Court Opinion

ID: 9954172
Source: CourtListenerOpinion
Date Created: 2024-03-25 19:02:18.038814+00
Date Added: 2024-06-11T08:11:52.424690
License: Public Domain

United States Tax Court

                               T.C. Memo. 2024-33

                              RODNEY A. TAYLOR,
                                  Petitioner

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                     __________

Docket No. 3043-17L.                                         Filed March 25, 2024.

                                     __________

Robert B. Gardner III, for petitioner.

Jason P. Oppenheim, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

       CARLUZZO, Chief Special Trial Judge: In this section 6330(d) 1
case petitioner challenges respondent’s determination to proceed with
collection of an assessment made against him for a trust fund recovery
penalty (TFRP)2 pursuant to section 6672.

      According to respondent, upon the failure of Taylor & Co., Inc.
(Company), to withhold and/or pay over to respondent certain
employment taxes, petitioner as a “person” (commonly referred to as a
“responsible person” or “responsible officer”) described in sections
6671(b) and 6672(a) is liable for a penalty equal in amount to those
employment taxes.

        1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the
Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and
Rule references are to the Tax Court Rules of Practice and Procedure.
        2 The TFRP is sometimes referred to in this Opinion as the underlying liability.

                                 Served 03/25/24
                                    2

[*2] According to petitioner (1) he was not at the relevant time a
responsible person within the meaning of section 6671 or section 6672,
but even if he was, (2) he was not provided proper notice of the proposed
TFRP assessment as required by section 6672(b)(1), but even if he was
a responsible person who was properly notified as required by section
6672(b), (3) respondent’s determination to proceed with collection of the
underlying liability is an abuse of discretion.

       The issues for decision are whether (1) petitioner, as the sole
shareholder and an officer of Company at the relevant time, was a
person described in sections 6671 and 6672, (2) respondent properly
notified petitioner of the proposed TFRP assessment in accordance with
section 6672(b), and (3) respondent’s determination to proceed with
collection of the TFRP is an abuse of discretion.

                          FINDINGS OF FACT

       Petitioner, who has degrees in political science, speech, and
theater, is fluent in several foreign languages. He has an interest in
international affairs and also has a management degree in international
relations. Early in his professional career he worked for the Mississippi
Economic Development Authority at various locations in the United
States and abroad.         Later petitioner became associated with a
management consulting firm but eventually left that firm to work for
one of the firm’s clients. In 1984 petitioner formed and operated his first
consulting business. In 1993 he caused the incorporation of Company,
a management consulting and executive recruiting business.

       At all times relevant here, petitioner was Company’s chief
executive officer (CEO) and sole shareholder. He had the authority to
hire and fire employees of Company and exercise control over Company’s
bank accounts. In January 2014 petitioner transferred assets from
Company to a newly organized business entity.

       According to petitioner, his successes in management consulting
and other professional endeavors are attributable to his interpersonal
skills. He claims to suffer from a learning disability with respect to
mathematics, but he is otherwise competent to conduct his personal and
business affairs. Throughout his professional career he delegated many
business and sometimes personal financial responsibilities to employees
and accountants, including a certified public accountant named Robert
Gard.
                                    3

[*3] Before the period or periods in dispute, petitioner hired Mr. Gard
to manage Company’s bookkeeping and other accounting matters. Over
an unspecified period of years Mr. Gard embezzled between one and two
million dollars from Company.

       The embezzlement scheme was discovered in August 2013. Mr.
Gard suffered a heart attack during a meeting with petitioner and
petitioner’s financial planner while they were going over records that
Mr. Gard apparently had fabricated to cover up his embezzlement.
According to petitioner, he took actions that saved Mr. Gard’s life; and
while recovering at the hospital, Mr. Gard confessed to the
embezzlement.       Petitioner hired attorneys and accountants to
reconstruct the amount of the losses petitioner and Company sustained
because of Mr. Gard’s embezzlement. Later petitioner and/or Company
sued Mr. Gard and others to recover those losses.

