Opinion ID: 581460
Heading Depth: 4
Heading Rank: 2

Heading: Slodov's rationale

Text: 37 Second, the three considerations on which the Slodov opinion was predicated do not obtain in this case. Davis claims that, once he learned that ITAC was not paying employees' withholding taxes, he assumed a more active role in supervising corporate disbursements. He contends that the factors animating the Slodov decision with respect to new management apply with equal force to the shuffle of duties that took place at ITAC. In other words, Davis would have this court equate transfers of responsibility internal to the corporation with the accession of new management that occurred in Slodov. The Supreme Court's analysis, however, will not support such a conclusion. 38 In Slodov, the Supreme Court expressly counselled against interpreting section 6672 in such a manner that the penalties easily could be evaded by changes in officials' responsibilities prior to the expiration of any quarter. 436 U.S. at 247, 98 S.Ct. at 1785. Davis's theory would encourage corporate roulette. Responsible officers, upon learning that taxes had gone unpaid during their watch, could simply rotate their respective responsibilities and duties. Once the officers assumed their new duties, they would be relieved from section 6672 personal liability for the use of forthcoming revenues to pay debts other than the back taxes. The corporation could thus delay compensating the federal treasury for the use of its money indefinitely, thereby freeing up corporate income for more self-interested expenses. 39 Slodov's concern for encouraging new management to salvage failing businesses, thus maximizing the chances for tax recovery, also loses much of its luster in this context. Persons contemplating assuming control of a financially beleaguered corporation owing back employment taxes, Id. at 252-53, 98 S.Ct. at 1787-88, might be deterred by the risk of personal liability. While Davis suggests that he and other responsible officers, just like potential purchasers, have the option of just walking away when they learn of an accrued withholding tax liability, in reality the choice for existing management is not that simple. Existing management has a vested interest, financial and otherwise, in guiding a business through troubled waters. Legal obligations and duties limit an officer's ability to walk away upon learning of an overdue tax liability. Indeed, for responsible persons, leaving is no guarantee that liability will still not attach. A jury or judge could disbelieve protestations of ignorance or find that the officer acted recklessly or was willfully ignorant of the failure to pay taxes. See Teel, 529 F.2d at 905. Existing management like Davis, in other words, has sufficient incentive to remain and to keep the company afloat and capable of repaying taxes without specifically excepting them from section 6672 liability. 40 Slodov's insistence on personal fault is also satisfied in this case. Unlike Mr. Slodov, Davis presided over the corporation every day during which taxes were taken from employees' checks and dissipated to satisfy corporate needs, at the expense of the public fisc. The jury found that, throughout these three quarters, Davis had the authority and responsibility to prevent this breach of trust, but failed to do so. 3 While the briefs do not trace the expenditure of the trust funds, Davis at least indirectly benefited from the illicit diversion of the federal government's money. Bills and salaries (including Davis's) were paid and the company kept afloat for three quarters. That might not have been possible without the use of the tax revenues. A much stronger foundation for personal fault thus exists for Davis than for new management like Mr. Slodov. 41 Concerns about priority rules also have no practical application in this case. Davis has made no showing that any of the creditors he preferred to the IRS held debts given a priority by the tax code. See 26 U.S.C. § 6323. We thus leave for another day the question whether section 6672 liability attaches when existing management uses after-acquired funds to pay only debts having priority over a tax lien. With respect to otherwise unencumbered corporate income, the obligation to repay the taxes remains intact. 42 Finally, it should be noted that Slodov was concerned with the situation where, when new management assumes control, the business has no funds at all available to alleviate its tax debt. While Davis points out that the trust funds were dissipated prior to the time he learned of the delict, he makes no showing that there were no funds with which to satisfy the tax obligation. 436 U.S. at 259-60, 98 S.Ct. at 1791-92. It is unclear from the Supreme Court's opinion how critical a factor the impoverishment of the business is, other than that the total unavailability of cash and liquid assets makes the revival of the business through commercial expenditures much more urgent and the threat that the IRS will be unable to collect due to a bankruptcy much more immediate. To the extent ITAC was in a more solvent financial condition, it had less of an excuse to prefer commercial creditors over the IRS.