George v. U.S., 86-3338

• Decision Date: 19 June 1987
• Docket Number: No. 86-3338,86-3338
• Citation: 819 F.2d 1008
• Parties: -5214, 87-2 USTC P 9384, Unempl.Ins.Rep. CCH 17,385 Chester I. GEORGE, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1008

819 F.2d 1008

60 A.F.T.R.2d 87-5214, 87-2 USTC P 9384,

Unempl.Ins.Rep. CCH 17,385

Chester I. GEORGE, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 86-3338.

United States Court of Appeals Eleventh Circuit.

June 19, 1987.

Carroll S. Barco, Orlando, Fla., for plaintiff-appellant.

Roger M. Olsen, Asst. Atty. Gen., Tax Div., Dept. of Justice, Washington, D.C., Michael L. Paup, Chief, Appellate Section, Kendell W. Wherry, Asst. U.S. Atty., Orlando, Fla., Richard Farber, Robert S. Parish, Jr., Tax Div. Dept. of Justice, Washington, D.C., Robert S. Parish Jr., Dept. of Justice, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before ANDERSON and CLARK, Circuit Judges, and SIMPSON ^*, Senior Circuit Judge.

CLARK, Circuit Judge:

This is an appeal by the taxpayer, Chester I. George, from a district court order granting the government's motion for directed verdict. The district court found that George was a "responsible person" within the meaning of Sec. 6672 of the Internal Revenue Code of 1954 who willfully failed to collect or pay over to the United States government the federal employment taxes withheld from employees' paychecks. We reverse the district court order because we find that the issue of George's willfulness should have been decided by the jury.

I. PROCEEDINGS

The taxpayer, Chester I. George, filed suit to recover $100 which he had paid on a penalty of $26,513.61 assessed against him pursuant to Sec. 6672 of the Internal Revenue Code of 1954 ¹ for failure to collect and pay over federal employment taxes withheld from the wages of the employees of Peninsula Marketing Associates, Inc. (Peninsula) during the last two quarters of 1978 and the first, second and fourth quarters of 1979. The government filed a counterclaim against the taxpayer for the unpaid balance of the deficiency amounting to $26,413.61 plus interest. The government joined George's associate, Norman Rothbaum, as a third-party defendant on the counterclaim and sought from him $26,513.61 plus interest. Rothbaum failed to appear and a default judgment was entered against him in favor of the government.

The case was tried before a jury on March 19, 1986. After George rested his case, the government moved for a directed verdict, which was granted by the district court on March 20, 1986. Evidence was submitted on the government's counterclaim, and the district court determined

that the government was entitled to the assessed amount. The district court issued an amended order on April 4, 1986, dismissing George's complaint with prejudice and awarding judgment in favor of the government on its counterclaim. On April 25, 1986, the district court denied George's motions for a new trial and for other relief.

II. FACTS

The facts relevant to this appeal are largely undisputed. During 1974-75, George and Rothbaum began a partnership for the purpose of conducting a wholesale marketing business, which they subsequently incorporated in Florida under the name of Peninsula Marketing Associates, Inc. (Peninsula). Rothbaum was president and George was vice-president of the company, and each owned fifty percent of the stock. Rothbaum's responsibilities included managing the office located near his home in Ft. Lauderdale, and maintaining the company's books and bank accounts. George, who lived in Orlando, had primary responsibility for the sales aspect of the business. Both men were signatories on the corporate checking accounts and could draw checks individually. Rothbaum retained the corporate checkbook and signed all checks, primarily because of his proximity to the corporate office. Rothbaum sent George blank checks to use when he needed funds, which George kept in a safe at home.

In March, 1980, Rothbaum agreed to purchase George's interest in Peninsula for $100,000, to be paid in quarterly installments of $2,500, and to retain George as a salesman on a commission basis. The agreement became effective April 1, 1980. George testified that he was not authorized to sign corporate checks after this date. Record, Vol. III at 20. It is unclear whether George learned that Peninsula's taxes had not been paid prior to his departure as a principal of the company.

Pursuant to the agreement with Rothbaum, George worked as a salesman for Peninsula from April 1 until mid-August, 1980. George testified that in August he became annoyed with Rothbaum because he had not received all of the commissions or quarterly payments due him, and was unable to meet his household expenses. Id. at 18. George stated that he subsequently contacted five manufacturers represented by Peninsula and explained his situation. The manufacturers agreed to do business directly with George, and not Peninsula, in Northern Florida. George testified that he expected to receive $40,000 in future gross income from these five accounts. Id. at 18-19.

