argues that Foster was nevertheless liable for the payroll taxes because he knew he could not rely on Turnbull to pay the taxes. Turnbull had demonstrated his unreliability when he failed to pay the 1980 payroll taxes. This court has clearly stated that the willfulness requirement is satisfied if a responsible person acts with a reckless disregard of a known or obvious risk that trust funds may not be remitted to the Government. Gustin, 876 F.2d at 492. Thus, Foster acted with reckless disregard when he delegated this duty to Turnbull and failed to take independent action to procure payment of the taxes. See Mazo, 591 F.2d at 1155 (delegation of duty to pay payroll taxes does not release responsible party from this obligation). 32 In summary, there is sufficient evidence in the record to support the jury's finding that Foster willfully withheld payment of taxes in each quarter of 1981. Whether the jury found Foster liable on the theory that he paid other creditors with knowledge that taxes were due, or on the theory that Foster acted with reckless disregard of a known or obvious risk that taxes would not be paid, the finding was not against the great weight of the evidence. Therefore, the district court's denial of Foster's motion for a new trial was not an abuse of discretion. 33 Finally, Foster argues that the jury verdict in favor of Turnbull and against Foster demonstrated such jury confusion that the district court should have granted a new trial to prevent a serious miscarriage of justice. Foster postulates that the jury only issued a verdict against him because someone had to pay up. In support of this claim, Foster relies on an assortment of distinguishable cases. 7 In this case, the record is replete with evidence that supports the jury verdict; nothing in the record indicates that the district court's refusal to grant a new trial resulted in any miscarriage of justice. Therefore, the district court did not abuse its discretion when it failed to grant a new trial.