Schiffmann v. United States

Citation811 F.3d 519
Decision Date29 January 2016
Docket NumberNo. 14–2179.,14–2179.
Parties Richard SCHIFFMANN, Plaintiff/Counterclaim Defendant, Appellant, v. UNITED STATES of America, Defendant/Counterclaim Plaintiff, Appellee, v. Stephen Cummings, Counterclaim Defendant, Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

David R. Sullivan, with whom Murtha Cullina LLP was on brief, for appellants.

Douglas C. Rennie, Attorney, Tax Division, U.S. Department of Justice, with whom Caroline D. Ciraolo, Acting Assistant Attorney General, Joan I. Oppenheimer, Attorney, Tax Division, and Peter F. Neronha, United States Attorney, were on brief, for appellee.

Before LYNCH, SELYA and KAYATTA, Circuit Judges.

SELYA, Circuit Judge.

The obligation of a corporate employer to pay payroll taxes is familiar. The Internal Revenue Code requires employers to withhold federal income taxes from employees' wages and to hold such taxes in trust for the United States. See 26 U.S.C. §§ 3102, 3402, 7501. As a result, such taxes are often referred to as trust fund taxes. See id. § 7501. If they are not paid to the government when and as required, the Internal Revenue Service (IRS) may look past the corporate form and hold officers of the corporation personally liable under certain circumstances. See id. § 6672(a).

The court below, in sequential summary judgment rulings, concluded that the appellants, Richard Schiffmann and Stephen Cummings, were responsible persons who had wilfully caused ICOA, Inc. (ICOA) to shirk its payroll tax obligations.1 The appellants challenge this conclusion. After careful consideration, we affirm.

I. BACKGROUND

The raw facts are largely undisputed. ICOA is a Rhode Island corporation, whose subsidiaries provide wireless internet services in public spaces (such as airports and marinas).2 As far back as 2002, ICOA began struggling to stay current on federal trust fund tax obligations.

Schiffmann became ICOA's president in October of 2004 and retained that title after becoming its chief executive officer (CEO) in April of 2005. Cummings (previously a consultant to the company) became ICOA's chief financial officer (CFO) in October of 2005. At the latest, the appellants discovered the full extent of ICOA's outstanding trust fund tax liabilities shortly after Cummings became CFO. They nonetheless signed checks to pay other creditors, but did not pay the government. The funds backing these checks came primarily from cash infusions raised by Schiffmann and ICOA's board chairman, George Strouthopoulos (Schiffmann's predecessor as CEO). On November 18, 2005, the ICOA board of directors (which then consisted of at least four members) met to discuss, among other things, the outstanding trust fund tax liabilities. By resolution, the board granted check-signing authority to ICOA's officers on a schedule depending on debt amount and officer rank. Schiffmann, as CEO, was given singular signing authority for checks up to $100,000; Cummings, as CFO, was given singular signing authority for checks up to $75,000. Matters went downhill from there: the trust fund tax arrearage was not paid, new trust fund taxes accumulated, the company's financial decline continued, and the board fired Schiffmann and Cummings in June of 2006.

Failing to receive payment following notice and demand, the IRS made trust fund recovery penalty assessments against, inter alia, Schiffmann and Cummings.3 The IRS proceeded to seize what funds it could find. For his part, Schiffmann filed an unsuccessful refund and abatement request. He then repaired to the federal district court and sought both to recover the sums previously seized from him and to nullify the assessments. See 26 U.S.C. § 7422.

The government counterclaimed against Schiffmann, Cummings, and others,4 seeking to recover the remainder of the overdue taxes and penalties. In response, Cummings counterclaimed against the government, seeking to nullify the assessments against him.

In due course, the government moved for summary judgment on its counterclaims. The motion was accompanied by the required statement of material facts not in dispute. See D.R.I. R. 56(a)(2). Schiffmann and Cummings opposed summary judgment, but neither of them submitted a counterstatement of disputed facts. See id. R. 56(a)(3). The district court entered summary judgment for the government. See Schiffmann v. United States, No. 12–695, 2014 WL 1394199, at *11 (D.R.I. Apr. 9, 2014).

The government next moved for summary judgment on the claims asserted by Schiffmann and Cummings, respectively. Once again, its motion was accompanied by the requisite statement of undisputed facts. See id. R. 56(a)(2). Schiffmann and Cummings opposed the motion, this time submitting the required statement of disputed facts. See D.R.I. R. 56(a)(3). The district court granted the government's second summary judgment motion, see Schiffmann v. United States, No. 12–695, 2014 WL 4980904 (D.R.I. Oct. 3, 2014) (unpublished order), and later entered a final judgment to include sums certain (awarding the government $394,334.28 plus interest against Schiffmann and $254,280.82 plus interest against Cummings). This timely appeal ensued.

