Court Opinion

ID: 9487133
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:09:00.575111+00
Date Added: 2024-06-11T17:52:06.737964
License: Public Domain

TROTT, Circuit Judge,
dissenting:
The majority concludes Alsheskie is not a responsible party under § 6672 of the Internal Revenue Code. I disagree. I believe the case law in this and other circuits, when applied to the facts as the district court found them, clearly indicates Alsheskie is a responsible party who willfully failed to pay the taxes owed. He should be subject to the § 6672 penalty.
I
Courts generally look at a wide range of factors to determine responsible person status. An individual is more likely to be considered responsible if he or she (1) holds an office or owns stock in the corporation, (2) manages the day-to-day operations of the business, (3) makes decisions as to disbursement of funds and payment of creditors, (4) has cheek-signing authority, (5) has authority to sign corporate tax returns, and (6) can hire and fire employees. See Denbo v. United States, 988 F.2d 1029, 1032 (10th Cir.1993); Brounstein v. United States, 979 F.2d 952, 954-55 (3rd Cir.1992); Raba v. United States, 977 F.2d 941, 943 (5th Cir.1992). The district court found Alsheskie possessed all of the indicia of responsibility: “Mr. Alsheskie was the titular head of the Corporation, had sole signature authority over its only checking account and signed numerous cheeks, signed contracts, hired and fired employees and managed the day-to-day operations of the Corporation.”
Like the district court, however, the majority disregards all of these indicia of responsibility and instead relies on Alsheskie’s claim that he did not have the “authority and control” to pay the company’s taxes. The facts, however, do not support this claim. The district court essentially admitted this when it stated, “[TJhere is no specific evidence before the Court that Mr. Sopwith [President of Commercial Financing] would review individual bills and direct Mr. Alshe-skie to pay certain bills and not others.” The district court cast further doubt on Alsheskie’s claims, stating that the government “correctly observed that some of the statements in the declaration were concluso-ry in nature and appeared to be at odds with the stipulated facts (i.e., that the plaintiff had authority to sign payroll cheeks and checks to other creditors ...).”
Alsheskie chose to use the funds Commercial Financing provided to pay employees, suppliers and other creditors rather than to pay the company’s tax obligations. But in doing so, he acted illegally. “Employees to whom wages are owed are but a particular type of creditor. There is no basis in law for preferring the wage obligation to them over the withholding obligation to the Government.” Sorenson v. United States, 521 F.2d 325, 328 (9th Cir.1975). “It 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).
Alsheskie had all of the indicia of responsibility, and he had the authority and the check-signing power to pay Lion Manufacturing’s tax obligations. That he was under pressure to use the funds Commercial Financing provided to keep Lion Manufacturing functioning does not make him any less responsible for his failure to pay the taxes. I believe the district court’s conclusion that Alsheskie was not a responsible person for the purposes of § 6672 is clearly erroneous.
*841II
Because the majority determined Alshe-skie was not a responsible party, it did not discuss whether his failure to pay the taxes was willful. I believe, however, the district court clearly erred in concluding Alsheskie did not willfully fail to pay Lion Manufacturing’s 1986 taxes because he relied on Lynn Sopwith’s assurances that Commercial Financing would pay the taxes at a later date. Reliance on another’s assurances that the taxes will be paid should not excuse an otherwise willful failure to pay.
“[A] long line of decisions in this circuit has defined willfulness ‘as a voluntary, conscious and intentional act to prefer other creditors over the United States.’ ” Purcell v. United States, 1 F.3d 932, 938 (9th Cir.1993) (quoting Davis v. United States, 961 F.2d 867, 871 (9th Cir.1992), cert. denied, — U.S. -, 113 S.Ct. 969, 122 L.Ed.2d 124 (1993)). The government need not prove intent to defraud or other bad motive. Davis, 961 F.2d at 871. “In fact, conduct motivated by a reasonable cause may nonetheless be willful.” Id. We have held that “the payment of net wages in circumstances where there are no available funds in excess of net wages from which to make withholding is a willful failure to collect and pay over under § 6672.” Sorenson, 621 F.2d at 328; see Purcell, 1 F.3d at 938 (same).
We have not previously addressed the question of whether reliance on the assurances of others will exempt an otherwise willful violation from the § 6672 penalty. However, the circuits that have considered this question have concluded a responsible person cannot rely on assurances that the taxes will eventually be paid. The taxpayer in Denbo v. United States, 988 F.2d 1029 (10th Cir.1993), relied on the corporation president’s statement that he “had everything worked out.” The Tenth Circuit held, “Denbo cannot escape liability by claiming that he relied on the assurances of others.” Id. at 1033-34. Similarly, the Sixth Circuit held, in Collins v. United States, 848 F.2d 740, 742 (6th Cir.1988), that the corporation president’s reliance on the majority shareholder’s promise to cover the taxes “makes his conduct no less willful within the contemplation of the statute.” See also Roth v. United States, 779 F.2d 1567, 1572 (11th Cir.1986) (vice president’s reliance on president’s statement that he would pay the taxes as soon as a real estate deal closed does not exempt him from § 6672 liability).
These decisions are consistent with both the language of the statute and the bulk of § 6672 case law, which is generally unsympathetic to responsible parties attempting to excuse their failure to turn over withheld tax funds to the government. It is no excuse for a responsible person to claim he or she could not pay the taxes because the money went towards employee salaries. Nor is it an excuse that the responsibility for paying the taxes had been delegated to another person. Purcell, 1 F.3d at 937. It should also be no excuse that a responsible party relied on the assurances of others that the taxes would be paid at some later date.
Ill
Not only does the majority’s holding run counter to the facts in this case and the law of this and other circuits, it compromises the government’s efforts to ensure that taxes are withheld and paid over. Otherwise responsible officers of subsidiary companies can now excuse their failure to pay corporate taxes by claiming the parent company controlled the corporate finances. And responsible parties will continue to argue that their failure to pay over the taxes was not willful because they relied on the assurances of others that the taxes would eventually be paid. The majority has created an unfortunate loophole in what had been a potent weapon against tax fraud.