Opinion ID: 583422
Heading Depth: 2
Heading Rank: 6

Heading: the trial court's analysis

Text: 51 In finding that Phoenix had no unencumbered funds after October 31, 1985, the trial court rejected the government's proposal that the court determine the amount of unencumbered funds by adding up the money deposited to or withdrawn from Phoenix's corporate account after October 31, 1985. The trial court set forth a hypothetical in which the use of funds to pay employees and suppliers generates more funds which are used to pay employees and suppliers, ad infinitum, and reasoned that the government's proposed method of proof could result in multiple counting. 6 The court below further found that deposits to the account were encumbered because all of the checks written on Phoenix's account were force paid during October, November, and December of 1985. In other words, when checks were presented to the bank for payment there were no funds in the account. The bank held the checks until deposits were made to cover the checks. The trial court reasoned that since funds were subject to the outstanding checks when deposited, those funds were encumbered. 52 We do not accept the trial court's view that all of the funds in Phoenix's account were encumbered because the checks were force paid. In reaching that conclusion, the trial court appears to have relied on Elmore, which is factually dissimilar. In Elmore, the funds in the bank account were considered encumbered only because the checks against those funds were written prior to the time Elmore became a responsible person. In this case, the checks which were force paid were written long after Honey and Meador became responsible persons and after the conscious decision was made to use Phoenix's funds to pay creditors other than the IRS. Further, when a person is responsible when the taxes are accrued, we see no distinction between a situation where checks are written before the money to cover those checks is deposited and a situation where the checks are written after the money is deposited. Thus, whether or not checks were force paid is irrelevant under the facts of this case. 53 We also disagree with the trial court's conclusion that the possibility of multiple counting precludes the method of proof as to the amount of unencumbered funds proposed by the government. Honey and Meador argue that it is likely that if Phoenix had attempted to pay the IRS instead of its suppliers, utilities and employees, the corporation would have folded immediately and no further sales would have been made, and therefore much of the income received in November and December would not have been earned and would not have been available to pay the back taxes. While there is some appeal in this line of analysis, [i]t is no excuse that, as a matter of sound business judgment, the money was paid to suppliers and for wages in order to keep the corporation operating as a going concern--the government cannot be made an unwilling partner in a floundering business. Collins v. United States, 848 F.2d 740, 741-42 (6th Cir.1988). See also Thibodeau v. United States, 828 F.2d 1499, 1506 (11th Cir.1987); Mazo, 591 F.2d at 1154 (citing cases). With regard to Honey and Meador's argument that it may be in the best interest of the IRS to keep a financially troubled corporation operational in the hopes that the corporation's finances will improve, there is no evidence in the record that Honey and Meador negotiated with the IRS to waive the IRS's claim under § 6672 in the hope that Phoenix would survive. Cf. Donelan Phelps & Co., Inc. v. United States, 876 F.2d 1373, 1377 (8th Cir.1989). Finally, even if we were to accept the theoretical possibility of multiple counting, the taxpayers would bear the burden of proving that multiple counting actually occurred in this case. Honey and Meador have not met that burden.