Anderson v. US, 91 C 1871.

• Decision Date: 06 May 1994
• Docket Number: No. 91 C 1871.,91 C 1871.
• Citation: 855 F. Supp. 236
• Parties: Robert ANDERSON, Plaintiff and Counterclaim Defendant, v. UNITED STATES of America, Defendant, Counterclaim Plaintiff and Crossclaim Plaintiff, v. Anthony PUSATERI, Crossclaim Defendant.
• Court: U.S. District Court — Northern District of Illinois

855 F. Supp. 236

Robert ANDERSON, Plaintiff and Counterclaim Defendant, v. UNITED STATES of America, Defendant, Counterclaim Plaintiff and Crossclaim Plaintiff, v. Anthony PUSATERI, Crossclaim Defendant.

No. 91 C 1871.

United States District Court, N.D. Illinois, Eastern Division.

May 6, 1994.

Samuel M. Sorkin, Deerfield, IL, for Anderson.

Charles J. Cannon, Washington, DC, for U.S.

Paul W. Casbarian, Schaumburg, IL, for Pusateri.

MEMORANDUM OPINION AND ORDER

SHADUR, Senior District Judge.

This action has followed the typical pattern of cases that deal with the imposition of individual penalties under 26 U.S.C. § 6672(a),¹ arising out of a corporate employer's failure to pay withholding taxes to the United States:

1. Robert Anderson ("Anderson") originally paid a small portion of the assessed penalty and has sued for refund of that amount, conferring District Court jurisdiction under 28 U.S.C. § 1346(a)(1).

2. In addition to answering Anderson's Complaint, the United States filed a counterclaim against Anderson for recovery of the rest of the penalty assessment (which aggregates $117,631.74) — see also the jurisdictional provision of Section 7402(a).

3. Finally, the United States has also filed a Crossclaim against Anthony Pusateri ("Pusateri") for recovery of the same 100% penalty.

At issue in the case is whether, during the calendar quarters at issue (those ended June 30, September 30 and December 31, 1986), Anderson (then the President and a 50% shareholder of the employer, Diamond Limousine Manufacturing Corporation ("Diamond")) and Pusateri (then Diamond's Vice-President and 50% shareholder) were "responsible persons"² under Section 6672(a) so as to be liable when Diamond did not pay the withheld taxes.

Following the parties' joint submission of a proposed Final Pretrial Order ("FPTO") to provide the backdrop for trial of the case, the United States announced its intention to file a motion in limine to bar certain evidence as inadmissible. After considerable tugging and hauling, the parties have also filed a stipulation of agreed facts calculated to focus the issues posed by the motion in limine. That motion has now been fully briefed, and this opinion explains the reasons for granting the motion.

Facts³

It is undisputed that Diamond failed to pay over the withheld employment taxes (income taxes and social security taxes) in the manner required by statute for the calendar quarters at issue. And at least for current purposes, it may be assumed that both Anderson and Pusateri were responsible persons as to Diamond throughout that period.⁴ In any event, there is no question that Diamond's continued operation during that period involved the payment of other obligations to other creditors — that is, Diamond's funds were used to finance its operations and not to lodge the withheld taxes with the United States.

What instead serves as the predicate for Anderson's claim and for the Anderson-Pusateri defense to the United States' Counterclaim and Crossclaim — the evidence that the United States seeks to bar via its motion in limine — stems from events after Diamond had paid the wages to its employees and had withheld from those payments the employment taxes that were not thereafter turned over to the government. Toward the end of the third of the three calendar quarters (in December 1986) Diamond had something over $250,000 in its checking account, but its bank latched onto those funds to pay Diamond's bank indebtedness in that month.⁵

With Diamond thus placed in deep financial distress, it entered into an agreement on December 23, 1986 to sell its assets to newly-formed Sterling Limousine Manufacturing Corporation ("Sterling"). As part of that transaction Sterling agreed to assume Diamond's unpaid withholding taxes in an amount not to exceed $180,000. After Sterling took over, discussions ensued between Sterling and the Internal Revenue Service, but the United States would not accede to Sterling's proposed limitations on its rights to collect the taxes. Consequently the transaction ultimately unraveled, with the amount now at issue still unpaid.

"Responsible Person" Liability

Section 3102(a) requires an employer to withhold employment taxes from its employees' wages, and Section 7501(a) compels the employer to treat the withheld taxes as a "special fund in trust for the United States." Although Reg. § 31.6011(a)-4 requires quarterly payroll tax returns to be filed within one month after the end of each calendar quarter, the employer's tax liability arises when the wages are paid (with the withheld portion being kept by the employer), and not on the later due date of the quarterly tax return.

To protect the fisc against losses if employers fail to remit those trust fund taxes to the government, Section 6672(a) provides another source of responsibility — the persons who are required to collect and pay over for the employers. And Section 6671(b) defines a "person" for that purpose as "including an officer or employee of a corporation ... who as such officer or employee ... is under a duty to perform the act in respect of which the violation occurs." Section 6672(a) accomplishes its purpose by imposing a 100% penalty on any such person who willfully fails to collect or pay over the tax.

All of that is conceded by Anderson and Pusateri — indeed, their own Mem. 3-4 on the current motion says precisely that. What Anderson and Pusateri fail to acknowledge, however, is the time at which willfulness is to be evaluated in order to determine the existence or nonexistence of individual liability of responsible persons for the Section 6672(a) penalty. Slodov, 436 U.S. at 246-50, 98 S.Ct. at 1784-87 rejected the notion that Section 6672(a) liability is imposed on a person "only if all three duties — (1) to collect, (2) truthfully account for, and (3) pay over — were applicable to him with respect to the tax dollars in question" (id. at 247, 98 S.Ct. at 1785). And in the course of so holding, Slodov plainly signaled that Section 6672(a) liability arises as soon as the obligation to collect — that is, the withholding obligation itself — arises. This Court's colleague Honorable Marvin Aspen has put the matter succinctly in Mulee v. United States, 648 F.Supp. 1181, 1185, 1186 (N.D.Ill.1986) (numerous citations omitted):

Liability for the taxes attaches upon their collection, not upon the date set for filing the return.

* * * * * *

In the present case, the responsible person had a duty to keep the withheld taxes as sic trust from the day the taxes were withheld, regardless of the due date of the tax return.

Although our Court of Appeals' opinion in Monday v. United States, 421 F.2d 1210 (7th Cir.1970) focused primarily on the legal test for willfulness rather than on the timing issue just discussed, its thrust is clearly in accord with what has just been said.⁶ Monday, id. at 1216 confirmed that willfulness does not require any intent to defraud or to deprive the United States of taxes, and that there is no need to show bad motives or wicked design on the part of the responsible person. Instead Monday, id. approved this jury instruction on the willfulness issue:

An act is willful if it is voluntary, conscious, and intentional. If you find that plaintiff and/or third-party defendant knowingly used available funds to

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