Court Opinion

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Opinions of the United
2003 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

12-22-2003

USA v. Mitchell
Precedential or Non-Precedential: Non-Precedential

Docket No. 02-3386

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                                                                 NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT

                                      No. 02-3386

                           UNITED STATES OF AMERICA

                                           v.

                             LAWRENCE A. MITCHELL,
                                           Appellant

                      Appeal from the United States District Court
                             for the District of New Jersey
                             (D.C. Civil No. 00-cv-00045)
                         District Judge: Jerome B. Simandle

                      Submitted Under Third Circuit LAR 34.1(a)
                                 November 18, 2003

             Before: RENDELL, BARRY and CHERTOFF, Circuit Judges.

                               (Filed December 22, 2003)

                              OPINION OF THE COURT

RENDELL, Circuit Judge.

      Section 6672 of the Internal Revenue Code (“the Code”) permits the government

to collect from a “responsible” person who willfully fails to pay employment taxes an

amount equal to the unpaid taxes. 26 U.S.C. § 6672. The United States assessed
Lawrence A. Mitchell under this provision for the unpaid employment taxes of Mitchell

Construction, Inc. (“Mitchell Construction” or “the corporation”) for the fourth quarter of

1986 and the first, second and third quarters of 1987. It filed this action under 26 U.S.C.

§ 7401 to reduce that assessment to judgment. The District Court entered judgment for

the United States after a bench trial, finding Mitchell liable for the assessment of unpaid

taxes in the amount of $463,168.83, plus applicable interest and penalties since December

13, 1999. Mitchell now appeals. For the reasons which follow, we will affirm.

                                             I.

       From 1972 to 1998, Mitchell was employed in electrical and mechanical

contracting, doing business under the name of Mitchell Mechanical/Electrical

Contractors, Inc. In 1986, Mitchell agreed to “lend” his name and his licenses to a new

corporation, Mitchell Construction, that was to be an electrical contractor on a

condominium project in Brigantine, New Jersey. Mitchell was president of the

corporation, its highest ranking officer, and a member of the Board of Directors. He also

had substantial authority directing the construction work at the project.

       Mitchell had signature authority on the corporate accounts at First Jersey National

Bank, including the general operating account, the petty cash account and the payroll

account. He signed payroll checks from the payroll from the fourth quarter of 1986

through the fourth quarter of 1987. Mitchell Construction filed Form 941, Employer’s

Quarterly Federal Tax Return, for the fourth quarter of 1986 and the first three quarters of

                                              2
1987, but failed to pay over the income and social security taxes it withheld from

employees’ wages for those quarters.

       In January 1990, pursuant to § 6672, the IRS assessed Mitchell for $196,428 as a

responsible person of Mitchell Construction who willfully failed to pay over trust fund

taxes for the fourth quarter of 1986 and the first three quarters of 1987. On January 5,

2000, the United States filed its complaint in this case, seeking to reduce the assessment,

plus interest and statutory additions, to judgment.

       On the day of trial, Mitchell’s attorney, Gary Levin, orally amended M itchell’s

pending motion to dismiss, contending for the first time that the handwritten date in the

“Assessment Date” box of Mitchell’s copy of IRS Form 2749, Request for 100-Percent

Penalty Assessment, indicated that Mitchell’s assessment date was January 4, 1990, rather

than January 9, 1990, as the government’s copy of Form 2749 indicated. He further

argued that the appearance of “January 9, 1990” on all subsequent IRS documents,

including the official Form 4340, Certificate of Assessments and Payments, was the result

of a typographical error when the information from Form 2749 had been transcribed. As

a result, Levin argued that the complaint was time-barred, because it had been filed on

January 5, 2000, more than ten years after the assessment date. 26 U.S.C. § 6502(a).

       Levin asked that the government be required to produce the original Form 2749.

Given that it had not been listed as an exhibit in the joint final pre-trial order and that it

might take more than two weeks to obtain the original document from the IRS, the

                                                3
District Court allowed the government to submit a copy from its file. After examining

Mitchell’s copy of Form 2749, the government’s copy of Form 2749 and enlargements of

both copies, and hearing testimony from an IRS employee about IRS procedures, the

District Court concluded that Mitchell’s copy had been altered to turn “January 9, 1990”

into “January 4, 1990.” In its view, the preponderance of the evidence, including Form

4340 and the Individual Master File Account Transcript, indicated that the penalty had

been assessed on January 9, 1990. The District Court concluded that the government’s

claim was not time-barred and denied Mitchell’s motion to dismiss.

