Opinion ID: 475275
Heading Depth: 2
Heading Rank: 1

Heading: IRS Policy P-5-60.

Text: 11 Before turning to the arguments unique to each plaintiff, we will address the district court's holding [t]hat the Government has the obligation to look first to the corporate assets of Calderone-Curran Ranches, Inc.... The district court based this statement on Policies of the IRS Handbook P-5-60 (approved 6-2-77), which provides in relevant part: 12 If a corporation has willfully failed to collect or pay over employment taxes, ..., the 100-percent penalty will be asserted against responsible officers and employees of the corporation only if such taxes cannot be collected from the corporation itself. 13 Plaintiffs also rely on the following quote from McCarty v. United States, 437 F.2d 961, 194 Ct.Cl. 42 (1971): 14 The test for liability under Sec. 6672 is not whether the corporate obligation has been met, but whether the taxes cannot be or could not be collected and whether there are no tangible assets against which distraint can be made. 15 Calderone's Brief at 20 (adopted by Hornbaker) (purporting to quote 437 F.2d at 972) (emphasis by the court). 16 Plaintiffs have blatantly misquoted the court of claims by inserting the phrase for liability under Sec. 6672, which does not appear in the opinion. Rather, the court of claims stated: A careful reading of the portions of the memorandum quoted above shows that the test is not whether the corporate obligation.... Plaintiffs' misquote cannot be considered an excusable misstatement of the court's actual holding. The court clearly was not referring to the test for liability under Sec. 6672. Rather, the court was unambiguously referring to IRS Internal Memorandum No. 56-46, dated April 9, 1956, which was a policy statement similar to Policy P-5-60. Moreover, the court was not setting forth a test for liability but rather was interpreting the internal memorandum. Counsel should take this as a warning that such misrepresentations to this court will not be tolerated. 17 In any event, McCarty, as distinguished over the years, does not stand for the broad proposition asserted by plaintiffs. In McCarty, 18 a corporation officer was held not to be subject to the penalty assessment where the IRS, after placing tax liens on the corporation's assets, failed, subsequent to the Navy's taking over the management and control of the company under a V-loan guarantee agreement, to enforce the liens and otherwise to collect the delinquent withholding taxes from such assets despite a prior agreement between the corporation and the IRS, which the Navy knowingly breached, to pay such delinquent taxes in monthly installments. The IRS specifically agreed with the Navy that the tax indebtedness would be subordinate to the Government loans. 19 Burack v. United States, 461 F.2d 1282, 1297, 198 Ct.Cl. 855 (1972) (restating facts in its prior McCarty opinion). As has been observed: 20 The facts in McCarty are particularly egregious: one arm of the government was responsible for the breach of an agreement with another arm of the government, and then the government decided to go after an individual who was not at all responsible for the breach of the agreement. 21 Cooper v. United States, 539 F.Supp. 117, 122 (E.D.Va.1982) (refusing to apply McCarty where there was no showing that the Government prevented the responsible persons from discharging their obligation to pay over the withheld taxes), aff'd without opinion, 705 F.2d 442 (4th Cir.1983). 22 We believe that, as was done in Cooper, McCarty should be restricted to its facts, viz., to situations where the government somehow prevents the responsible persons from paying over the taxes. Moreover, the statute itself 23 does not include any requirement that the government exercise due diligence in its collection efforts against the employer corporation. The personal liability created under Section 6672 is separate and distinct from that imposed upon the employer under Section 3403 of the Code. The Service need not have attempted to collect from the employer before assessing a responsible person under Section 6672. 24 Cooper, 539 F.Supp. at 121 (quoting Datlof v. United States, 370 F.2d 655, 656 (3d Cir.1966), cert. denied, 387 U.S. 906, 87 S.Ct. 1688, 18 L.Ed.2d 624 (1967) (citations omitted)). Accord Hornsby v. IRS, 588 F.2d 952, 954 (5th Cir.1979). 25 Thus, since McCarty is distinguishable and the statute does not require the result plaintiffs urge, the question becomes whether the IRS policy of pursuing the assets of the corporation first prevents it from assessing the penalty in the present case. We believe it does not. First, no plausible argument can be made that plaintiffs relied on that policy to their detriment. Second, the IRS has, in fact, attempted to collect from the corporation by filing a claim in the bankruptcy proceeding for the unpaid taxes. However, that litigation is still pending after some ten years. As the government points out, if P-5-60 is interpreted as an absolute requirement that the government exhaust its collection efforts against the corporation prior to assessing responsible persons, the opportunity to collect the taxes may be forever lost. This is because it is possible that the bankruptcy estate will be insufficient to pay the taxes while the statute of limitations may run on the responsible parties. The IRS should be allowed to attempt to avoid such a result. 2 We also note that: 26 [T]he Government is entitled, ..., only to one satisfaction of the payroll tax liability; once the Government has obtained a single satisfaction, it must abate all 100-percent penalty assessments which have arisen from the payroll tax liability. When the Government seeks satisfaction of the payroll tax liability vis-a-vis an assertion of 100-percent penalty assessments, it is entitled to choose the liable parties from whom it will collect. 27 Gens v. United States, 615 F.2d 1335, 1339-40, 222 Ct.Cl. 407 (1980) (citations omitted) (quoting Abrams v. United States, 333 F.Supp. 1134, 1147 (S.D.W.Va. (1971)). To this end, P-5-60 provides that [w]hen court proceedings are involved, an abatement of the tax assessment against the corporation will be made to the extent that the related 100-percent penalty assessment is paid.... Thus, the policy statement itself contemplates that in some cases the IRS will seek payment from others at the same time it is seeking collection from the corporation. 3 Thus, read in its entirety, P-5-60 does not support plaintiffs' position. 28