Maggy v. U.S., 75-2401

Decision Date15 September 1977
Docket NumberNo. 75-2401,75-2401
Parties77-2 USTC P 9686 Amos I. MAGGY, Plaintiff-Appellant, v. UNITED STATES of America et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Appeal from the United States District Court for the Northern District of California.

Michael J. Christianson, Newport Beach, Cal., argued for plaintiff-appellant.

Robert T. Duffy, Atty., U. S. Dept. of Justice, Washington, D. C., argued for defendants-appellees.

Before CHAMBERS and CHOY, Circuit Judges, and BONSAL, * District Judge.

CHAMBERS, Circuit Judge:

Appellant Maggy filed suit against the United States for refund of $24.32 which he had paid in partial satisfaction of a $32,060.49 tax penalty assessed against him pursuant to 26 U.S.C. §§ 6671-72. He additionally prayed for indemnification from third party defendants for any further liability on the balance of the assessments. After a trial to the court, judgment in the amount of $32,036.17 was entered in favor of the United States on its counterclaim against Maggy for the unpaid balance of the assessment. Maggy's indemnification claim was also denied.

Under 26 U.S.C. §§ 3101-02, employers are required to regularly withhold Social Security and FICA taxes from their employees' wages. These taxes are collected from the employers quarterly. The quarter involved in this suit extended from May through July, 1967. The money collected by employers for these taxes is required to be held in trust by them until the end of the quarter pursuant to 26 U.S.C. § 7501(a). Since the government has no recourse against the individual employees if these taxes are not paid at the end of each quarter, 26 U.S.C. § 6672 imposes a 100 percent penalty tax for the willful failure "to collect, truthfully account for, and pay over" these taxes by the "person required" to do so. Maggy's liability arose from the following facts.

On April 6, 1967, Maggy was elected president, director, and chairman of the board of Edmap Industries, Inc. (Edmap), of which he and his wife owned 40 percent of the outstanding shares. Maggy retained the position of president until June 22, 1967. During that time, Edmap was in constant financial difficulty, as it had been since its inception. The Edmap bank account for the period showed an average daily balance of $18.00, and a minimum balance reflecting an overdraft. Maggy was advised at least weekly of Edmap's financial condition, and was told at least twice that this account, which contained the taxes withheld from the employees, was overdrawn.

On June 22, 1967, under threat of a total strike by all Edmap executives and employees, Maggy agreed to a meeting to discuss internal reorganization. This meeting resulted in Maggy's signing a voting trust agreement under which his shares of Edmap were to be voted by nine trustees. While no shares of stock were ever transferred to this trust, and Maggy claimed to doubt its legal validity, the agreement by its terms acted as a transfer of the stock pending its delivery. Maggy resigned as president of Edmap but remained chairman of the board. The June 22 meeting also resulted in the creation of a financial committee which, though technically under the authority of the board of directors, as a practical matter did not report to it. This committee made the daily decisions as to which of Edmap's creditors were to be paid. Maggy remained an authorized signator on the Edmap bank accounts, and his signature alone was sufficient to withdraw funds until July 18, 1967. Maggy, however, allegedly thought his name was removed as an authorized signator on June 22, 1967, the date of the organizational shake-up. Maggy retained his offices and continued to work for Edmap during the period following June 22.

On the date Maggy resigned as president, there were adequate funds in the Edmap account to pay the withholding taxes which had accrued to that date. On July 7, all members of the board of directors were informed of the amount of taxes owed and of the additional debts owed to other Edmap creditors. When Maggy returned from a two-week vacation in July, he was informed that withheld taxes in the amount of $32,060.49 were due on July 31. Maggy took no action on this information, and did not bring it to the attention of the board of directors.

On August 2, 1967, Maggy was reelected president of Edmap. As of July 31, the Edmap account contained $6,417.12, and deposits totalling $3,567.18 were made on August 1 and 4. After his reelection, Maggy made no attempt to pay any of these funds to the United States. He ultimately was assessed for the full amount of the taxes.

For liability to arise under 26 U.S.C. § 6672, our court has held that the party assessed with the penalty must meet two requirements. He must be a "responsible person": one who is required "to collect, truthfully account for, and pay over" the tax. And he must willfully refuse to pay it. Teel v. United States, 529 F.2d 903, 905 (9th Cir. 1976). The district court found that at all times relevant to the case, Maggy was aware that taxes were being withheld from the employees' wages; was aware that these amounts were due to the United States; was a responsible person within the ambit of section 6672 with the power to pay these taxes; and had made no attempt to pay the taxes due on July 31 for the preceding quarter. In addition, the court found that from April to December, 1967, when Edmap ceased doing business, Maggy was aware that creditors of Edmap were paid in preference to the United States, and that he was an active participant in the failure to pay the withheld taxes to the United States. Maggy essentially argues on appeal that his position at Edmap was totally meaningless after June 22, and that since there were sufficient funds in the Edmap account on that date to pay the taxes when accrued, he should not be held liable for the fact that the account was deficient on July 31.

A "responsible person" subject to the reach of 26 U.S.C. § 6672 is one who has the final word on which bill should or should not be paid. Bloom v. United States, 272 F.2d 215 (9th Cir. 1959), cert. denied, 363 U.S. 803, 80 S.Ct. 1236, 4 L.Ed.2d 1146 (1960). The district court found Maggy to be a responsible person for the entire quarter because he remained chairman of the board of directors and a signator on Edmap's accounts until July 18. Under California law and Edmap's by-laws, the board of directors had ultimate control over all aspects of the corporation and its personnel. Additionally, the district court found that it was contrary to California law for the board of directors to totally abdicate all financial responsibility for a corporation...

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