Bradley v. U.S.

• Decision Date: 24 June 1991
• Docket Number: D,No. 550,550
• Citation: 936 F.2d 707
• Parties: -5174, 60 USLW 2058, 91-2 USTC P 50,332, Unempl.Ins.Rep. CCH 16103A Charles E. BRADLEY and David P. Agnew, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. ocket 90-6206.
• Court: U.S. Court of Appeals — Second Circuit

Page 707

936 F.2d 707

68 A.F.T.R.2d 91-5174, 60 USLW 2058, 91-2

USTC P 50,332,

Unempl.Ins.Rep. CCH 16103A

Charles E. BRADLEY and David P. Agnew, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 550, Docket 90-6206.

United States Court of Appeals, Second Circuit.

Argued Nov. 26, 1990.

Decided June 24, 1991.

Martin A. Stoll, New York City, for plaintiffs-appellants.

Robert I. Baker, Atty., Tax Div., Dept. of Justice, Washington, D.C. (Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, Kenneth L. Greene, Attys., Tax Div., Dept. of Justice, Washington, D.C., Stanley A. Twardy, Jr., U.S. Atty., D.Conn., Hartford, Conn., of counsel), for defendant-appellee.

Before ALTIMARI and MAHONEY, Circuit Judges, and SPRIZZO, District Judge. ^*

MAHONEY, Circuit Judge:

The Internal Revenue Code requires employers to deduct income and social security taxes from their employees' wages, and to hold these sums in trust for the United States. 26 U.S.C. Secs. 3102(a), 3402(a), 7501(a) (1988). In addition, 26 U.S.C. Sec. 6672(a) (1988) ¹ provides that officers or employees of a corporation who willfully fail to collect and pay over these "trust fund taxes" are liable to a penalty equal to the amount of the delinquent taxes. 26 U.S.C. Sec. 6601(e)(2)(A) (1988) ² imposes interest on assessable penalties.

This appeal presents the question whether two individuals who were assessed with section 6672(a) penalties are liable for section 6601(e)(2)(A) interest for a period preceding the pertinent employer's payment of delinquent trust fund taxes during which that employer was in bankruptcy. The United States District Court for the District of Connecticut, T.F. Gilroy Daly, Judge, found such liability, and we affirm.

Background

From 1979 to 1981, Maxim Industries, Inc. ("Maxim") failed to pay over to the United States $353,458.04 in trust fund taxes relating to employees' wages. Pursuant to section 6672(a), the Commissioner assessed separate penalties, equivalent to the amount of unpaid taxes, against plaintiffs Charles E. Bradley and David P. Agnew. The plaintiffs paid a portion of the penalties and brought this action in district court, seeking a refund and an abatement of the balance of the assessment. The United States counterclaimed, demanding judgment for the balance of the assessment against each plaintiff.

In June 1987, the parties stipulated to dismissal of the action subject to reinstatement (the "1987 Stipulation"). By this time, Maxim had emerged from a period of Chapter 11 reorganization that ran from the filing of a petition for bankruptcy on December 29, 1981 to confirmation of a plan of reorganization on July 22, 1985. The 1987 Stipulation provided in pertinent part:

8. Maxim expects to receive funds in the Spring of 1988 and the Spring of 1989 which will be sufficient to pay the [balance] of trust fund taxes plus applicable interest.

9. If Maxim makes the payments to the [Internal Revenue] Service referred to in paragraph 8 hereof, the Defendant will have collected the entire trust fund liability plus interest, and the Defendant will therefore abate the unpaid part of the assessments made against the Plaintiffs.

NOW, THEREFORE, to avoid a trial of this matter, the parties agree as follows:

1. This matter shall be dismissed without prejudice, subject to the right of either party to reinstate the case as follows:

. . . . .

3. If the amount equal to the total counterclaim, plus interest, has not been paid by Maxim or the Plaintiffs by June 1, 1989, either party may reinstate this case.

