Opinion ID: 1177173
Heading Depth: 1
Heading Rank: 3

Heading: check to petitioner as trustee (i.r.s.)

Text: Daniel testified as follows: When petitioner telephoned about the settlement on December 9, 1978, Daniel said that the IRS [Internal Revenue Service] has a lien against that and instructed petitioner to pay the IRS lien out of the settlement proceeds and send Daniel the balance. Daniel had received a lien notice from the IRS for $4,696.85 dated June 13, 1978. Petitioner told Daniel he paid the IRS $5,232 in connection with the settlement in December. Daniel's first inkling that there had been no such payment came from a letter dated June 4, 1980, received from the IRS office in Springfield, Missouri, addressed to Daniel's wife, proposing a penalty assessment. That letter and its attachment, which went into evidence, stated that because no corporate assets are available to satisfy the [tax] liability of Uneedus, a corporation whose address was shown to be in Riverside, California, the IRS proposed to assess a 100 percent penalty against Mrs. Daniel as the person required to account for employment or excise taxes withheld by the corporation. The dates and amounts shown on the attachment to the letter were as follows: Period Date Return Date Tax Unpaid Balance Applicable Ended Filed Assessed of Assessment Penalty ----------------------------------------------------------------------- 06-30-77 08-13-77 11-07-77 $2,999.83 $2,013.63 09-30-77 11-12-77 03-06-78 1,286.89 897.33 12-31-77 02-25-78 03-27-78 381.93 259.84 [Totals:] [$ 4,668.65] $3,170.80 Daniel further testified: When he received the June 1980 letter from IRS, he believed it referred to the same tax obligation he thought petitioner had already paid. He immediately wrote IRS an indignant letter stating that his attorney, petitioner, had paid the amounts in question to IRS in Riverside in December 1978. After unsuccessfully attempting to reach petitioner by letter and telephone, he turned the matter over to his Missouri attorney, David Holden. A series of letters from Holden to petitioner was placed in evidence. A letter of August 29, 1980, [i]n accordance with our phone conversation today, requested a photocopy of your cancelled check showing the payment of this tax. Follow-up letters of October 14 and 31, 1980, and January 19, 1981, indicate that petitioner still had not replied. The next communication in evidence is a mailgram from petitioner to Holden dated March 18, 1981, stating that petitioner had an appointment with IRS in Riverside the following week and asking for a copy of present demand. Holden replied on March 19, enclos[ing] the information from the local [Missouri] IRS office and adding this comment: I would like to point out that although the local demand is in the vicinity of $3300.00, that there may still be some due on the corporate account. I don't understand this exactly, other than they have apparently assessed personally Mr. and Mrs. Daniel with the `trust portion' of the account, and they may have written off the corporate part inasmuch as apparently the corporation is now defunct. The last letter in evidence from Holden to petitioner was dated April 9, 1981, and stated that Holden had not heard from petitioner since March 19 despite repeated phone calls, that Daniel had paid IRS the amount demanded to avoid the filing of a lien in Missouri, that Holden saw no alternative, absent a satisfactory response from petitioner, but to get in touch with the bar association in California or refer the matter to a California attorney, and that he would take some such action if he did not hear from petitioner by April 20. By check dated March 31, 1981, Daniel paid the IRS $3,329.34 (exactly 105 percent of the penalty assessment against Mrs. Daniel proposed in the letter of June 4, 1980). Petitioner testified: When he and Daniel discussed the settlement in December 1978, [w]e did talk about the federal lien which had been on the case at that time for probably a  I think there had been an assignment issued by Mr. Daniel to the Internal Revenue advising them. And I talked with the Internal Revenue. I believe they had filed a lien not only notifying me, but notifying the California Shopper. Because they were aware of this lawsuit pending. And that's the only place he had any money at that time coming from that he could possibly pay the liens off. In carrying out the settlement, opposing counsel put the amount owed the IRS into a separate check payable to petitioner as trustee. And we called the Internal Revenue before they made out the checks and asked the amount that was due and owing on this lien that had been filed, and