Peninsula collapsed in late 1980. When the IRS failed to collect the delinquent taxes from Peninsula, it assessed George and Rothbaum $26,513.61 under I.R.C. Sec. 6672.

On October 30, 1981, George sued Rothbaum and Peninsula in the Circuit Court of the Ninth Judicial Circuit for Orange County, Florida for breach of their business separation agreement. On November 2, 1981, George recorded a notice of lis pendens on a condominium jointly owned by him and Rothbaum. A settlement was negotiated whereby Rothbaum would quitclaim his interest in the condominium to George, subject to the outstanding mortgage, in exchange for George assigning all of his rights in Peninsula, including the unpaid commissions, to Rothbaum. The condominium was transferred by quitclaim deed on May 18, 1982. However, the government had issued a notice of tax lien against Rothbaum's interest in the condominium prior to this date on April 14, 1982, and against George's interest on May 10, 1982.

III. DISCUSSION

George challenges (1) the district court order granting the government's motion for a directed verdict on the issues of responsibility and willfulness; (2) the accuracy of the assessment; and (3) the sufficiency of the evidence supporting both the initial and amended district court orders.

A. Liability

A motion for directed verdict should be granted only when, viewing the evidence as George's liability for the unpaid taxes is predicated upon his being a "responsible person" within the meaning of Sec. 6672 who willfully failed to turn over to the government federal employment taxes withheld from employees' paychecks. ³ Liability may be imposed only upon (1) a responsible person, who has (2) willfully failed to perform a duty to collect, account, or pay over the taxes. Mazo v. United States, 591 F.2d 1151, 1153 (5th Cir.), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). We review the evidence to determine whether, drawing all reasonable inferences in the taxpayer's favor, a reasonable jury would have been required to find that George satisfies both of these conditions.

                a whole and drawing all reasonable inferences in favor of the non-moving party, reasonable jurors could not reach a contrary verdict.   Dancey Co., Inc. v. Borg-Warner Corp., 799 F.2d 717, 719 (11th Cir.1986);  Hewitt v. United States, 377 F.2d 921, 924 (5th Cir.1967). 2
                

1. Responsible Person

A responsible person within the meaning of Sec. 6672 includes an officer or employee of a corporation who is under a duty to collect, account for, or pay over the withheld tax. Mazo, 591 F.2d at 1153. Responsibility is a "matter of status, duty and authority, not knowledge." Id. at 1156. 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. It is undisputed that more than one person may be a "responsible person" for an employer. Roth v. United States, 779 F.2d 1567, 1571 (11th Cir.1986).

The district court found George to be a responsible person because he admitted to being a vice-president, director and fifty percent shareholder of the corporation. Also, George testified that he was a signatory on the corporate bank account and had blank checks in his possession. Record, Vol. III at 39, 48. Furthermore, George had the ability to hire and fire employees. Under these facts, we conclude as a matter of law that the appellant was a responsible person within the meaning of the statute. Rothbaum's role in managing most of the corporation's financial affairs does not detract from George's duty as an officer, director and shareholder to insure that the withheld taxes be paid to the government. Thus, the issue of responsibility did not need to be presented to the jury, and was properly decided by the district court.

2. Willfulness

Once it is established that a taxpayer is a responsible person, the burden of proving lack of willfulness is on the taxpayer. Mazo, 591 F.2d at 1155. The Supreme Court has ruled that Sec. 6672 precludes the imposition of liability without personal fault. Slodov v. United States, 436 U.S. 238, 255, 98 S.Ct. 1778, 1788, 56 L.Ed.2d 251 (1978). Within this parameter, the term willfulness has been interpreted broadly to encompass a range of actions by responsible persons. In Mazo, the former Fifth Circuit defined "willfully" as "meaning, in general, a voluntary, conscious and intentional act." Mazo, 591 F.2d at 1154. The willfulness requirement is met if the responsible person prefers other creditors to the government, or shows a "reckless disregard of a known or obvious risk that trust funds may not be remitted to the government such as by failing to investigate or to correct mismanagement after As an officer, director and owner of the corporation, George cannot avoid his obligation to insure that employment taxes are collected and paid over to the government by delegating his duty to Rothbaum. Once he discovered that there...