In June 1988, Maxim paid the balance of the trust fund taxes and interest for all periods of delinquency except the time during which Maxim was in bankruptcy. On the government's motion and over the plaintiffs' objection, the district court reinstated the action pursuant to the 1987 Stipulation. The plaintiffs moved for summary judgment as to all claims on the ground that there was no valid legal basis for the assessments against them, and the government cross-moved for summary judgment.

The district court denied these motions, whereupon the parties stipulated to the entry of judgment against the plaintiffs for $210,460.68 plus interest, an amount representing the unpaid interest on the trust fund taxes for the period of Maxim's bankruptcy. In this stipulation, the plaintiffs expressly reserved the right to appeal from the reinstatement of the suit and the denial of their summary judgment motion, and the government agreed not to enforce or execute upon the agreed judgment pending the outcome of this appeal. By this procedure, plaintiffs have forgone the opportunity for a trial of the factual issues regarding their status as section 6672(a) responsible persons and willful failure to pay over the trust fund taxes in exchange for immediate appeal of the legal issue presented by this appeal. Cf. Empire Volkswagen Inc. v. World-Wide Volkswagen Corp., 814 F.2d 90, 94 (2d Cir.1987) (plaintiffs allowed to appeal from grant of partial summary judgment to defendant, but lost opportunity for review of remaining claims voluntarily dismissed in order to obtain final appealable judgment).

This appeal followed.

Discussion

Significantly, the parties have stipulated that Maxim is not required to pay interest on the overdue trust fund taxes for the period that it was in bankruptcy. ³ With this starting point, the plaintiffs first contend that reinstatement of the suit was improper because the 1987 Stipulation contemplated the satisfaction only of Maxim's liability. They argue that the term "applicable interest" in paragraph 8 refers to Maxim's interest debt, which has been paid.

We agree, however, with the district court, which reasoned as follows:

The purpose of the stipulation was obviously to resolve the then pending dispute over plaintiffs' potential liability, not Maxim's liability. Absent a specific statement by the parties in the stipulation to the contrary, the most reasonable interpretation of the adjective "applicable" as it is used in the stipulation is as a reference to the interest that plaintiffs themselves would be liable for if they were found to be responsible parties.

This construction is buttressed by subsequent language in the stipulation that allows reinstatement "[i]f the amount equal to the total counterclaim, plus interest, has not been paid by Maxim or the Plaintiffs." The "total counterclaim" sought the full balance of the section 6672(a) assessments against the plaintiffs, and was pled in a lawsuit to which Maxim was not a party. Thus, the parties agreed that the government could reinstate the suit if the plaintiffs (or Maxim in their behalf) failed to satisfy their liability for interest on the section 6672(a) penalties. We consider next the nature and extent of that liability.

Essentially, plaintiffs contend that since Maxim has paid its tax liability and related interest, the Internal Revenue Code provides no authority for charging plaintiffs with interest for the period during which Maxim was in bankruptcy. This argument mischaracterizes the legal basis for the assessments against plaintiffs. Strictly speaking, liability under section 6672(a) is not derived from, or dependent upon, an employer's outstanding tax obligation. Rather, the section imposes a penalty upon persons who fail to perform a specified statutory task.

We have consistently held, therefore, that liability for such a penalty is separate and distinct from the employer's liability for trust fund taxes. See, e.g., Hochstein v. United States, 900 F.2d 543, 549 (2d Cir.1990) ("even if [the employer] had sought protection under the bankruptcy laws, the IRS still could have assessed against Hochstein himself a penalty equivalent to any unpaid taxes"); Spivak v. United States, 370 F.2d 612, 616 (2d Cir.) ("compromise of the claim against the bankrupt estate of the corporation cannot serve to release the responsible persons from their direct liability under the statute"), cert. denied, 387 U.S. 908, 87 S.Ct. 1690, 18 L.Ed.2d 625 (1967); Rosenberg v. United States, 327 F.2d 362, 364-65 (2d Cir.1964) (upholding liability of corporate officer under predecessor of section 6672(a) despite expiration of statute of limitations for assessing deficiency against corporate employer); see also Turchon v. United States, 77 B.R. 398, 401 (E.D.N.Y.1987) ("the separate...