Calderone v. U.S.

Decision Date02 September 1986
Docket NumberNo. 85-1493,85-1493
Citation799 F.2d 254
Parties-5703, Unempl.Ins.Rep. CCH 16,931 Anthony A. CALDERONE, Clark Hornbaker, Plaintiffs-Counterclaim Defendants- Appellees, v. UNITED STATES of America, Defendant-Counter-Claimant-Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

Joel M. Shere, L. Michael Wicks, Detroit, Mich., David S. Grossman, Tax Div., U.S. Dept. of Justice, Washington, D.C., Michael L. Paup (Lead Counsel), Glenn L. Archer, Jr., Wynette J. Hewett, Martha B. Brissette argued, for defendant-counter-claimant-appellant.

Walter J. Murray argued, Theresa M. Carbott, Southfield, Mich., John C. Augustine argued, Austin, Tex., for plaintiffs-counterclaim defendants-appellees.

Before: LIVELY, Chief Judge; MILBURN, Circuit Judge; and PECK, Senior Circuit Judge.

MILBURN, Circuit Judge.

Defendant/Counterclaimant United States of America appeals from the district court's grant of summary judgment in favor of plaintiffs Anthony Calderone and Clark Hornbaker in this action involving Internal Revenue Service assessments under I.R.C. Sec. 6672(a) 1 against plaintiffs for social security taxes withheld from wages paid to corporate employees of Calderone-Curran Ranches, Inc. for the six-month period February through July of 1975. In granting summary judgment, the district court held (1) that the government failed to meet its burden to prove that Hornbaker was a "responsible person" under the statute; (2) that although Calderone was a "responsible person," he did not "willfully" fail to see that the corporation paid the taxes; and (3) that IRS Policy Statement P-5-60 requires the government to seek collection of the taxes from the corporate assets of the employer before assessing responsible officers. Because the district court misapplied IRS Policy Statement P-5-60, erred in assigning the burden of proof, and, more importantly, because disputed genuine issues of material fact are present, we reverse and remand.

I.

Taken in the light most favorable to the government, the party who defended against the motion for summary judgment, see, e.g., Bosely v. City of Euclid, 496 F.2d 193, 197 (6th Cir.1974), the facts are as follows:

In 1968, Anthony Calderone and John Curran formed Calderone-Curran Ranches, Inc., a Michigan corporation, to raise and sell purebred cattle. Calderone served as president, general manager, treasurer, and chairman of the board of directors of the corporation from its inception until his resignation in August, 1975. As president and general manager, Calderone had the authority to hire and fire corporate employees, as well as the authority to direct which creditors of the corporation would be paid and when they were to be paid. Calderone possessed and exercised the authority to sign checks on the corporation's various bank accounts.

In 1972, Calderone hired Hornbaker, a certified public accountant, to serve as controller of the corporation. Hornbaker was eventually promoted to vice-president of finance, a title he retained until he was fired by Calderone on August 1, 1975. As vice-president of finance, Hornbaker had the authority to hire and fire corporate employees within his department. It is undisputed that at least until the "early" part of 1975, Hornbaker was responsible for managing the financial and accounting affairs of the corporation, including the filing and payment of federal employment taxes. In fact, Hornbaker signed a corporate check in April of 1975 to pay the corporation's delinquent social security taxes for 1974 which he deposed he was responsible for paying. Hornbaker, like Calderone, possessed and exercised the authority to sign checks on the corporation's bank accounts.

During 1974, the corporation began to experience financial difficulties due to the increasing costs of its operations. From February 1975 through July 1975, the corporation failed to pay over to the United States social security taxes withheld from its employees' wages. Notwithstanding the general deterioration of the corporation's financial condition, the bank statements for the company's general account during the relevant period indicated that checks were written to other creditors, including Calderone, in amounts more than sufficient to satisfy the withholding taxes involved here.

On August 7, 1975, the corporation filed a Chapter 11 petition for bankruptcy. The trustee in bankruptcy made a distribution in the amount of $5,156.02 to the government from the bankruptcy estate in partial payment of the corporation's delinquent social security taxes. The United States filed a claim in the bankruptcy proceeding for the balance of the unpaid social security taxes owed by the corporation. Distribution of the bankruptcy estate has since been delayed by fraud litigation concerning the corporation's only substantial assets, fixed term notes receivables.

