Kizzier v. U.S., s. 78-1827

• Decision Date: 15 May 1979
• Docket Number: 78-1713,Nos. 78-1827,s. 78-1827
• Citation: 598 F.2d 1128
• Parties: 79-1 USTC P 9373 Richard G. KIZZIER, Appellant, v. UNITED STATES of America, Appellee. Richard G. KIZZIER, Appellee, v. UNITED STATES of America, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1128

598 F.2d 1128

79-1 USTC P 9373

Richard G. KIZZIER, Appellant, v. UNITED STATES of America, Appellee.

Richard G. KIZZIER, Appellee, v. UNITED STATES of America, Appellant.

Nos. 78-1827, 78-1713.

United States Court of Appeals,

Eighth Circuit.

Submitted April 18, 1979.

Decided May 15, 1979.

Kenneth C. Fritzler, II, of Ross, Schroeder & Fritzler, Kearney, Neb., for Kizzier.

Karl P. Fryzel, Atty., Tax Div., Dept. of Justice, Washington, D. C., for United States; M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews, Richard W. Perkins, Washington, D. C., Attys. and Edward G. Warin, U. S. Atty., Omaha, Neb., on brief.

Before LAY, HEANEY and BRIGHT, Circuit Judges.

BRIGHT, Circuit Judge.

Richard Kizzier, the appellant, filed a refund suit in district court for the recovery of $68,499.02, plus interest, the amount he paid to satisfy a penalty assessed by the Internal Revenue Service (IRS) pursuant to 26 U.S.C. § 6672 (1976). The IRS penalized Kizzier for his willful failure to pay over withheld federal income and social security (employment) taxes of Titan Corporation (Titan) employees to the Government for the last quarter of 1973 and the first three quarters of 1974. The district court determined Kizzier liable for the penalty attributable to the relevant calendar quarters in 1974. However, the district court did not find appellant liable for the willful failure to pay over all of the employment taxes for the last quarter of 1973, and it ordered that the IRS refund $3,272.15 to him. Kizzier appeals from the judgment of the district court denying him a full refund. The Government appeals from the part of the judgment awarding Kizzier a partial refund.

On appeal, Kizzier makes the following claims: (1) the district court erred in determining that the drivers of Titan trucks served as Titan employees; (2) Kizzier was not a "responsible person," liable for the failure of Titan to pay over taxes, within the meaning of section 6672; and (3) even if deemed a "responsible person," Kizzier did not willfully fail to pay over the taxes.

On its appeal, the Government contends that Kizzier was liable for a penalty equal to the full amount of Titan's unpaid employment taxes for the fourth quarter of 1973.

We agree with the Government's position and deny Kizzier the partial refund granted to him by the district court.

I. Factual Background.

Titan, a Nebraska corporation organized in 1971, owned and maintained large over-the-road diesel trucks and tractors which it leased to others. During the period in question, Kizzier served as president and treasurer of Titan and owned all of the corporation's stock. The bylaws of Titan authorized the president to supervise and control all of the business affairs of the corporation. Moreover, as treasurer, Kizzier assumed responsibility for all of the corporation's funds and securities. Although a general manager conducted the day-to-day affairs of Titan, Kizzier supervised business operations and frequently spoke with the general manager about Titan's financial situation.

Titan leased its vehicles to Little Audrey's Transportation Co., Inc. (Little Audrey's) and, under the lease agreement, Titan retained responsibility for

(h)iring, setting the wages, hours and working conditions and adjusting the grievances of, supervising, training, disciplining and firing all drivers, driver's helpers and other workers necessary for the performance of (Titan's) obligations under the terms of this Agreement, which drivers, driver's helpers, and other workers are and shall remain the employees of (Titan.)

The agreement also obligated Titan to pay various employment taxes to the Government. From September 1, 1973 to September 30, 1974, Titan withheld payroll taxes from the wages of its trucks' drivers, but did not remit these taxes to the Government.

Kizzier first learned that Titan had not paid its employment taxes to the Government in March 1974. Although the IRS regularly sent Titan tax delinquency notices from March through October 1974, when the corporation terminated operations, Kizzier did not pay any of the alleged delinquencies.

Subsequent to March 1974, Titan possessed unencumbered funds in excess of its withholding tax liabilities. The corporation paid these funds out to creditors other than the Government.

