Taylor v. I.R.S., 94-5162
| Citation | 69 F.3d 411 |
| Decision Date | 24 October 1995 |
| Docket Number | No. 94-5162,94-5162 |
| Parties | -7160, 95-2 USTC P 50,578, Unempl.Ins.Rep. (CCH) P 14835B Donald P. TAYLOR, Plaintiff-Appellant v. INTERNAL REVENUE SERVICE, Defendant-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
E. John Eagleton, Eagleton, Eagleton & Harrison, Inc., Tulsa Oklahoma, for Plaintiff-Appellant.
Teresa E. McLaughlin, Attorney, Tax Division, Department of Justice, Washington, D.C. (Annette M. Wietecha, Attorney, Tax Division, Department of Justice, Washington, D.C., Stephen Charles Lewis, U.S. Attorney, Tulsa, Oklahoma, with her on the brief), for Defendant-Appellee.
Before BALDOCK, BRORBY, and LUCERO, Circuit Judges.
The Internal Revenue Code requires employers to withhold federal social security and income taxes from the wages of their employees and pay them over to the government. 26 U.S.C. Secs. 3102(a), 3402(a), 3403. When an officer or employee of a corporation fails to remit withheld taxes to the government, he may be subject, inter alia, to the penalty provisions of 26 U.S.C. Sec. 6672. Specifically, the penalty under Sec. 6672 can be assessed against any officer or employee of a corporation who: (1) is under a duty to "collect, truthfully account for, and pay over any tax imposed by this title"--i.e., a "responsible person"; and (2) "willfully fails" to do so. 26 U.S.C. Sec. 6672(a). 1 Plaintiff Donald P. Taylor, an officer of Delta Cattle Corporation ("Delta"), appeals from a district court order holding him liable to Defendant Internal Revenue Service ("IRS") for tax penalties under 26 U.S.C. Sec. 6672. We have jurisdiction under 28 U.S.C. Sec. 158(d).
The record reveals the following. Plaintiff and his brother Oscar Taylor incorporated Delta in Oklahoma in 1981. Delta had a business office in Tulsa, Oklahoma and ranches in eastern Oklahoma. Delta's business was breeding, raising, and marketing cattle for investors throughout the United States.
Oscar Taylor was the president of Delta and managed its business operations. Oscar owned all of Delta's stock. He made all the corporation's business decisions, determined what checks were to be written and which creditors to pay.
Plaintiff was the vice president of Delta and served on its board of directors, but owned none of Delta's stock. Plaintiff was an authorized signatory on fourteen Delta checking accounts and had authority to borrow funds on Delta's behalf. Plaintiff hired and fired employees. Plaintiff had checkwriting authority, instructed clerical help as to which bills to pay, and engaged in fiscal matters, but only at the direction of Oscar. Plaintiff spent very little time in the Tulsa business office, but managed the office in Oscar's absence. Plaintiff's principal responsibility was the "cowboy"--i.e., supervising the breeding, raising, and marketing of the cattle. It was not Plaintiff's duty within the corporate structure to prepare the payroll, ensure that employee taxes were withheld, file quarterly returns and make quarterly deposits. Plaintiff, however, signed one employment tax return for Delta in 1982.
In March 1984, Delta filed a petition for relief under Chapter 11 of the Bankruptcy Code. Delta owed $117,162.26 in withholding taxes to the IRS. In February 1985, the IRS sent Plaintiff a Notice of Proposed Assessment of 100% Penalty. The notice identified the specific quarterly tax periods for which there was an unpaid tax liability, the amount of unpaid taxes, and the penalty amounts. The notice specified that because efforts to collect the unpaid taxes from Delta had failed, the IRS intended to assess the $117,162.26 in accumulated penalties against Plaintiff because he was a "responsible person" at Delta pursuant to 26 U.S.C. Sec. 6672.
In March 1985, the IRS assessed the Sec. 6672 penalties against Plaintiff under a Form 4340 Certificate of Assessments and Payments ("Form 4340"). The Form 4340 identified Plaintiff and explained that the IRS had assessed a 100% penalty against him in connection with Delta. The assessing officer signed the Form 4340, which provided the following additional information in pertinent part:
Explanation Assessment 23C Date Period Ending
of Transaction
Penalty Assessment $117,161.16 03-18-85 12-31-81-
12-31-82
06-30-83-
03-31-84
In March 1986, the IRS filed a notice of federal tax lien against Plaintiff with the Tulsa County Clerk. In December 1986, Plaintiff filed a petition for relief under Chapter 7 of the Bankruptcy Code and in June 1987 received a discharge. In August 1987, the IRS refiled its notice of federal tax lien. In September 1990, Plaintiff filed a complaint to determine and discharge tax liability in the bankruptcy court. Plaintiff denied he was liable to the IRS for the $117,166.26 in tax penalties.