       According to the complaint filed in one of those lawsuits, Mr. Gard
embezzled and spent funds allocated for the payment of some of
Company’s employment taxes, some of which are included in the TFRP
here in dispute. That lawsuit was settled in February 2014 upon a
$175,000 payment to Company from an insurance company. Also in
February 2014 Company and petitioner sued the bank that Mr. Gard
used to further his embezzlement scheme. The parties agreed to settle
that lawsuit by payment of $900,000 to petitioner in June 2015.
Petitioner used portions of the settlement proceeds from both lawsuits
to pay personal expenses. Apparently, none of the settlement proceeds
from either lawsuit were used to pay any of Company’s outstanding
employment tax liabilities.

      Petitioner continued to operate Company while the above-
referenced lawsuits were pending. In December 2013 petitioner paid
himself a bonus of over $77,000. In January 2014 funds held in
Company’s bank accounts were transferred to bank accounts
maintained by a new business entity that petitioner organized.

       Before assessing the TFRP here in dispute, respondent
determined that Company had failed to collect and/or remit certain
employment taxes owed for a certain period or periods. By letter dated
December 17, 2014, after appropriate supervisory approval for the
assessment of the TFRP, respondent attempted to notify petitioner of
the then-proposed TFRP assessment as required by section 6672(b). The
letter was sent by certified mail to petitioner at 99 Sandy Shores Court,
Panama City, Florida, 32413 (99 Sandy Shores), but the letter was
                                   4

[*4] returned to respondent. A sticker placed on the envelope by the
United States Postal Service reads: “Return to Sender Vacant Unable to
Forward.”

      In January 2014 petitioner lived at 113 Sandy Shores Court,
Panama City, Florida, 32413 (113 Sandy Shores). Petitioner shows this
address on his 2013 federal income tax return, which was processed by
respondent on October 6, 2014.

       On October 10, 2014, petitioner and his representatives met with
respondent’s revenue officer to discuss whether petitioner should be
held liable for the TFRP. At the meeting, petitioner signed a Form 4180,
Report of Interview with Individual Relative to Trust Fund Recovery
Penalty or Personal Liability for Excise Taxes. On this Form 4180,
petitioner’s typewritten address is shown as “112 Sandy Shores” but
corrected by hand to show 113 Sandy Shores. At this meeting petitioner
and/or his representatives also provided to respondent’s revenue officer
Form 433–A, Collection Information Statement for Wage Earners and
Self-Employed Individuals, and Form 433–B, Collection Information
Statement for Businesses, with respect to Company. On these
documents, petitioner’s address is also shown as 113 Sandy Shores.

      On October 27, 2014, petitioner exchanged 113 Sandy Shores for
99 Sandy Shores. Apparently soon thereafter, he moved to Atlanta,
Georgia; 99 Sandy Shores was held for rent.

       At some point before November 4, 2014, petitioner or one of his
representatives provided an updated version of Form 433–A to
respondent’s revenue officer. Handwritten notations on the updated
Form 433–A add information not provided on the earlier version, and
petitioner’s address is changed from 113 Sandy Shores to 99 Sandy
Shores by placing an “X” over “113” and adding “99” in front of the words
“Sandy Shores.” On the basis of this information shown on the updated
Form 433–A, on November 4, 2014, respondent’s revenue officer
prepared Form 2363, Master File Entity Change, to update petitioner’s
address from 113 Sandy Shores to 99 Sandy Shores.

