952 F.2d 236 (8th Cir. 1991), 91-1440, Olsen v. United States

Docket Nº:91-1440.
Citation:952 F.2d 236
Party Name:Unempl.Ins.Rep. (CCH) P 16588A Douglas A. OLSEN, Appellant, v. UNITED STATES of America, Appellee.
Case Date:December 26, 1991
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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952 F.2d 236 (8th Cir. 1991)

Unempl.Ins.Rep. (CCH) P 16588A

Douglas A. OLSEN, Appellant,


UNITED STATES of America, Appellee.

No. 91-1440.

United States Court of Appeals, Eighth Circuit

December 26, 1991

Submitted Nov. 12, 1991.

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[Copyrighted Material Omitted]

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R. Donald Hawkinson, Minneapolis, Minn., argued, for appellant.

Paula K. Speck, argued (Shirley D. Peterson, Gary R. Allen, Kenneth L. Greene, Christine A. Grant and Jerome G. Arnold, of counsel, on the brief), Washington, D.C., for appellee.

Before LAY, Chief Judge, ARNOLD, Circuit Judge, and STUART [*], Senior District Judge.

STUART, Senior District Judge.

Appellant Olsen claims that the Internal Revenue Service (IRS) wrongfully imposed a 100% penalty against him under I.R.C. § 6672 (1988). He seeks a tax refund of $45,615.85. The principal issue in the case is whether Olsen, concededly a "responsible person" under § 6672, willfully failed to pay over to the IRS withheld federal employment taxes collected by his corporation, Precision Machine and Design, Inc. (Precision Machine). Olsen also claims that he is not liable for the corporation's taxes because he relied on IRS assurances that the taxes would be collected from the corporation's assets. The case was presented to Judge Devitt 1 on cross motions for summary judgment. He granted the government's motion and denied Olsen's motion. Olsen appealed. We affirm.

Sections 3102 and 3402 of the Internal Revenue Code require employers to withhold federal social security and income taxes from the wages of their employees. "Once taxes are collected they become a trust fund in the hands of the employer. 26 U.S.C.A. § 7501. The liability for payment of taxes collected arises upon the collection of those taxes and not the date when the statute requires that they be paid over to the government." Long v. Bacon 239 F.Supp. 911, 912 (S.D.Iowa, 1965). See also Mulee v. United States, 648 F.Supp. 1181, 1185 (N.D.Ill.1986), and citations therein. If an employer withholds the taxes but fails to pay them over to the government, the employee is nevertheless credited with payment. Slodov v. United States, 436 U.S. 238, 243, 98 S.Ct. 1778, 1783, 56 L.Ed.2d 251 (1978); Donelan Phelps & Co. v. United States, 876 F.2d 1373, 1375 (8th Cir.1989); Elmore v. United States, 843 F.2d 1128, 1132 (8th Cir.1988). Thus, unless the government has recourse against the person or persons responsible for nonpayment, the taxes will be lost. Slodov, 436 U.S. at 243, 98 S.Ct. at 1783; Hartman v. United States, 538 F.2d 1336, 1340 (8th Cir.1976).

To protect against such losses, I.R.C. § 6672 provides that when a person required to collect, account for, and pay over withholding taxes (i.e., a "responsible person") willfully fails to do so, he is liable for a penalty equal to the amount of the unpaid taxes. Smith v. United States, 894 F.2d 1549, 1553 (11th Cir.1990); Elmore, 843 F.2d at 1132; Bowen v. United States, 836 F.2d 965, 968 (5th Cir.1988). Although denominated a "penalty," the liability imposed

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by § 6672 is not penal in nature, since it brings to the government only the same amount to which it was entitled by way of the tax. Hartman, 538 F.2d at 1340; Newsome v. United States, 431 F.2d 742, 745 (5th Cir.1970). Thus, § 6672 "is simply a means of ensuring that the tax is paid...." Botta v. Scanlon, 314 F.2d 392, 393 (2d Cir.1963). In keeping with this purpose, § 6672 has been broadly and liberally construed "to prevent the unnecessary loss of tax funds by permitting the 'taxing authority to reach those responsible for the corporation's failure to pay the taxes which are owing.' " Newsome, 431 F.2d at 745 (quoting Monday v. United States, 421 F.2d 1210, 1216 (7th Cir.), cert. denied, 400 U.S. 821, 91 S.Ct. 38, 27 L.Ed.2d 48 (1970)).

Section 6672 imposes liability on an individual if two requirements are met: (1) the person must be a "responsible person," and (2) the person must act "willfully" in not paying over the taxes. Kizzier v. United States, 598 F.2d 1128, 1132 (8th Cir.1979). The responsible person has the burden to show that he did not willfully fail to pay over the federal employment taxes. Anderson v. United States, 561 F.2d 162, 165 (8th Cir.1977).


Appellant purchased the stock of Precision Machine in 1975 and served as president and chief executive officer until operations ceased in June 1985. In 1982, he and an IRS agent discussed federal employment tax liabilities of Precision Machine. In 1984, Precision Machine entered into an agreement with IRS to pay federal employment taxes for the third and fourth quarters of 1982 and the second quarter of 1983 in installments. Payments were made on this agreement throughout the relevant period. However, the agreement provided that it became null and void if the employer failed to keep its withholding obligations current.

In the spring of 1985 Precision Machine experienced extreme financial difficulties. Payments were made to creditors other than IRS for materials and services that were necessary to keep the corporation operating. Employee taxes were withheld but were not paid to IRS. During March, April and May 1985, Olsen negotiated with banks, suppliers and customers but was unable to make arrangements necessary to keep the corporation operational.

In early June, Olsen decided to "wind the corporation down." This decision brought about several meetings with the Carver County State Bank (the bank), a secured creditor, which resulted in the bank taking control of the accounts receivable and requiring its approval of the disbursements. On June 24, 1985 Olsen initiated a meeting with IRS agents Chandler and...

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