Denbo v. U.S.
| Decision Date | 15 March 1993 |
| Docket Number | No. 91-5185,91-5185 |
| Citation | 988 F.2d 1029 |
| Parties | -1317, 93-1 USTC P 50,177, Unempl.Ins.Rep. (CCH) P 17200A John O. DENBO, Plaintiff-Counterclaim Defendant-Appellant, v. UNITED STATES of America, Defendant-Counterclaim Plaintiff-Appellee, v. Robert B. ALLRED, Counterclaim Defendant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
William E. Farrior (Wm. Brad Heckenkemper with him, on the briefs) of Barrow Gaddis Griffith & Grimm, Tulsa, OK, for plaintiff-appellant, John O. Denbo.
Sara S. Holderness (Tony M. Graham, U.S. Atty., of counsel, James A. Bruton, Acting Asst. Atty. Gen., David English Carmack, and Susan Findling Fleig, Attys., on the briefs) of the Department of Justice, Tax Div., Washington, DC, for defendant-appellee, U.S.
Before ANDERSON, BARRETT, and TACHA, Circuit Judges.
In 1984, Robert Allred incorporated the Louisiane Restaurant, Inc. in Tulsa, Oklahoma. Denbo and Allred each contributed initial capital of $250, and each owned 50% of Louisiane's stock. Allred was president of the corporation, conducted the day-to-day management of the business, and signed checks on the corporation's bank accounts. Denbo was a director of the corporation and was named its secretary-treasurer. He arranged the corporation's financing, often pledging his own assets as collateral. 2 Although Denbo was both an officer and director of Louisiane Restaurant, Inc., he did not receive compensation. He had signature authority on the bank accounts of the corporation, but he did not sign any checks on these accounts during the tax periods in question. Appellant's App. at 16 (Agreed Pretrial Order).
From its inception, the corporation was financially unsound, and throughout the four years of their mutual enterprise, Denbo and Allred met regularly to discuss solutions to the corporation's fiscal difficulties. At trial, Denbo acknowledged that beginning in September 1986, he was "aware of payroll tax delinquencies." Appellee's Supp.App. at 6. He also acknowledged his presence at a meeting held with an IRS officer in November 1987 to discuss the unpaid taxes. Id. at 7. Notwithstanding his knowledge of the corporation's tax delinquencies, Denbo failed to make sure that the payroll taxes were being paid. Instead, he relied on the assurances of Allred and the accountants that the taxes were being taken care of, despite the fact that Allred's prior representations regarding the payment of earlier quarters' taxes had turned out to be false.
The IRS insisted on a payment plan for the payroll tax delinquencies to commence on January 3, 1989. Subsequently, Allred and Denbo parted ways. Allred sold to Denbo all but 10% of the corporation's shares which Allred owned and left the business. Denbo, then a 90% shareholder, sought to liquidate the business and pay off the mortgage lender. The assets of the corporation were transferred on April 8, 1989 to the Federal Deposit Insurance Corporation.
On May 28, 1990, the IRS assessed Denbo $107,226.72, plus interest, representing the 100% penalty under 26 U.S.C. § 6672 for willful failure to remit the withholding taxes owed by the corporation. After paying $100 of the assessment, Denbo commenced this action by filing a complaint against the United States for a refund. The government asserted a counterclaim against Denbo for the unpaid balance, as well as a counterclaim against Allred seeking the entire assessment. A default judgment was entered against Allred, and Denbo's case was tried to a jury.
At trial, Denbo contested both his status as a responsible person and the issue of willfulness. He requested a jury instruction defining "willfulness" to comport with the Supreme Court's definition of the term in the recent criminal tax case, Cheek v. United States, 498 U.S. 192, 111 S.Ct. 604, 112 L.Ed.2d 617 (1991). He further requested that the jury be instructed concerning On appeal, Denbo asserts that (1) there was insufficient evidence presented at trial for the jury to conclude that he was a person responsible for paying the withheld taxes or that he willfully failed to pay taxes; (2) the court erred in refusing to instruct the jury that willfulness under section 6672 requires the taxpayer to intentionally and voluntarily fail to perform a known legal duty; and (3) the court erred in failing to instruct the jury regarding the payment of creditors from after-acquired funds. We address each of these issues in turn.
the use of separate, or after-acquired, funds to pay corporate creditors. The district court refused both of these requests. The jury found Denbo liable as a responsible person who willfully failed to account for and pay over taxes due the United States
Denbo contends that the evidence was insufficient to support a jury verdict finding him liable as a responsible person under section 6672. Specifically, he asserts that it was Allred, not he, who had "exclusive authority over the financial affairs of the corporation," including writing all corporate checks, hiring and firing employees, writing all payroll checks, and reviewing and signing all payroll tax returns. Appellant's Brief at 10.
When determining the sufficiency of the evidence, we will overturn a jury's verdict only if we find that no reasonable jury could have reached such a verdict based on the evidence presented. Acrey v. American Sheep Indus. Ass'n, 981 F.2d 1569, 1575 (10th Cir.1992); Reazin v. Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d 951, 955 (10th Cir.), cert. denied, 497 U.S. 1005, 110 S.Ct. 3241, 111 L.Ed.2d 752 (1990); see also Continental Casualty Co. v. Southwestern Bell Tel. Co., 860 F.2d 970, 972 (10th Cir.1988) (), cert. denied, 489 U.S. 1079, 109 S.Ct. 1530, 103 L.Ed.2d 836 (1989).
