Court Opinion

ID: 9461108
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:05:56.136811+00
Date Added: 2024-06-11T17:36:53.604705
License: Public Domain

WILLIAM, J., CAMPBELL, Senior District Judge
(dissenting).
I do not disagree with the proposition that a creditor, under appropriate circumstances, may properly be considered a “person required to collect, truthfully account for and pay over” taxes for which its debtor is liable, and that where such circumstances exist, the appropriate penalty may be assessed against such a “person” pursuant to § 6672 of the Internal Revenue Code (26 U.S.C.). Nor do I disagree with the well established rule that summary judgment may not be entered where an affidavit submitted in opposition to a motion for summary judgment raises a genuine issue as to any material fact. The majority and I part company, however, in our respective views regarding the circumstances under which a lender may be considered a “person” for the purposes of § 6672, and a fortiori with regard to the question of whether the affidavits in the instant case raise a genuine issue as to a material fact. Accordingly, I respectfully dissent.
The Internal Revenue Code of 1954 imposes upon employers the duty to collect withholding taxes by deducting the amount of the tax from the wages paid to employees [§§ 3102(a) and 3402(a)]. *78It also provides that any employer required to collect these taxes shall be .liable for the payment thereof [§§ 3102(b) and 3403]. But with respect to the imposition of penalties for failure to collect and pay withholding taxes, the Code does not limit potential liability to “employers”. Rather, § 6672 provides that:
“[a]ny person required to collect, truthfully account for, and pay over any tax . . . who willfully fails to collect such tax, ... or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, ... be liable to a penalty equal to the total amount of the tax evaded . . .”.
With respect to the collection of withholding taxes, § 6672 has been construed to apply to “persons” other than employers, and more specifically, to “impose liability upon those actually responsible for an employer’s failure to withhold and pay over the tax”. Pacific National Insurance Company v. United States, 422 F.2d 26, 31 (9th Cir. 1970). Whether a person other than the employer has assumed “the function of determining whether or not an employer will pay over taxes withheld from its employees” depends upon whether that person has the final word or at least significant control “as to what bills should or should not be paid, and when”. Pacific National Insurance Company v. United States, 422 F.2d 26, 30-31 (9th Cir. 1970); Wilson v. United States, 250 F.2d 312, 316 (9th Cir. 1958); Turner v. United States, 423 F.2d 448, 449 (9th Cir. 1970).
Thus, the basic issue in the instant ease is whether the affidavit in opposition to the motion for summary judgment raised a genuine issue as to whether Lakeshore maintained such control over the payment of Scobis Company’s bills and obligations as to qualify this creditor as a “person” within the meaning of § 6672.
According to the affidavit of Lawrence R. Appel, President of Lakeshore, at no time was Lakeshore or any of its officers, directors or employees, an officer, director or employee of Scobis or a signatory to any checking account maintained by Scobis. The Appel affidavit describes a creditor-debtor relationship between Lakeshore and Scobis which roughly approximates a revolving loan arrangement, under which Lakeshore agreed to advance various loans to Sco-bis “secured by a security interest under the Uniform Commercial Code in property of Scobis including accounts receivable and inventory (hereafter ‘collateral’). Said security agreements were perfected by filing financing statements.” (Appel affidavit, paragraph 4).
The Appel affidavit further avers that each of the continuous advances of funds by Lakeshore to Scobis was dependent upon the amount of collateral available. As collateral became liquidated through the collection of accounts receivable or the sale of inventory, the proceeds were applied against the balance due on previous advances. Except for a check in the amount of $629.63 made payable to one of Scobis’ creditors, and with the further exception of certain other checks issued prior to June 22, 1970 payable jointly to Scobis and various taxing authorities, each of the sixty-one advances made by Lakeshore to Scobis between April 1, 1970 and September 30, 1970 was made either by a cheek payable to Scobis or by the transfer of funds to Scobis’ checking account maintained at a local bank. These sixty-one advances totalled $377,792.46.