       The case proceeded to trial. After the government had presented its case, M itchell

moved for summary judgment, arguing that the government had not proven a “nexus”

between the corporation’s earnings and a trust fund for withheld taxes, nor had it

presented sufficient evidence to find Mitchell a “responsible” person under § 6672. The

District Court denied the motion, finding that Mitchell’s “nexus” argument was incorrect

as a matter of law and that, based on tax returns and corporate checks signed by Mitchell

during the relevant time period, there was sufficient evidence for the case to go forward.

       In his defense, Mitchell testified that he had resigned as president on December 16,

1986, and had no knowledge of the corporation’s activities after that date. He further

testified that his name had been forged on corporate checks. However, based on the

testimony of other corporate officers and an examination of the many documents

involved, the District Court concluded that these assertions “were untrue.” It found that

                                             4
Mitchell was “responsible” and “willful” within the meaning of § 6672 and entered

judgment against him.

         Mitchell challenges the District Court’s decision not to require the government to

produce the original Form 2749. He also asserts that the District Court erred in finding

that § 6672 does not require a nexus between corporate receipts and taxes held in trust

and in finding him a responsible person under § 6672. We have jurisdiction under 28 §

U.S.C. 1291.

                                               II.

         First, Mitchell contends that the District Court erred in not requiring the

government to produce the original Form 2749, despite the fact that it had not been listed

on the final pretrial order. We review a district court’s ruling as to the admissibility of

evidence for an abuse of discretion. SEC v. Infinity Group Co., 212 F.3d 180, 198 (3d

Cir. 2000). Likewise, “departure from or adherence to the final pretrial order is a matter

peculiarly within the province of the trial judge, whose decision will not be disturbed on

appeal absent a clear abuse of discretion.” Berroyer v. Hertz, 672 F.2d 334 (3d. Cir.

1982).

         Fed. R. Evid. 1002 provides that, to prove the contents of a writing, the original

writing is required, except as otherwise provided by the Rules. One such exception, Fed.

R. Evid. 1003, provides that a duplicate is admissible unless (1) a genuine question is

raised as to the authenticity of the original, or (2) in the circumstances, it would be unfair

                                                5
to admit the duplicate in lieu of the original. In light of the copy of Form 2749 that

Mitchell proffered on the morning of the trial, he argues that there is a genuine question

as to the authenticity of the original Form 2749, and that the government should have

been required to produce it.

       The District Court ultimately concluded that Mitchell’s copy had been altered in

some fashion. Considering the questionable nature of the evidence offered by Mitchell,

we cannot say that he has raised a “genuine” question as to the authenticity of the original

Form 2749. As a result, the District Court did not abuse its discretion in admitting the

government’s copy. 1 Furthermore, the District Court’s decision was even more

appropriate in light of the fact that Form 2749 was not listed in the final pretrial order.

Thus, we are convinced that the District Court did not abuse its discretion.

                                              III.

       Second, Mitchell argues that the District Court erred in concluding that the

government was not required to prove a nexus between corporate earnings and taxes held

in trust before liability could be imposed upon him under § 6672. Our review of

questions of law is plenary. Edwards v. Wyatt, 335 F.3d 261, 271 (3d Cir. 2003).

       Mitchell claims that Mitchell Construction received no payments from its

       1
        We note that the District Court also admitted into evidence the copy of Form 2749
offered by Mitchell, and weighed the significance of both copies, as well as other
documentary evidence, including the official Certificate of Assessments and Payments,
before concluding that Mitchell’s assessment date was January 9, 1990.

                                               6
employer during the relevant time period, and therefore, that Mitchell Construction had

no money with which to pay employment taxes and could not place funds in trust for the

payment of these taxes.2 As a result, he argues that the corporation had no obligation to

pay taxes and that he cannot be held personally liable for its failure to do so.

       However, Sections 3102(a) and 3402(a) of the Internal Revenue Code require

employers to deduct and withhold payroll taxes as wages are paid. Slodov v. United

States, 436 U.S. 238, 243 (1978). Under § 7501(a), the withheld taxes are “held to be a

special fund in trust for the United States.” Slodov, 436 U.S. at 244. See also United

States v. Bisbee, 245 F.3d 1001, 1005 (8th Cir. 2001) (“Every employer is required to

deduct and withhold federal income tax and Federal Insurance Contribution Act (FICA)

tax from employees’ wages as and when they are paid, ... and to hold the amounts

withheld in trust for the United States”). Thus, Mitchell Construction became liable for

payroll taxes the moment that it paid wages to its employees, regardless of whether or not

it received payment from its employer and regardless of whether or not it placed the

withheld funds in a segregated account. Accordingly, we reject Mitchell’s argument.