In January 1976, the IRS assessed a $68,499.02 penalty the equivalent of Titan's unpaid tax liability for the calendar quarters in question against Richard Kizzier for his alleged willful failure to pay over the employment taxes. Kizzier then paid the penalty and filed this refund suit in district court.

The district court determined that, as to the taxes owed for the last quarter of 1973, "(t)he evidence * * * suggests that at the time (Kizzier) became aware that withheld funds were not being paid to the government, there were some funds with which the delinquent taxes could have been paid." The court held Kizzier liable only for the amount of funds Titan possessed when Kizzier learned of the tax delinquency, and calculated that $3,272.15 should be refunded to him. ¹

II. Kizzier's Appeal.

Kizzier denies that Titan assumed the obligation to collect and pay over to the Government the employment taxes of its vehicles' drivers because those drivers served as employees of Little Audrey's. ² This contention lacks merit.

The lease agreement between Titan and Little Audrey's stated specifically that Titan employed the drivers of its vehicles and that Titan retained responsibility for the employment taxes of the drivers. Moreover, Titan filed the appropriate tax forms for the last quarter of 1973 and for the first two quarters of 1974, and withheld federal social security and income taxes from the drivers' wages. The record supports the district court's conclusion that

an employer-employee relationship (existed) between Titan and the drivers of the truck-tractors owned by that company(.)

Kizzier also asserts that he is not a person "required to collect, truthfully account for, and pay over" employment taxes, 26 U.S.C. § 6672, and that his failure to remit the employment taxes of Titan's employees to the Government does not constitute willful conduct. In Hartman v. United States, 538 F.2d 1336 (8th Cir. 1976), this court discussed the principles underlying the assessment of penalties against corporate officers for the willful failure to pay over employment taxes. We summarize those principles as background to the examination of Kizzier's contentions.

Corporate employers are required to withhold, from the wages of their employees, federal social security and income taxes. 26 U.S.C. §§ 3102(a) and 3401(a). Such withheld taxes "shall be held to be a special fund in trust for the United States." 26 U.S.C. § 7501. If the corporate employer fails to pay over this fund to the Government,

a corporate officer or employee may be liable personally for the penalty prescribed by (26 U.S.C.) § 6672, which is generally called the "100% Penalty," if during the period involved he was a "responsible person" under (26 U.S.C.) § 6671(b), and if he acted "willfully" in respect of the tax liability of the employer. (Hartman v. United States, supra, 538 F.2d at 1340.)

For a section 6672 penalty to be assessed against a corporate officer or employee, the officer or employee must (1) be deemed a responsible person, I. e., a person required to collect, truthfully account for, and pay over employment taxes, and (2) willfully fail to collect and pay over the taxes in question. ³

A corporate officer may be deemed a responsible person "if he has significant, albeit not necessarily exclusive, authority in the field of corporate decisionmaking and action where taxes due the federal government are concerned(.)" Hartman, supra, 538 F.2d at 1340.

A responsible person acts willfully within the meaning of section 6672 if he acts in such a manner that he knows or intends that, as a consequence of his conduct, withheld employment taxes "belonging to the government will not be paid over but will be used for other purposes." Hartman, supra, 538 F.2d at 1341.

Here, the record discloses that, as a corporate officer, Kizzier possessed significant authority in the general management and fiscal decisionmaking of the corporation. Applying the above principles, the district court properly found Kizzier to be a responsible person as intended in section 6672.

The record also supports the district court's finding that Kizzier acted willfully in failing to pay employment taxes to the Government. By March 1974, Kizzier became aware that Titan had failed to pay the Government employment taxes withheld for the last quarter of 1973. Although Titan possessed unencumbered funds during the first three calendar quarters of 1974, Kizzier did not use such funds to satisfy the tax delinquency accrued by Titan in 1973, or to pay the subsequent tax liability Titan incurred in the first three quarters of 1974. Kizzier's failure to satisfy the tax delinquencies, in light of his knowledge that Titan possessed unencumbered funds ⁴ which Titan used to pay creditors other than the Government through September 1974, constitutes a willful failure to pay employment taxes to the Government and subjects Kizzier, as a responsible person, to a section 6672 penalty.

Accordingly, we reject these claims of Kizzier on appeal and affirm the judgment of the district court to the extent that the court denied a refund over and above $3,272.15.

III. The Government's Appeal.

The Government contends that the district court erred in awarding Kizzier the refund of $3,272.15. ⁵

In partially relieving Kizzier of liability for Titan's failure to pay...