The IRS moved for partial summary judgment and asserted Plaintiff was liable for tax penalties under Sec. 6672 because he was a "responsible person" as a matter of law. Plaintiff filed a response and contended that he was not a "responsible person" under Sec. 6672 and did not willfully fail to pay over taxes owed to the government. The bankruptcy court denied the IRS's motion for partial summary judgment.
After a bench trial, the bankruptcy court specifically found that Plaintiff was not a "responsible person" under Sec. 6672. The bankruptcy court explained that a "responsible person" under Sec. 6672 "is the person who within the corporate structure has the job to see that the withheld taxes are paid"--i.e., the person who is "actually responsible within the corporation for the payment of payroll taxes." Applying this standard, the bankruptcy court found that Oscar Taylor, rather than Plaintiff, was the corporate officer at Delta who had the specific responsibility to ensure that the withheld taxes were paid.
The court found that Oscar was the "boss" of Delta, made all the business decisions of the company, dealt with creditors, and determined what checks were to be written and what bills were to be paid. The court found that Plaintiff, in contrast, was Delta's "cowboy," with responsibility for breeding, raising, and marketing cattle. The bankruptcy court noted that Plaintiff had certain "badges of authority" because he was an officer and director of Delta, an authorized signatory on five checking accounts, 2 had authority to borrow funds on behalf of Delta, and hired and fired employees. The court noted, however, that Plaintiff signed checks and engaged in fiscal matters only at Oscar's direction and that Plaintiff was not responsible for ensuring employee taxes were withheld and paid over to the government. As a result, the bankruptcy court concluded that Plaintiff was not a "responsible person" under Sec. 6672. Because the court concluded Plaintiff was not a "responsible person" under Sec. 6672, it did not reach the question whether Plaintiff willfully failed to pay the withholding taxes.
On appeal, the district court reversed. After reviewing the record as a whole, the district court concluded Plaintiff was a "responsible person" pursuant to Sec. 6672 as a matter of law:
[Plaintiff] instructed clerical help as to what bills to pay, managed day-to-day operations when his brother was absent, hired employees, served as vice-president and controller, had checkwriting authority, signed at least one employment tax return, and was aware that taxes were not paid at least in 1982. While he may not have had as much authority over corporate decisionmaking as his brother, the record establishes that he possessed a sufficient degree of authority over corporate decisionmaking to make him a "responsible person."
The district court also concluded the record established that Plaintiff's failure to pay the taxes was willful. As a result, the court concluded the IRS had a valid claim for $117,162.26 against Plaintiff.
Plaintiff filed a motion to alter or amend the judgment. In addition to his prior arguments, Plaintiff contended the Sec. 6672 penalty was void because it was improperly assessed as a lump sum instead of on a quarterly basis. 3 The district court denied Plaintiff's motion with regard to the responsible person and willfulness issues. The district court remanded to the bankruptcy court, however, for a determination whether the IRS's lump sum assessment against Plaintiff was valid. On remand, the bankruptcy court upheld the lump sum assessment. The district court affirmed. This appeal followed.
On appeal, Plaintiff first contends the district court erred by concluding he was a "responsible person" under Sec. 6672. Specifically, Plaintiff maintains the district court erred by overturning the bankruptcy court's factual finding that he was not a responsible person pursuant to Sec. 6672 because the bankruptcy court's factual findings were not clearly erroneous. We conclude Plaintiff's argument misapprehends the scope of the district court's appellate review of the bankruptcy court's determination that he was not a "responsible person."
Our review of the district court's factual and legal determinations is governed by the same standards the district court used to review the bankruptcy court. See Travelers Ins. Co. v. American AgCredit Corp. (In re Blehm Land & Cattle Co.), 859 F.2d 137, 138 (10th Cir.1988) (). The district court reviews the factual determinations of the bankruptcy court under the clearly erroneous standard, Rowe Int'l, Inc. v. Herd (In re Herd), 840 F.2d 757, 759 (10th Cir.1988), and reviews the bankruptcy court's construction of Sec. 6672 de novo. In re Blehm Land & Cattle Co., 859 F.2d at 138. We agree with the Second and Eleventh Circuits that the bankruptcy court's ultimate determination whether an...
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