Opinion ID: 566860
Heading Depth: 2
Heading Rank: 1

Heading: April 10--August 5, 1985

Text: 24 The facts relevant to the second quarter (April--June) and the first part of the third quarter (July--August 5) are essentially the same. During this time, the evidence indicates that appellant was an account signatory on the general corporate account (not the payroll account), functioned as the office secretary or girl Friday, and had the paper title of office manager. The evidence conclusively showed that during this period she was not an officer, a director, or an owner, she did not attend owner or manager meetings, she could not hire or fire, sell or purchase assets, direct or withhold payments, or borrow on behalf of the corporation. She wrote few checks and then only at Payne's direction. Payne ran the business autocratically and controlled the finances. He took care of all tax matters. 25 Based on these facts, we believe appellant proved the government's responsible person position was not substantially justified. As courts and the parties have stated, signature authority alone is not enough. Appellant clearly did not have the status, duty or authority to make corporate decisions or handle corporate tax collection or payment matters during this time period. Technical signing authority is not the same as having the effective power to pay. Howard, 711 F.2d at 734. Interestingly, the record reflects that the government admitted at trial that its case with respect to the second and early third quarters was principally based on appellant's signatory status, thus reinforcing the unreasonableness of its position. 26 Despite the unreasonableness of the government's factual and legal position through August 5, it correctly argues alternatively that if appellant became a responsible person beginning August 5, she could still be assessed the responsible person penalty based on past due taxes to the extent of any unencumbered funds in existence at that date. See Slodov, 436 U.S. at 250, 98 S.Ct. at 1786; Elmore, 843 F.2d at 1131-33. Since we cannot conclude that the district court abused its discretion in denying fees and costs related to the government's position for the period after August 5, we must address the unencumbered funds issue. 27 Appellant testified that on August 5 the unencumbered balance in the corporate checking account, taking into account outstanding checks, was $3.00. The government was unable to locate the corporate check book in the records it seized and instead offered All Pro's bank statements as evidence of unencumbered funds. The government argued that a high balance of approximately $7,000.00 was in the account in late August. Appellant's trial counsel argued that the bank statements were unreliable evidence of unencumbered funds because they did not take into account outstanding checks. See Elmore, 843 F.2d at 1133. After much discussion between the bench and counsel, the court admitted the bank statement evidence but also agreed that cross-examination and affirmative testimony could be used both to persuade the jury of problems associated with relying on the bank statement balances and to suggest alternative unencumbered funds balances. 28 The government presented microfiche copies of the July, August, September, October and December bank statements for All Pro. The July statement showed an average daily balance of approximately $283.00. The testimony is somewhat unclear, but that month's ending balance was apparently just over $1,100.00. The August statement was difficult to read and neither counsel nor the court could decipher any of the daily balances early in the month. Later in the month, the daily balances fluctuated between the low thousands to more than $7,000.00. The August through December statements showed total net debits and credits of $1,000.00, plus or minus a few hundred dollars. 5 The government asserts that appellant's claimed balance is not believable in light of the statement balances. We disagree. 29 As stated, the average daily balance was only $283.00 during July and the total net transactions for the last five months of the year were about $1,000.00. The ending July balance was only a little over $1,100.00, and appellant testified the unencumbered balance was $3.00 on August 5. Given the bank statement balances nearest August 5, the probable existence of outstanding checks, appellant's testimony as to unencumbered funds, and the logical inferences drawn from the July average balance and the five month net of transactions, a reasonable fact finder would have likely concluded that the unencumbered funds on August 5, 1985, were something less than $1,100.00. See Elmore, 843 F.2d at 1133. Therefore, the government's position that most or all of the penalty could be reasonably assessed based on unencumbered funds existing at August 5, 1985, is unsupported by the evidence. 30 We, therefore, reverse and remand the § 7430 award determination as it relates to the share of the administrative and court proceeding costs and fees that might be reasonably allocated based on the positions held by the government during the second and early third quarters. The cost and fee award period should begin on or about April 22, 1988, when taxpayer was issued a final determination from the Office of Appeals on her assessment protest. Even though the government dropped its unreasonable position as to the second quarter just before trial, an award is available for the fees and costs incurred for so long as the position was maintained. The district court has jurisdiction over both the administrative and court proceeding awards for both quarters because a final determination as to the prevailing party was not made at the administrative level. I.R.C. § 7430(c)(2)(B), (4)(B).