                                             IV.

       Third, Mitchell argues that the District Court erred in concluding that Mitchell was

a responsible person within the ambit of § 6672. We review the District Court’s findings

       2
       We note that contrary to this claim the District Court concluded that Mitchell
Construction did have sufficient deposits in its bank accounts to cover its tax obligation.

                                              7
of fact for clear error. Edwards, 335 F.3d at 271.

       Section 6672(a) of the Code provides that “any person required to collect,

truthfully account for, and pay over any tax .... who willfully fails to collect such tax, or

truthfully account for and pay over such tax .... shall .... be liable to a penalty equal to the

total amount of the tax.” Section 6671(b) defines “person,” for purposes of § 6672, as

including “an officer or an employee of a corporation, or a member or employee of a

partnership, who as such officer, employee, or member is under a duty to perform the act

in respect of which the violation occurs.” As a result, an individual responsible for the

collection and payment of a corporation’s trust fund taxes who willfully fails to do so is

personally liable for the amount of the unpaid taxes. Slodov, 436 U.S. at 245.

       Two conditions must be satisfied before liability can attach under § 6672: (1) the

individual must be a “responsible person,” and (2) his or her failure to pay the tax must be

“willful.” Greenberg v. United States, 46 F.3d 239, 242 (3d Cir. 1994). “Responsibility

is a matter of status, duty or authority, not knowledge.” Quattrone Accountants, Inc. v.

IRS, 895 F.2d 921, 927 (3d Cir. 1990). Courts consider several factors in determining

whether an individual is “responsible” for collecting and paying a corporation’s taxes,

including: (1) the contents of the corporate bylaws; (2) the ability to sign checks on the

company’s bank account; (3) the signature on the corporation’s tax returns; (4) the

payment of other creditors; (5) the identity of officers, directors and principal

stockholders in the corporation; (6) the identity of individuals in charge of hiring and

                                                8
discharging employees; and (7) the identity of individuals in charge of the firm’s financial

affairs. Brounstein v. United States, 979 F.2d 952, 954-55 (3d Cir. 1992).

       Mitchell was president of Mitchell Construction, served on its Board of Directors,

and had signature authority over its various bank accounts, all of which would indicate

that he was a “responsible person” under § 6672. Nevertheless, he argues that he

resigned from the corporation on December 16, 1986, and that, while he remained with

company after that date, no longer had the type of authority over corporate affairs to be

deemed “responsible” during the relevant time period. However, this claim is

contradicted by the testimony of Thomas Pauley, chairman of the corporation’s Board of

Directors, that he had no recollection of a letter of resignation and that Mitchell remained

involved in the management of the corporation after that date. Mitchell’s own testimony

indicated a level of familiarity with the corporation’s financial affairs after his

“resignation” that could have only come from his continued involvement in the

corporation’s most important decisions. In addition, despite M itchell’s contention that his

name was forged on corporate documents after his “resignation,” the District Court

determined that his signature appeared on corporate checks totaling hundreds of

thousands of dollars and corporate tax returns, both before and after December 16, 1986.

Looking at the facts and the aforementioned factors, Mitchell’s position within the

corporation, the presence of his signature on corporate checks and tax returns, and his

authority over the firm’s financial affairs clearly indicate that he was a “responsible

                                               9
person” within the meaning of the statute.

       Turning to the second condition, “in order for the failure to turn over withholding

taxes to be willful, a responsible person need only know that the taxes are due or act in

reckless disregard of this fact when he fails to remit to the IRS.” Greenberg, 46 F.3d at

244. Mitchell’s testimony indicated that he was well aware of the tax obligation of the

corporation, and yet he took no steps to pay it. As a result, his failure to turn over the

corporation’s withholding taxes could be considered willful within the meaning of the

statute.

       Thus, based upon our review of the record, we conclude that the District Court did

not err in finding that Mitchell (1) was a responsible person, and (2) willfully failed to pay

over federal employment taxes.

                                              V.

       For the reasons set forth above, we will affirm.

                                              10
TO THE CLERK OF COURT:

      Please file the foregoing opinion.

                                                /s/ Marjorie O. Rendell
                                                Circuit Judge

Dated: December 22, 2003

                                           11