       Respondent assessed the TFRP on or around April 6, 2015. By
letter dated February 23, 2016, respondent notified petitioner that a
Notice of Federal Tax Lien (NFTL) had been filed with respect to the
underlying liability. The letter also advised petitioner of his right to
request an administrative hearing to challenge that collection action,
which he did.
                                         5

[*5] On the form requesting a hearing, petitioner checked the box for
“Offer in Compromise” and took the position that there was doubt as to
the underlying liability. During the administrative hearing petitioner
did not request a collection alternative to the NFTL, and he does not do
so in this proceeding.         Petitioner was notified of respondent’s
determination to proceed with collection of the underlying liability by
letter dated January 18, 2017. Consistent with allegations made in the
Petition filed in response to that determination, we consider petitioner’s
challenge of respondent’s determination to be a challenge to the
existence or the amount of that liability. 3 A taxpayer who challenges an
underlying liability in cases such as this one bears the burden of proof
regarding the correct tax liability. See Rule 142(a); Thompson v.
Commissioner, 140 T.C. 173, 178 (2013). And we review, de novo, the
Commissioner’s determination with respect to the existence or the
amount of the taxpayer’s underlying liability. Sego v. Commissioner,
114 T.C. 604, 610 (2000).

                                    OPINION

       In general, and as relevant here, section 6672(a) provides that
“[a]ny person required to collect, truthfully account for, and pay over”
any federal tax “who willfully fails” to do so, shall “be liable to a penalty
equal to the total amount” of that tax. “Person” as used in section
6672(a) is defined in section 6671(b) to include an officer or employee of
a corporation who is under a duty to collect, account for, and pay over
the tax. Section 6672(a) penalties are assessed and collected in the same
manner as taxes against a person who is described in section 6671(b).
Such persons are referred to as “responsible” persons, a term which is
broadly applied. Mason v. Commissioner, 132 T.C. 301, 321 (2009).

       A responsible person is any person required to collect, account for,
and pay over withheld taxes. See § 6672(a). Whether someone is a
responsible person is “a matter of status, duty and authority, not
knowledge.” Mazo v. United States, 591 F.2d 1151, 1156 (5th Cir. 1979).
The essential question is whether the person had sufficient control over
a taxpayer’s affairs to ensure the payment of the taxpayer’s employment
taxes. Scott v. United States, 825 F.3d 1275, 1279 (11th Cir. 2016) (citing
George v. United States, 819 F.2d 1008, 1011 (11th Cir. 1987)). The
indicia of that control held by a responsible person include “the holding

        3 Respondent now concedes that the underlying liability is overstated because

some of Company’s employment tax liabilities that prompted the TFRP assessment
against petitioner have been paid.
                                    6

[*6] of corporate office, control over financial affairs, the authority to
disburse corporate funds, stock ownership, and the ability to hire and
fire employees.” Thibodeau v. United States, 828 F.2d 1499, 1503 (11th
Cir. 1987). In considering an individual’s status, duty, and authority,
the test is one of substance, and the focus of the inquiry does not involve
a mechanical application of any particular list of factors. See In re
DeMarco, 258 B.R. 480, 485 (Bankr. M.D. Fla. 1999) (citing Heimark v.
United States, 18 Cl. Ct. 15, 23 (1989)), aff’d sub nom. United States v.
DeMarco, 256 B.R. 320 (M.D. Fla. 2000). The inquiry must focus on
actual authority to control, not on trivial duties. Id.

       According to petitioner, because of his limited ability to
comprehend mathematical concepts, he is not a person described in
section 6671 or 6672(a). According to respondent, because of his
position, authority, and control over Company’s affairs, he is. For the
following reasons, we agree with respondent.

       During the relevant period or periods, petitioner was Company’s
CEO and sole shareholder. He controlled the financial affairs of
Company, disbursing corporate funds both to himself and to a newly
formed business entity. He also exercised authority to hire and fire
employees and delegated various tasks involved in operating Company
to those employees. He apparently made the decision to sue Mr. Gard
on Company’s behalf. Petitioner clearly had and exercised control over
Company’s corporate affairs.

