Opinion ID: 581460
Heading Depth: 4
Heading Rank: 3

Heading: Circuit court decisions

Text: 43 The third reason we refuse to extend Slodov to Davis's situation is that Davis's proposed interpretation of Slodov has been implicitly foreclosed by two of our previous decisions and expressly rejected by four other federal courts of appeals. In two decisions pre-dating Slodov, we held that the use of after-acquired funds to compensate debtors other than the United States amounts to willfulness. In Teel, the responsible corporate officers first learned of the business's failure to pay on October 17, 1966. After October 17th, the same officers knowingly used incoming cash to purchase new merchandise. The Ninth Circuit observed: 44 The [purchase] agreement seems sensible and honest. But the trouble is that as the cash went into the cash drawer, it became subject to trust or lien in favor of the federal government for the unpaid withholding taxes. By dissipating the cash for new purchases, of which the taxpayers knew, they unwittingly supplied the necessary willfulness. Because the failure to pay the arrearages and current tax after October 17, 1966, was willful, any factual issue as to ignorance of nonpayment prior to October 17, 1966, is not material. 45 529 F.2d at 905-06. 46 Likewise in Maggy, we held that a responsible officer's failure to use funds received by the business to repay its tax liability constituted willfulness because the funds which came into the corporation became immediately subject to a trust or lien in favor of the United States for the unpaid withholding taxes. 560 F.2d at 1375-76. 47 Davis attempts to distinguish these cases on two grounds. He argues firstly that Teel's and Maggy's reliance on a trust fund theory is outmoded in light of Slodov's admonition that [n]othing whatever in § 6672 ... suggests that the effect of the requirement to 'pay over' was to impress a trust on the corporation's after-acquired cash. 436 U.S. at 254, 98 S.Ct. at 1789. 48 While Slodov might quarrel with some of Teel's and Maggy's phraseology, we nevertheless consider our previous opinions' analyses sound and their bottom-line conclusions consistent with Slodov. Applying the appellation trust to Teel's and Maggy's after-acquired funds was simply a shorthand acknowledgment of the obligations section 6672 imposes on persons who (unlike Slodov ) are responsible when the taxes are collected, when the funds are dissipated, and when subsequent corporate income is diverted to creditors other than the United States. Slodov recognizes this distinction when, at the outset of its opinion, the Supreme Court contrasts Slodov's circumstances with the situation where the same corporate officers who prefer other creditors to the federal treasury were responsible before, during, and after dissipation of the withheld taxes. 436 U.S. at 245-46, 98 S.Ct. at 1784-85. In the latter case, the Supreme Court said there is no question that § 6672 is applicable to them. Id. at 246, 98 S.Ct. at 1784; see also Mazo v. United States, 591 F.2d 1151, 1154 (5th Cir.) (Slodov implicitly affirms [Teel's and Maggy's] conclusions because the [Supreme] Court assumes at the outset that a penalty may be exacted from a person who was responsible both during the period withholding tax liability accrued and thereafter), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). 49 Moreover, the Supreme Court's concern with imposing a trust on all after-acquired funds under all circumstances was that such a theory gave insufficient heed to the necessary nexus between the payment obligation and the after-acquired funds. See Slodov, 436 U.S. at 256, 98 S.Ct. at 1789-90. In Davis's case, his continuing responsibility before, during, and after the tax delinquency creates the requisite linkage between subsequently received cash and a duty to satisfy the trust fund tax delinquency. 