591 F.2d 1151 (5tht Cir. 1979), 77-2104, Mazo v. United States

Docket Nº:77-2104.
Citation:591 F.2d 1151
Party Name:Irwin MAZO, Marvin I. Rosenzweig, Erwin A. Friedman and Barney L. Sadler, Plaintiffs, v. UNITED STATES of America, Defendant-Appellee, v. Marvin I. ROSENZWEIG, Erwin A. Friedman, Barney L. Sadler, William Lattimore, Norman W. Fries, George Moore, and Irwin Mazo, Defendants-Appellants.
Case Date:March 23, 1979
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 1151

591 F.2d 1151 (5tht Cir. 1979)

Irwin MAZO, Marvin I. Rosenzweig, Erwin A. Friedman and

Barney L. Sadler, Plaintiffs,


UNITED STATES of America, Defendant-Appellee,


Marvin I. ROSENZWEIG, Erwin A. Friedman, Barney L. Sadler,

William Lattimore, Norman W. Fries, George Moore,

and Irwin Mazo, Defendants-Appellants.

No. 77-2104.

United States Court of Appeals, Fifth Circuit

March 23, 1979

Page 1152

Fred S. Clark, Savannah, Ga., for Norman Fries and William Lattimore.

Morton G. Forbes, Savannah, Ga., for George Moore.

Bruce A. Howe, Savannah, Ga., for defendants-appellants.

Gilbert E. Andrews, Chief, Appellate Section, M. Carr Ferguson, Asst. Atty. Gen., Richard Farber, Mary L. Jennings, Attys., William A. Friedlander, Tax Div., Dept. of Justice, Washington, D. C., for defendant-appellee.

Appeals from the United States District Court for the Southern District of Georgia.

Before GEWIN, GEE and RUBIN, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

An officer or employee of a corporation who is responsible for the collection of employment taxes from the pay due an employee may be assessed a penalty equal to the amount of the taxes if he willfully fails to account for and pay over the amount due to the United States. 26 U.S.C. § 6672. The government found such liability on the part of those parties who were simultaneously the officers, directors and stockholders of Savannah Inn & Country Club, Inc., and its general manager, George Moore. Although each of them protests that he had a title and position without genuine authority, each was, under the statute, a responsible person both at the time tax was withheld and at the later date when funds were available to pay it and were diverted to other purposes, and within the meaning of the statute the failure of each to perform his duty was willful; to paraphrase an aphorism of the late President Harry Truman, the corporate buck stopped with them. Accordingly, we affirm the judgment of the trial court granting the motion for summary judgment filed by the United States and denying the motion for summary judgment filed by the officers.


Under the withholding system set up in the Internal Revenue Code, 26 U.S.C.A § 3401 Et seq., employers have a duty to collect both income and FICA ("socialsecurity")

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taxes from their employees. These sums are commonly referred to as "trust funds" because the Code provides that they are deemed to be "a special fund (held) in trust for the United States." 26 U.S.C. § 7501. When net wages are paid to the employee, the taxes that were, or should have been, withheld are credited to the employee even if they are never remitted to the government; so the IRS has recourse only against the employer for their payment.

However, Section 6672 of the Internal Revenue Code imposes a penalty on any "person required to collect, truthfully account for, and pay over any tax" withheld who willfully fails to do so. The penalty is equal to the total amount of the tax not paid over, and is itself referred to as a "tax" in Section 6671. The term "person," as defined in Section 6671, includes "an officer or employee of a corporation . . . who as such officer (or) employee . . . is under a duty" to collect, account for, and pay over the withheld tax. This is known as a "responsible person." Thus, liability for a penalty is imposed only on (1) a responsible person (as defined in Section 6671), who has (2) willfully failed to perform a duty to collect, account, "and" pay over the tax.

The statute has recently been explained by the Supreme Court in Slodov v. United States, 1978, 436 U.S. 238, 98 S.Ct. 1778, 56 L.Ed.2d 251. That case involved an orthodontist who, having no prior business connection with three food vending businesses, bought their stock and acquired their control after the sellers represented that the corporation had sufficient cash to pay its accrued liability for withheld employee wage and Federal Insurance Contribution Act (FICA) taxes, which amounted to $250,000. As soon as the orthodontist took command, he found that the representations were untrue; the corporations had no liquid assets. After reporting these findings to the Internal Revenue Service (IRS), he used his personal funds to finance corporate operations and paid all the taxes that later became due.

The initial question presented was whether the orthodontist was a "responsible person." As a postulate for resolving it, the Court stated that there is no question that the statute applies "(w)hen the same individual or individuals who caused the delinquency in any tax quarter are also the 'responsible persons' at the time the Government's efforts to collect from the employer have failed . . . ". 436 U.S. at 245, 98 S.Ct. at 1784, 56 L.Ed.2d at 260-61.

The taxpayer's first argument was that, because the statute uses the conjunctive "and," it reaches only persons who have all three duties: " 'to collect, truthfully account for And pay over any tax imposed by this title'." (Emphasis supplied). This, the court concluded, was a misreading: a person is responsible if he has a duty to perform any one of these functions collecting, accounting or paying over; the penalty is not limited "to those persons in a position to perform all three of the enumerated duties with respect to the tax dollars in question." 436 U.S. at 250, 98 S.Ct. at 1787, 56 L.Ed.2d at 263. The orthodontist was in authority when the corporation had a duty to pay over...

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