       Petitioner points to his difficulties comprehending mathematical
concepts and notes that he hired others, including Mr. Gard, to take
responsibility for Company’s bookkeeping and tax matters.           As
petitioner views the matter, the failure to pay Company’s employment
taxes results from Mr. Gard’s embezzlement, not from anything
petitioner did or failed to do. Relying heavily on these reasons, he
argues that he should not be held liable as a “responsible person” for
Company’s employment taxes. The focus, however, is on his authority
to control Company’s obligations to pay its employment taxes, not on
whether he personally took responsibility for that duty. See In re
DeMarco, 258 B.R. at 485. Considering his position with Company and
taking into account his decisions to disburse Company funds to pay for
items other than Company’s employment tax liabilities, we find that
petitioner was a person described in section 6672(a) for purposes of
Company’s outstanding employment tax liabilities.
                                     7

[*7] Petitioner also challenges the assessment of the TFRP because he
did not “willfully” fail to pay Company’s employment taxes for the period
or periods here in dispute. Once a person is demonstrated to be a
“responsible person,” the burden is on that person to establish that the
failure to pay a tax was not willful. Malloy v. United States, 17 F.3d
329, 331 (11th Cir. 1994).

       For purposes of section 6672, willfulness is indicated if a
responsible person, rather than paying a taxpayer’s outstanding
employment taxes, uses the taxpayer’s funds for other purposes instead.
Mason, 132 T.C. at 325 (citing Gustin v. United States, 876 F.2d 485,
492 (5th Cir. 1989)). Petitioner became aware of Mr. Gard’s failure to
pay Company’s employment taxes no later than September 5, 2013,
when he filed a lawsuit alleging that Mr. Gard had “confessed to
spending the funds allocated for payment of employment taxes.” After
learning of the failure to pay Company’s employment taxes, petitioner
nonetheless disbursed Company’s funds to pay obligations other than
those owed to respondent. Petitioner transferred more than $55,000
from Company to a newly formed business entity that he organized after
Company’s employment taxes were assessed. In December 2013
petitioner paid himself a bonus of over $77,000. Petitioner used the
substantial proceeds he and/or Company received from the settlements
of the above-mentioned lawsuits for various purposes, but none of the
settlement proceeds were used to satisfy any of Company’s outstanding
employment tax liabilities.

      Petitioner blames the failure to pay Company’s employment taxes
for a certain period or periods on Mr. Gard, but delegation of the
responsibility to collect and pay over Company’s employment taxes
cannot support a finding that petitioner did not willfully fail to pay those
employment taxes. See Hornsby v. IRS, 588 F.2d 952, 953 (5th Cir.
1979). Petitioner was obligated to ensure that Company’s employment
taxes were collected and paid over to respondent even though he
delegated responsibility for discharging that duty to Mr. Gard. See id.
We find that petitioner failed to demonstrate that his failure to satisfy
Company’s employment tax liabilities was not willful within the
meaning of section 6672.

       A section 6672(a) penalty may be assessed against a taxpayer
only after the Commissioner provides written notice sent to the taxpayer
at the taxpayer’s “last known address” that the Commissioner intends
to assess that penalty (written notice). See §§ 6212(b), 6672(b)(1). Here
the written notice was sent to petitioner at 99 Sandy Shores. According
                                   8

[*8] to petitioner, Sandy Shores was not his last known address at the
time the written notice was mailed. As noted, the written notice was
returned to respondent and not received by petitioner.

       As a general rule, a taxpayer’s last known address is the address
shown on his or her most recently filed tax return, unless the
Commissioner is given clear and concise notification of a different
address. Treas. Reg. § 301.6212-2(a). The relevant inquiry is what
information the Commissioner had at the time the written notice was
mailed and whether, in the light of all the surrounding facts and
circumstances, the address used was one the Commissioner reasonably
believed the taxpayer wanted the written notice to be sent to. See Abeles
v. Commissioner, 91 T.C. 1019, 1035 (1988); Pyo v. Commissioner, 83
T.C. 626, 633 (1984).

      At the time of the written notice, that is, December 17, 2014, the
most recent communication respondent had received from petitioner
was the updated Form 433–A that was submitted on or before November
4, 2014. On this Form 433–A petitioner or his representatives struck a
prior address and made a handwritten notation showing 99 Sandy
Shores as petitioner’s current address. We find this to be a clear and
concise indication that petitioner wanted to receive mail at 99 Sandy
Shores at the time the written notice was mailed. See Chase v.
Commissioner, T.C. Memo. 1990-139.