50 Davis also tries to sidestep Teel and Maggy by pointing out that the responsible officers there learned of the tax delinquency before the actual payment due date and thus were under an absolute obligation to use any and all corporate funds to pay the taxes on time. Davis insists that he remained in the dark until after the money was due. Assuming the jury believed Davis's claim of ignorance, Davis still fails to explain why this timing factor should be critical. What is key in Teel and Maggy is that (1) the officers were in responsible positions at the time the taxes were or should have been collected and at the time trust moneys were dissipated, and (2) they ignored their obligations as responsible officers, knowingly and willfully diverting after-acquired cash to commercial creditors instead of paying the United States. Like Teel and Maggy, Davis's status and authority throughout the quarters, not his state of mind, made him a responsible person. As in Maggy and Teel, Davis's actions after he learned of the tax debt are what constituted willfulness. The arrival of a payment date, after all, does not by itself impose liability. It simply marks the fruition of liability--that is, responsibility--accumulated throughout the quarter as salaries were paid and/or trust funds dissipated. See Maggy, 560 F.2d at 1375; Teel, 529 F.2d at 906; De Beradinis, 395 F.Supp. at 951. Similarly, a person may still be deemed responsible for a quarter's tax payment even if she no longer holds a responsible position when the payment date arrives. See Slodov, 436 U.S. at 247, 98 S.Ct. at 1785; Brown v. United States, 591 F.2d 1136, 1140 (5th Cir.1979). 51 Numerous federal courts of appeals have followed Teel's and Maggy's holdings in the post-Slodov era, specifically rejecting in the process the argument Davis now proffers. In Mazo, the Fifth Circuit refused to extend Slodov to cases [w]here there has been no change in [corporate] control. 591 F.2d at 1154. The Fifth Circuit emphasized that the Supreme Court specifically limited Slodov to the expenditure of funds acquired after new management's  'accession to control.'  Id. (quoting Slodov, 436 U.S. at 259, 98 S.Ct. at 1791). Concluding that neither Slodov's language nor its rationale applied to continuing management, the Fifth Circuit held: 52 In the case of individuals who are responsible persons both before and after withholding tax liability accrues, as the appellants were in this case, there is a duty to use unencumbered funds acquired after the withholding obligation becomes payable to satisfy that obligation; failure to do so when there is knowledge of the liability, as was the case here, constitutes willfulness. 53 591 F.2d at 1157; see also Wood, 808 F.2d at 415-16 (Because ... Wood was a responsible person both before and after the obligations at issue accrued, Slodov is not applicable, even though Wood assumed new job responsibilities upon learning of the tax deficiency). 54 All of the other circuits presented with Davis's argument unanimously have limited Slodov to changes in management control. Quick on Mazo's heels came the Eighth Circuit's opinion in Kizzier v. United States, 598 F.2d 1128 (8th Cir.1979), holding: 55 Although Kizzier did not become aware of Titan's 1973 tax delinquency until March 1974, he was a responsible person within the meaning of section 6672 through all the calendar quarters. Titan failed to pay over employment taxes to the Government. As such, Kizzier's responsibility to pay Titan's withheld employment taxes extended to unencumbered funds received by the corporation after Kizzier learned of Titan's tax delinquency. 56 Id. at 1134. 57 The Seventh Circuit followed suit:Slodov does not relieve a responsible person of the responsibility to reduce accrued withholding tax liability with funds acquired after the funds actually withheld have been dissipated so long as the person responsible has been so throughout the period the withholding tax liability accrued and thereafter. 58 Garsky v. United States, 600 F.2d 86, 91 (7th Cir.1979); see also Purdy Co. v. United States, 814 F.2d 1183, 1188 (7th Cir.1987). 59 The Third Circuit rounded out the circle in Vespe: 60 One who was a responsible person when taxes were incurred, and who only later becomes aware that they were not paid, acts willfully by then paying other creditors in preference to the United States, even if the money specifically withheld has been dissipated. 61 868 F.2d at 1335; see also id. at 1334 n. 7; cf. Thibodeau, 828 F.2d at 1506 (preferring other creditors over the United States prior to payment due date demonstrates willfulness); Caterino v. United States, 794 F.2d 1, 6 (1st Cir.1986) (Any responsible person who knows the taxes are not paid and allows the business to pay other creditors acts willfully.), cert. denied, 480 U.S. 905, 107 S.Ct. 1347, 94 L.Ed.2d 518 (1987).