Teel v. U.S.
| Decision Date | 15 January 1976 |
| Docket Number | No. 73--2360,73--2360 |
| Citation | 529 F.2d 903 |
| Parties | 76-1 USTC P 9190 Edwin A. and Pauline TEEL et al., Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Before CHAMBERS and CARTER, Circuit Judges, and THOMPSON, 1 District Judge.
CHAMBERS Circuit Judge:
Teel, Granberg and Blakesley were the sole shareholders and officers of Food Giant Management Corporation, Inc. which managed Food Giant No. 1, Inc., Food Giant No. 3, Inc., and Food Giant-Riverton, Inc., which were retail grocery stores located in the state of Washington. The stores encountered financial difficulties and in October, 1966, the state of Washington distrained the inventories to recover unpaid state taxes. On October 17, 1966, Granberg entered into 'keeper power' agreements with the state whereby he regained control of the store inventories while assuming personal liability for the state taxes. The agreements apparently limited the right of the company to make expenditures with regard to the three stores. The continued operation of the stores proved unsuccessful, and on November 23, 1966, a receiver was appointed pursuant to a petition in a state suit pending against the stores.
This suit arises over the income and social security taxes withheld from the stores' employees for the quarter ending September 30, 1966, and for the portion of the following quarter prior to the appointment of the receiver. The Commissioner of Internal Revenue filed a claim with the receiver for the sums due. In his final report and account filed on April 16, 1968, the receiver held that the state of Washington, by reducing its claim to possession prior to the receivership, had precedence over all other taxing agencies. The commissioner accepted this finding and received no funds out of the corporation.
The commissioner then made a penalty assessment in the full amount of taxes due against the appellants under 26 U.S.C Sec. 6672. Teel, Granberg, and Blakesley paid a portion of the sums due and brought this suit for refund. The government counterclaimed for the balance of the penalty. 2 The district court entered summary judgment in favor of the government.
Appellants raise three allegations of error. First, they argue that summary judgment was improper because there was a material issue of fact as to the willfulness of their failure to pay over the taxes. Second, they allege that they cannot be charged with a willful failure to pay over the taxes accrued during the month of November because the time for payment did not arise until after a receiver was appointed. Third, they contend that under the doctrine of equitable estoppel, the commissioner is estopped from seeking these penalties because the Service failed to collect the tax funds from the receiver.
In order for a party to be liable for a penalty for failure to pay over taxes under 26 U.S.C. Sec. 6672, two things must be true: one, that the party assessed was a 'responsible person' i.e. one required to collect, truthfully account for and pay over the tax, and two, that he willfully refused to pay the tax. Pacific National Insurance v. United States, 422 F.2d 26 (9th Cir. 1970). All the parties agree that Teel, Granberg and Blakesley were responsible persons under the statute. It is upon the second requirement that we must center our consideration. The question of willfulness is a factual one and if sufficiently controverted, would preclude the granting of a summary judgment on penalty liability. Kalb v. United States, 505 F.2d 506, 511 (2nd Cir. 1974). The rule in our circuit is that a "voluntary, conscious, and intentional act to prefer other creditors over the United States constitutes willful failure to pay over.' Sorenson v. United States, 521 F.2d 325, 328 (9th Cir. 1975).
Appellants argue that there was a material issue of fact as to whether their failure to pay over was willful. They allege that prior to October 17, 1966, they thought that the withheld taxes had been deposited with the federal depository and so any failure to make these payments could not be willful. They further argue that after October 17, they believed that their agreement with the state barred any payments to the federal government, so that the failure to pay...
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