II. ANALYSIS

In granting summary judgment, the district court determined that, as a matter of law, Schiffmann and Cummings were both responsible persons who had acted wilfully in not paying ICOA's trust fund taxes. See 26 U.S.C. § 6672. We subdivide our discussion of the appellants' assignments of error into three segments.

A. The Legal Landscape.

As a general matter, liability under section 6672(a) attaches when a "person required to collect, truthfully account for, and pay over" trust fund taxes "willfully fails" to do so. This stricture may apply to a corporate officer who is a "responsible person." See Thomsen v. United States, 887 F.2d 12, 14 (1st Cir.1989) ; Caterino v. United States, 794 F.2d 1, 3 (1st Cir.1986). For this purpose, "responsible person" is a term of art: a person within a company who has a duty to collect, account for, or pay over trust fund taxes. See 26 U.S.C. § 6671(b) ; Vinick v. United States (Vinick II), 205 F.3d 1, 7 (1st Cir.2000). For any particular corporation, there may be more than one responsible person. See Harrington v. United States, 504 F.2d 1306, 1312 (1st Cir.1974).

Such a determination entails consideration of a corporate officer's status, duties, and authority. See Lubetzky v. United States, 393 F.3d 76, 78–80 (1st Cir.2004). The inquiry focuses on the "function of an individual in the employer's business, not the level of the office held." Caterino, 794 F.2d at 5. The criteria that typically inform the determination (sometimes known in this circuit as the Vinick II factors) include whether the person is an officer and/or director; whether the person owns shares or otherwise has an equity interest in the company; whether the person participates actively in day-to-day management of the company; whether the person has authority to hire and fire; whether the person "makes decisions regarding which, when, and in what order outstanding debts or taxes will be paid"; whether the person exercises significant superintendence over bank accounts and disbursement records; and whether the person is endowed with check-signing authority. Vinick II, 205 F.3d at 7. Though this list is not meant to be exhaustive and no one factor is dispositive, see Jean v. United States, 396 F.3d 449, 454 (1st Cir.2005), debt prioritization, control over bank accounts, and check-signing authority are at the "heart of the matter" because they "identif[y] most readily the person who could have paid the taxes, but chose not to do so." Vinick II, 205 F.3d at 9.

The bottom line, of course, is the extent of the officer's decisionmaking authority. The ultimate question is whether the officer "had the ‘effective power’ to pay the taxes—that is, whether he had the actual authority or ability, in view of his status within the corporation, to pay the taxes owed." Moulton v. United States, 429 F.3d 352, 356 (1st Cir.2005) (quoting Vinick II, 205 F.3d at 8 ) (emphasis in original); see Stuart v. United States, 337 F.3d 31, 36 (1st Cir.2003) (focusing on "whether the person possessed sufficient control over corporate affairs to avoid the default").

Responsibility is determined on a quarter-by-quarter basis. See Vinick v. Comm'r of Internal Revenue (Vinick I), 110 F.3d 168, 172 (1st Cir.1997). Thus, responsibility during one quarter does not equate to responsibility in all quarters. See Vinick II, 205 F.3d at 11.

A finding that an individual is a "responsible person" is necessary, but not sufficient, to ground liability for unpaid trust fund taxes. The government also must show that a responsible person acted wilfully in failing to see to the payment of the taxes. In this context, acting wilfully requires "knowledge that taxes are due and withheld and conscious disregard of the obligation to remit them." Stuart, 337 F.3d at 36 (quoting Caterino, 794 F.2d at 6 ). Wilfullness may be manifested as a "voluntary, conscious and intentional decision to prefer other creditors to the United States." Harrington, 504 F.2d at 1311. Neither a specific intent to cheat the government nor an evil motive is required. See Caterino, 794 F.2d at 6. "[I]t is enough if a defendant knows that the taxes are due from the company and yet disburses funds for other purposes or knowingly fails to pay the required sum to the government." Lubetzky, 393 F.3d at 80.

B. The First Grant of Summary Judgment.

Against this backdrop, we turn to the district court's granting of the government's first summary judgment motion. We review the entry of summary judgment de novo. See Gomez v. Stop & Shop Supermkt. Co., 670 F.3d 395, 396 (1st Cir.2012). In conducting this tamisage, we read the record in the light most hospitable to the nonmoving parties (here, the appellants) and draw all reasonable inferences in their favor.See id. Summary judgment is appropriate where the record reflects no genuine issue of material fact and the moving p...

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