Courts have generally given broad interpretation to the term "responsible person" under section 6672. See Williams v. United States, 931 F.2d 805, 810 (11th Cir.1991). A person is responsible within the meaning of the statute if that person is required to collect, truthfully account for or pay over any taxes withheld from the wages of a company's employees. Slodov v. United States, 436 U.S. 238, 250, 98 S.Ct. 1778, 1786, 56 L.Ed.2d 251 (1978). The responsible person generally is, but need not be, a managing officer or employee, and there may be more than one responsible person. Hartman v. United States, 538 F.2d 1336, 1340 (8th Cir.1976). Indicia of responsibility include the holding of corporate office, control over financial affairs, the authority to disburse corporate funds, stock ownership, and the ability to hire and fire employees. Thibodeau v. United States, 828 F.2d 1499, 1503 (11th Cir.1987); see also Gephart v. United States, 818 F.2d 469, 473 (6th Cir.1987). Among other things, therefore, a corporate officer or employee is responsible if he or she has significant, though not necessarily exclusive, authority in the "general management and fiscal decisionmaking of the corporation." Kizzier v. United States, 598 F.2d 1128, 1132 (8th Cir.1979).
The record provides evidence of Denbo's status as a responsible person within the meaning of section 6672. He made arrangements for several bank loans and also made personal loans to the corporation "in order to keep things going." Appellee's Supp.App. at 6. He held regular meetings with Allred and the accountants. And, while he did not exercise his authority to sign checks, he had such authority from the beginning. These undisputed facts, along with Denbo's 50% stock ownership and status as an officer and director of the corporation, demonstrate that he possessed "significant authority in the ... fiscal decisionmaking of the corporation." Kizzier, 598 F.2d at 1132.
Denbo correctly points out that it was Allred, not he, who controlled the day-to-day operations of the corporation and made decisions concerning the payment of creditors and disbursement of funds. However, while it is clear that Allred exercised greater control over the corporation than Denbo, "[s]ection 6672 does not confine liability for the unpaid taxes only to the single officer with the greatest or the closest control or authority over corporate affairs." Gephart, 818 F.2d at 476. It suffices that Denbo had "significant, as opposed to absolute, control of the corporation's finances." Id. at 473. He was responsible for infusing capital into the corporation, often pledging his own assets as collateral. His financial involvement in the corporation, along with his check-signing authority, gave him the effective power to see to it that the taxes were paid. See Howard v. United States, 711 F.2d 729, 734 (5th Cir.1983) () (emphasis in original). We therefore hold that there was sufficient evidence from which the jury could find that Denbo was a person responsible for accounting for or paying over withholding taxes to the government.
Denbo next challenges the jury's verdict on the issue of willfulness. In order for liability to attach under section 6672, not only must the individual against whom the assessment is made be a person responsible for accounting for and paying over withheld taxes, he also must have willfully failed to comply with the statute. Hochstein v. United States, 900 F.2d 543, 548-49 (2nd Cir.1990). Denbo asserts that even if he had the requisite responsibility...
To continue reading
Request your trial
-
United Nat'l Maint., Inc. v. San Diego Convention Ctr. Corp.
...case. Lamon v. City of Shawnee, Kansas, 972 F.2d 1145, 1153 (loth Cir. 1992) (citations omitted/emphasis added).' Denbo v. United States, 988 F.2d 1029, 1034 (10th Cir. 1993). A new trial on the grounds of erroneous jury instructions will not be granted unless the instructions 'misled the j......
-
Mahler v. U.S., CIV.A. 3:95 CV 2732(SRU).
...broad view of who qualifies as a responsible person." Rem, 38 F.3d at 642; see also Fiataruolo, 8 F.3d at 938-39; Denbo v. United States, 988 F.2d 1029, 1032 (10th Cir.1993); Barnett v. IRS, 988 F.2d 1449, 1454 (5th Cir. 1993). Thus, "determination of responsibility is based upon the indivi......
-
U.S. v. Farr
...contest whether they qualify as "responsible persons" under the statute. See, e.g., Bradshaw, 83 F.3d at 1178; Denbo v. United States, 988 F.2d 1029, 1032 (10th Cir.1993). Meanwhile, as here, an individual like Ms. Farr charged for failure to pay quarterly employment taxes allegedly "due an......
-
United States v. McBride
...party act voluntarily in withholding requested information, rather than accidentally or unconsciously.”); accord Denbo v. United States, 988 F.2d 1029, 1034–35 (10th Cir.1993) (defining “willful” conduct as a “voluntary, conscious and intentional decision”) (quoting Burden v. United States,......
-
When the Irs Wants Your Client to Pay Trust Fund Taxes-part I
...willfulness), See a/so LR. Manual §§ 8(11)41.3 and 5633.4. 29. Muck v. U.S., 3 F.3d 1378, 1381 (lOth Cfi. 1993). See also Denbe v. U.S., 988 F.2d 1029 (10th Cir. 1993); Manual §§ 8(11)41.3 and 5633.4. 30. Even in situations where no creditor is preferred over the IRS, willfulness is treated......