Most significantly, the Appel affidavit avers that once Lakeshore had issued its check or transferred funds to the checking account of Scobis, “neither Lake-shore nor any of its officers nor employees had any further control of the funds advanced to Scobis.” (Appel affidavit, paragraph 9).
The affidavit of William W. Adams, filed in opposition to the motion for summary judgment, states that the loan *79agreement between Lakeshore and Sco-bis contained provisions whereby:
“Lakeshore would receive all of the earnings and income taken in by The Scobis Company, which earnings and income would be in part applied by Lakeshore against the indebtedness owed it by The Scobis Company, and would in part be reimbursed to The Scobis Company for the payment of The Scobis Company operating expenses”.
This allegation is wholly consistent with the revolving loan arrangement described in the Appel affidavit. The “earnings and income” received by Lake-shore constitute the accounts receivable paid to Scobis and the proceeds from the sale of inventory, or in other words, the liquidated collateral which had secured previous advances. The partial reimbursement of earnings and income by Lakeshore to Scobis was the advancement of further funds secured by inventory and uncollected accounts receivable. Consistent with Appel’s statement that Lakeshore had no further control over funds advanced to Scobis, the Adams affidavit does not allege that these funds were earmarked for the payment of any particular operating expenses in preference to others.
Similarly, the Adams affidavit states that:
“final authority concerning the application of the earnings and income of The Scobis Company . . . was vested in Lakeshore . . . and . such authority was exercised on a day-to-day basis in conjunction with the advice, recommendations, requests and conferences with one Earl R. Lenger [chief operating officer of Scobis]”.
Again, since “earnings and income” represent liquidated collateral which had been used to secure previous advances, the “final authority” exercised by Lake-shore over the application thereof is consistent with the revolving loan arrangement which generated further funds for the payment of Scobis expenses. The fact that sixty-one such advances were made over a six month period explains the almost daily contact between Scobis’ chief operating officer and Lakeshore.
The only allegation made by Adams on the basis of personal knowledge pertaining to control by Lakeshore over funds lent to Scobis is the statement that sometime during 1970, “certain funds [were] restricted by Lakeshore for the payment to the Internal Revenue Service in satisfaction of various amounts owed for employee withholding taxes”, and that during the quarters ending June 30, 1970 and September 30, 1970, Lakeshore “determined to discontinue such payments from the assets that it held, such assets constituting the income and earnings of The Scobis Company . . . ”.
In my view, this allegation falls far short of raising a genuine issue as to whether Lakeshore exercised significant control over “what bills should or should not be paid, and when”. Turner v. United States, supra. While Lakeshore may have advanced some funds to Scobis for the payment of withholding taxes, Adams does not allege that Lakeshore, at any time, refused to issue funds for this purpose. The fact that earnings and income (liquidated collateral) was not used to pay taxes is quite beside the point. Operating expenses, including the payment of employees’ salaries and wages, were to be paid out of the funds advanced by Lakeshore to Scobis. The employer was obligated to withhold a portion of these wages and to pay said amount to the Internal Revenue Service. It is therefore the exercise of control over the funds advanced by Lakeshore to Scobis which determined liability for the purposes of § 6672.
The Appel affidavit alleged that Lake-shore exercised no control over funds lent, once they were advanced to Scobis. It was the respondent’s burden to establish a genuine issue as to whether Lake-shore exercised “significant control” over the use of these funds. The Adams affidavit establishes only that Lakeshore controlled the liquidated collateral, described by Adams as earnings and in*80come. Under the revolving credit arrangement between Lakeshore and Sco-bis, control over the liquidated collateral is irrelevant to the issue of whether Lakeshore may be considered a “person” for the purposes of § 6672. Significant control over the funds used to pay the bills — i. e. the funds advanced by Lake-shore to Scobis — is the critical determinant under these circumstances. Since the respondent failed to raise a genuine issue as to whether Lakeshore exercised such control over these funds, I believe summary judgment was properly entered.