Ballard v. U.S.
| Decision Date | 28 March 1994 |
| Docket Number | No. 93-8361,93-8361 |
| Citation | 17 F.3d 116 |
| Parties | -1613, 94-1 USTC P 50,152, Unempl.Ins.Rep. (CCH) P 17753A Emmanuel A. BALLARD, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Tom Joseph, Kay A. Elsasser, San Antonio, TX, for plaintiff-appellant.
Gary R. Allen, Patricia M. Bowman, William S. Estabrook, Tax Div., Dept. of Justice, Washington, DC, Ramona Stephens Notinger, Dept. of Justice, Dallas, TX, for defendant-appellee.
Appeal from the United States District Court for the Western District of Texas.
Before JOLLY, WIENER, and EMILIO M. GARZA, Circuit Judges.
When a partnership failed to pay its assessed payroll taxes, the government levied on the personal property of the plaintiff, asserting that the plaintiff was a general partner in the partnership and was thus liable for its debts and obligations. The plaintiff filed an action for wrongful levy, protesting that he was not a general partner. After a bench trial, the district court held, inter alia, that the plaintiff was a general partner in the partnership and was thus liable for the taxes. Finding no reversible error, we affirm.
On September 1, 1983, Messrs. Saks, Spruill, and Dominguez formed Omni/Vanir Vista Verde South Joint Venture ("Omni/Vanir") to manage certain real estate development projects. On August 1, 1984, the three joint venturers, or partners, amended the joint venture agreement to make Emmanuel Ballard and a Mr. Herrera partners. The amendment provided, inter alia, that Ballard would: (1) receive a five percent share in the profits and losses of Omni/Vanir; (2) not have to make a capital contribution in exchange for this interest; and (3) not share in the obligations of Omni/Vanir. On October 24, 1984, the parties amended the joint venture agreement to designate Saks and Spruill as managers for all major decisions of the joint venture. Although listed as an operations manager, Ballard could not effectively hire, fire, or set salaries, nor could he write checks or make any financial commitments on behalf of the joint venture. Ballard did, however, assist in managing the projects owned by the joint venture. Further, Ballard personally guaranteed millions of dollars of real estate loans for Omni/Vanir. Although Ballard understood that the other partners would assume the liabilities, that understanding was only among the partners themselves, and not between the Omni/Vanir and third parties, including the banks that made the loans. Omni/Vanir filed a partnership tax return that listed Ballard as a partner. Further, Ballard stated that he thought of himself as a partner even though he did not believe he would be liable for any partnership debts.
On January 27, 1986, Saks, Spruill, and Dominguez signed a letter agreement, identified by its own terms as an "offer" by Dominguez to purchase the joint venture interests of Saks and Spruill. The agreement was conditioned on Saks and Spruill's ability to obtain Ballard's conveyance of his interest in Omni/Vanir to Dominguez. The letter agreement provided that Dominguez acquired all management and control upon signing and would assume the debts and obligations--including those incurred between January 27 and closing--upon closing. Ballard moved out of the Omni/Vanir office on this date and performed no further active management role in the partnership. The sale, however, did not close until June 12, 1986, and between January 27 and June 12, Ballard may have received some partnership distributions. No document reflects when Ballard assigned his five percent interest in Omni/Vanir to Dominguez.
On May 14, 1990, the Internal Revenue Service ("IRS") assessed employment tax liabilities against Omni/Vanir for the two quarters ending June 30, 1986. To collect the assessment, the IRS filed notice of a federal tax lien against each of the Omni/Vanir partners, including Ballard. On January 31, 1991, the IRS served notice of levy on Alamo Title Company and seized, pursuant to the levy, a $51,667 real estate commission fee belonging to Ballard.
On June 17, 1991, Ballard filed this wrongful levy action pursuant to 26 U.S.C. Sec. 7426 asserting that he owes no part of Omni/Vanir's tax liability because he was not a partner in that entity. After a bench trial, the district court held that because Ballard was a partner in Omni/Vanir as a matter of federal law, he is liable for the joint venture's employment taxes. 1
On appeal, Ballard argues that state law controls whether he was a partner in Omni/Vanir, and that under Texas law he was not a partner. The government responds that federal law governs whether Ballard was a partner for tax purposes. The government argues that under federal law, which defines partnerships more broadly than state law, Ballard was a partner and thus jointly and severally liable for any taxes owed by the joint venture. We review the district court's findings of fact for clear error and its legal conclusions de novo. Colonial Penn Life Ins. Co. v. Market Planners Ins. Agency, Inc., 1 F.3d 374, 376 n. 3 (5th Cir.1993). We may affirm, however, on grounds other than those relied upon by the district court. J.B.N. v. Homco Int'l, Inc., 853 F.2d 337, 345 (5th Cir.1988).
It is not contested that the Omni/Vanir joint venture was liable, as an employer, for withheld payroll taxes under 26 U.S.C. Sec. 3403 and that for all purposes of this opinion the joint venture was a partnership. . Although federal law defines partnerships for purposes of applying the partnership income taxation scheme, see 26 U.S.C. Sec. 7701(a)(2) and Treas.Reg. Sec. 301.7701-3(a), it is state law that determines when a partner is liable for the obligations--including employment taxes--of his partnership. See United States v. Hays, 877 F.2d 843, 844 n. 3 (10th Cir.1989) (); Calvey v. United States, 448 F.2d 177, 180 (6th Cir.1971) ( ). Under Texas law, a joint venturer, or partner, is jointly and severally liable for all the debts of his partnership. Tex.Civ.Rev.Stat.Ann. art. 6132b Sec. 15 (West 1970). Further, this liability to third parties for the debts of the partnership exists notwithstanding any express stipulation among the partners as to how the partners will bear partnership liabilities. Holliday v. Taylor, 249 S.W.2d 941, 944 (Tex.Civ.App.1952, writ ref'd n.r.e.).
Under Texas law, a person is a member of a joint venture when he shares with the other joint venturers the following four attributes: (1) a community of interest; (2) an agreement to share profits; (3) an agreement to share losses; and (4) a mutual right of control or management. James v. Nico Energy Corp., 838 F.2d 1365, 1373 (5th Cir.1988); Coastal Plains Dev. Corp. v. Micrea, Inc., 572 S.W.2d 285, 287 (Tex.1978). Under the joint venture agreement, Ballard expressly shared in the profits and losses of Omni/Vanir. Thus, the question before this court is whether Ballard shared a community of interest with the other partners and whether his participation in management was sufficient to make him a joint venturer.
First, Texas defines a "community of interest" as "a commonly shared incentive between the parties as to the progress and goals of the joint venturers." Hasslocher v. Heger, 670 S.W.2d 689, 693 ...
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