that was the figure [used]. The cancelled Great Western check in evidence made payable to petitioner as trustee (I.R.S.) was for $5,943.64. Petitioner testified that there was a man in the office running errands, doing process serving and I asked them to make sure that that check got to the IRS in Riverside, because we had been in touch with them and told them it was on the way. He further testified: As far as I know that check was forwarded through the Internal Revenue as planned and they never once contacted me during that period of time between 1978 and 1980 requesting or wondering where the check was or anything of that nature. I can't account for what happened. His reason for not replying to Holden's letters was that he was unable to give him a reasonable answer. He simply thought the IRS obligation had been paid. The photocopy of the back of the check shows neither an indorsement in favor of the IRS nor any other markings indicating that IRS ever received the proceeds. Petitioner testified he could not explain their absence. The markings that do appear on the back of the check are remarkably similar to those on the back of the check for $39,037.62, made out to petitioner and his bank. Both checks are indorsed in blank by the payee or payees and both indicate that they cleared on December 15, 1978. The hearing panel found that [petitioner] paid no sums to IRS on behalf of William Daniel or Uneedus Corporation and that the check for $5,943.64 was negotiated by [petitioner]. It recommended that petitioner be ordered to repay the $5,943.64 to Daniel as a condition of probation. The review department found that the check was negotiated by [petitioner], its proceeds commingled with his own funds and misappropriated by him. Petitioner argues that the discrepancy between the $5,934.64 demanded by IRS at the time of the settlement, as reflected in the check for that amount, and the lesser IRS demands testified to by Daniel shows that they pertain to different tax obligations. He argues that the $5,943.64 demand may have arisen from tax liability for an earlier period and that even though the check made payable to him as trustee for IRS does not appear to have been negotiated by IRS itself, petitioner's office manager may have sent IRS a separate cashier's check for an equal amount. Petitioner further contends that IRS must have received the $5,943.64 because it had been informed of the settlement and yet, for all that appears, failed to pursue its lien. The nature of the lien (testified to by both Daniel and petitioner) is unclear. There is no indication that either the State Bar or petitioner examined the record of the Uneedus suit to ascertain whether IRS was granted a judgment creditor's lien (Code Civ. Proc., former § 688.1) which would have required its consent to a settlement. Nor is there any indication of any inquiry directed to counsel with whom petitioner negotiated the settlement concerning any attempt by IRS to pursue its claim against the settlement proceeds. (3) Notwithstanding those legitimate doubts, we think that the review department's finding that the proceeds of the $5,943.64 check to petitioner as trustee (I.R.S.) were commingled with petitioner's own funds and misappropriated by him is supported by convincing proof to a reasonable certainty. Petitioner was unable to refute the clear inference from the indorsements on the back of the check that he received its proceeds, and he produced no record that he had paid them or any amount to IRS on behalf of Uneedus or Daniel. After Daniel's wife received the IRS billing in June 1980, both the Daniels and petitioner had every incentive to establish that IRS had in fact been paid out of the settlement proceeds. Yet neither the Daniels' repeated inquiries of the IRS office in Springfield nor petitioner's visit to the IRS office in Riverside, prompted by the series of telephone calls and letters from Daniel's attorney, produced any indication of payment. The fact that IRS billed the Daniels for less than its claim against Uneedus corporation at the time of the settlement does not necessarily prove that the latter claim was ever satisfied. A reasonable explanation for the discrepancy appears in the passage we have quoted from the letter of March 19, 1981, written by Holden to petitioner, in which Holden states his impression, based on his dealings on behalf of Daniel with the IRS office in Springfield, that not all of the corporate tax liability of the defunct Uneedus corporation was being assessed against Mr. or Mrs. Daniel personally. That impression is corroborated by the wording of the letter of June 4, 1980, from IRS to Mrs. Daniel.