       Petitioner contends that respondent, upon the return of the
written notice, should have further investigated whether he was, in fact,
living at 99 Sandy Shores, and that this failure to investigate rendered
the written notice invalid as it was not sent to his last known address.
The Commissioner, however, is under no obligation to take further
action to investigate a taxpayer’s address if a document properly mailed
to the taxpayer’s last known address is returned as undeliverable. See
Armstrong v. Commissioner, 15 F.3d 970, 975–76 (10th Cir. 1994) (citing
King v. Commissioner, 857 F.2d 676, 681 (9th Cir. 1988), aff’g 88 T.C.
1042 (1987)), aff’g T.C. Memo. 1992-328; see also Mason, 132 T.C. at 323;
Frieling v. Commissioner, 81 T.C. 42, 52 (1983); Davis v. Commissioner,
T.C. Memo. 2018-197, at *10–11 (citing Gille v. United States, 33 F.3d
46, 48 (10th Cir. 1994)), aff’d, 788 F. App’x 618 (10th Cir. 2019).

      Respondent’s mailing of the written notice required by the statute
on December 17, 2014, by certified mail to petitioner at the 99 Sandy
Shores address satisfied the requirements of section 6672(b); respondent
had no further obligation to investigate petitioner’s address or provide
                                    9

[*9] further notice after the written notice was returned. See Mason,
132 T.C. at 322; Davis, T.C. Memo. 2018-197, at *9–11.

       Petitioner’s suggestion that he had reasonable cause for the
failure to satisfy Company’s employment tax liabilities must also be
rejected. After becoming aware of Company’s outstanding employment
taxes, petitioner used Company funds for other purposes. “No such
defense may be asserted by a responsible person who knew that the
withholding taxes were due, but who made a conscious decision to use
corporate funds to pay creditors other than the government.” Thosteson
v. United States, 331 F.3d 1294, 1301 (11th Cir. 2003) (quoting Logal v.
United States, 195 F.3d 229, 233 (5th Cir. 1999)).

       In cases such as this one, the Court reviews issues other than the
existence or the amount of a taxpayer’s underlying liability for abuse of
discretion. Sego, 114 T.C. at 610. The parties stipulated that
respondent’s settlement officer verified that the written approval
requirement under section 6751(b) was met.             See Chadwick v.
Commissioner, 154 T.C. 84 (2020) (holding that TFRPs are penalties
subject to the written supervisory approval requirement for
assessment). With the exception of issues relating to the existence or
the amount of the underlying liability, the parties also stipulated that
the determination to proceed with collection of the underlying liability
by the filing of an NFTL was not an abuse of discretion. Otherwise, our
review of the record confirms that respondent’s settlement officer
proceeded as required by sections 6320 and 6330. See § 6330(c)(1); Hoyle
v. Commissioner, 131 T.C. 197, 202–03 (2008), supplemented by 136 T.C.
463 (2011). That being so, we reject petitioner’s claim that the
determination to proceed with collection of the underlying liability is an
abuse of discretion.

       Petitioner claims that the underlying liability is overstated
because it fails to take into account that some of Company’s employment
tax liabilities for the periods in question have been paid; respondent
apparently agrees. Other than generalized information with respect to
the correct amount of Company’s unpaid employment taxes as they
relate to the underlying liability here in dispute, there is insufficient
evidence in the record to allow the Court to make specific findings on
the point. We expect the parties can resolve any issues with respect to
the amount of the underlying liability in an agreed Rule 155
computation. If they are unable to do so, further trial will be held to
allow for specific evidence on the proper period or periods and amounts
of employment taxes that should be included in petitioner’s TFRP.
                                  10

[*10] To reflect the foregoing,

      Decision will be entered under Rule 155.