On March 30, 1981, the IRS made a section 6672 assessment against Calderone for the taxes withheld from the wages paid to corporate employees from the period February to July 1975, totaling some $20,288.04. Calderone paid $43.86, representing a divisible portion of the withheld social security taxes and filed a claim for refund. His claim was denied, and on September 8, 1982, he filed a refund suit in the United States District Court for the Eastern District of Michigan. The United States filed a counterclaim for $20,244.18, plus interest, the balance of the assessment.

On April 26, 1982, the IRS made a similar section 6672 assessment against Hornbaker. On January 4, 1983, Calderone and the government agreed by stipulation to the addition of Hornbaker as a defendant on the counterclaim of the United States, and the government filed an amended answer and counterclaim asserting that Calderone and Hornbaker were jointly and severally liable for the withholding taxes. Thereafter, on February 4, 1983, Hornbaker filed suit in the United States District Court for the Western District of Texas seeking a refund of the $112.32 which he had paid in partial satisfaction of his section 6672 assessment. The Texas district court transferred Hornbaker's case to the Eastern District of Michigan where it was consolidated with the action brought by Calderone.

The parties filed countermotions for summary judgment. While the motions were pending, Calderone and Hornbaker sought a stay on the ground that they expected the taxes to be satisfied by a distribution from the bankruptcy estate of the corporation. The action was stayed for one year, until November 1984. After the expiration of the one-year stay, a hearing was held on the parties' countermotions for summary judgment. At the conclusion of the hearing, the trial court announced its opinion from the bench, ruling in favor of Calderone and Hornbaker. Additional facts will be discussed below.

II.
A. IRS Policy P-5-60.

Before turning to the arguments unique to each plaintiff, we will address the district court's holding "[t]hat the Government has the obligation to look first to the corporate assets of Calderone-Curran Ranches, Inc...." The district court based this statement on Policies of the IRS Handbook P-5-60 (approved 6-2-77), which provides in relevant part:

If a corporation has willfully failed to collect or pay over employment taxes, ..., the 100-percent penalty will be asserted against responsible officers and employees of the corporation only if such taxes cannot be collected from the corporation itself.

Plaintiffs also rely on the following "quote" from McCarty v. United States, 437 F.2d 961, 194 Ct.Cl. 42 (1971):

The test for liability under Sec. 6672 is not whether the corporate obligation has been met, but whether the taxes cannot be or could not be collected and whether there are no tangible assets against which distraint can be made.

Calderone's Brief at 20 (adopted by Hornbaker) (purporting to quote 437 F.2d at 972) (emphasis by the court).

Plaintiffs have blatantly misquoted the court of claims by inserting the phrase "for liability under Sec. 6672," which does not appear in the opinion. Rather, the court of claims stated: "A careful reading of the portions of the memorandum quoted above shows that the test is not whether the corporate obligation...." Plaintiffs' misquote cannot be considered an excusable misstatement of the court's actual holding. The court clearly was not referring to the test "for liability under Sec. 6672." Rather, the court was unambiguously referring to IRS Internal Memorandum No. 56-46, dated April 9, 1956, which was a policy statement similar to Policy P-5-60. Moreover, the court was not setting forth a "test for liability" but rather was interpreting the internal memorandum. Counsel should take this as a warning that such misrepresentations to this court will not be tolerated.

In any event, McCarty, as distinguished over the years, does not stand for the broad proposition asserted by plaintiffs. In McCarty,

a corporation officer was held not to be subject to the penalty assessment where the IRS, after placing tax liens on the corporation's assets, failed, subsequent to the Navy's taking over the management and control of the company under a V-loan guarantee agreement, to enforce the liens and otherwise to collect the delinquent withholding taxes from such assets despite a prior agreement between the corporation and the IRS, which the Navy knowingly breached, to pay such delinquent taxes in monthly installments. The IRS specifically agreed with the Navy that the tax indebtedness would be subordinate to the Government loans.

Burack v. United States, 461 F.2d 1282, 1297, 198 Ct.Cl. 855 (1972) (restating facts in its prior McCarty opinion). As has been observed:

The facts in McCarty are particularly egregious: one arm of the government was responsible for the breach of an agreement with another arm of the government, and then the government decided to go after an individual who was not at all responsible for the...

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