Gray v. United States

• Decision Date: 22 March 1984
• Docket Number: Civ. A. No. 81-1386.
• Citation: 586 F. Supp. 1127
• Parties: Robert J. GRAY, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Kansas

586 F. Supp. 1127

Robert J. GRAY, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 81-1386.

United States District Court, D. Kansas.

March 22, 1984.

Daniel W. Forker, Jr., of Hodge, Reynolds, Smith, Peirce & Forker, Hutchinson, Kan., for plaintiff.

Glen R. Dawson, Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendant.

OPINION AND ORDER

THEIS, Senior District Judge.

This is an action by Robert J. Gray Gray to recover a tax penalty assessed against him pursuant to 26 U.S.C. § 6672 for failure to pay to the government federal employment taxes withheld from employees' wages. Defendant United States of America United States has filed a counterclaim for the balance of the tax penalty levied against Gray. This case is currently before the Court on the motion of the United States for summary judgment. For the reasons that follow, this motion shall be granted.

The following facts, having not been disputed by Gray in accordance with Local Rule 15(c), are deemed admitted for the purposes of this summary judgment motion.

In 1978, several sporting goods stores merged into a single corporation which was called G.W. Sporting Goods, Inc. G.W.. Gray was named the President of this new corporation. The by-laws of G.W. established Gray's responsibilities as President of G.W. as including:

The President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. He shall preside at all meetings of the stockholders and of the Board of Directors. He shall sign, with the Secretary or other proper officer, all corporate documents and instruments which the Board of Directors has authorized to be executed, or as required by law and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time.

Dk. No. 17, Exhibit C. Gray was also the managing officer of G.W., a member of the Board of Directors, and the principal stockholder.

Gray's duties at G.W. extended into the area of the corporation's finances. Gray was authorized to sign checks on behalf of G.W. although checks for more than $5,000 required two signatures. In fact, most of the checks for G.W. were written and signed by either Gray or Steve Morford, G.W.'s Secretary. The bills for the corporation originally went to Steve Morford. However, most of the bills were actually paid by Gray. Gray would also determine which of the creditors would be paid and in what sequence. Gray was also responsible for preparing the payroll with the aid of a bookkeeper.

In late 1979, it was apparent that G.W. was having serious financial problems. Gray resigned as President of G.W. on November 3, 1979. On November 26, 1979, the Kansas State Bank in Newton, Kansas took possession of the stores and assets of G.W. pursuant to G.W.'s security agreements with the Kansas State Bank. That same day, an involuntary petition in bankruptcy was filed against G.W. by several of its creditors under Chapter 11. The bankruptcy was later converted to a Chapter 7 liquidation bankruptcy.

During 1979, G.W. also began failing to deposit employment taxes withheld from employees' paychecks as required. See 26 U.S.C. § 7501. Specifically, G.W. failed to make deposits of employment taxes in the amounts of $20,231.40 for the second quarter of 1979 and $25,433.79 for the third quarter. After Gray resigned, G.W. made its tax deposits in the fourth quarter of 1979 for all corporate payrolls after November 1, 1979. However, during the month of October of 1979, G.W. failed to make required deposits of $4,073.88 in withheld employment taxes. Gray has admitted that he knew in February of 1979 that the employment taxes were not being paid.

Pursuant to 26 U.S.C. § 6672 § 6672, Gray was assessed for $39,976.64 of the unpaid employment taxes. Gray made a partial payment of $278.09, bringing his unpaid balance to $39,701.53 including fees and collection costs. The Internal Revenue Service I.R.S. was awarded a dividend of $17,442.38 from the bankruptcy estate of G.W. No request was ever made by Gray or any agreement ever made with the I.R.S. as to how those monies would be applied. Ultimately, $568.65 of the dividend was applied to the penalty assessment against Gray leaving a balance due of $39,132.88 plus interest. This suit then followed.

The Court is familiar with the limited conditions in which summary judgment may be granted. Summary judgment may be granted only if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The Tenth Circuit has noted that the relief offered by Rule 56 is "drastic, and should be applied with caution ...." Machinery Center, Inc. v. Anchor National Life Ins. Co., 434 F.2d 1, 6 (10th Cir.1970). Therefore, the Court must look at the record in the light most favorable to the non-moving party. Lindley v. Amoco Production Co., 639 F.2d 671 (10th Cir.1980); Prochaska v. Marcoux, 632 F.2d 848 (10th Cir.1980), cert. denied 451 U.S. 984, 101 S.Ct. 2316, 68 L.Ed.2d 841 (1981). Furthermore, before summary judgment may be granted, the moving party must establish its entitlement to summary judgment beyond a reasonable doubt. Madison v. Deseret Livestock Co., 574 F.2d 1027, 1037 (10th Cir. 1978); Mustang Fuel Corp. v. Youngstown Sheet & Tube Co., 516 F.2d 33, 36 (10th Cir.1975). Summary judgment should not be granted if circumstantial evidence or factual inferences tend to establish genuine issues for trial. Barber v. General Electric Co., 648 F.2d 1272 (10th Cir.1981); Frito-Lay, Inc. v. Retail Clerks Union, Local No. 7, 629 F.2d 653 (10th Cir.1980).

The United States assessed Gray with a 100 percent penalty pursuant to § 6672. That section provides that:

any person required to collect, truthfully account for, and pay over any employment withholding tax who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.

26 U.S.C. § 6672(a). Before Gray may be held liable under § 6672, two elements must be shown. First, he must be a "responsible person," one who is required to collect and pay over the taxes, and second, he must have "willfully" failed to have performed that duty. See Barnett v. United States, 594 F.2d 219 (9th Cir.1979); Burden v. United States, 486 F.2d 302 (10th Cir.1973). When there is no genuine issue as to any material fact regarding the issues of "responsibility" and "willfulness", summary judgment is appropriate. See, e.g., Barnett, supra; Mazo v. United States, 591 F.2d 1151 (5th Cir.1979) cert. denied 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54. The United States contends that there is no disputed issue of material fact in this case and that summary judgment for the United States is therefore appropriate. This Court agrees.

A "responsible person" includes an officer or employee of a corporation who has the authority and responsibility to insure that the withheld taxes are paid. Monday v. United States, 421 F.2d 1210 (7th Cir.1970) cert. denied 400 U.S. 821, 91 S.Ct. 38, 27 L.Ed.2d 48, 26 U.S.C. § 6671. Liability attaches under § 6672 to those in the corporate structure who have significant control over which creditors should be paid and when. Adams v. United States, 504 F.2d 73 (7th Cir.1974); Turner v. United States, 423 F.2d 448 (9th Cir.1970). Absolute control of the corporation's finances is not required. Hartman v. United States, 538 F.2d 1336 (8th Cir.1976); Turner, supra.

Some courts, in determining who is a responsible person, have looked to a number of factors: identity of officers, directors, and principle stockholders, duties of officers as outlined in the corporate by-laws, authority to sign checks on behalf of the corporation, identity of individuals who hire and discharge employees, identity of individuals in control of the corporate finances. See, e.g., Braden v. United States, 318 F.Supp. 1189 (S.D.Ohio 1970), aff'd 442 F.2d 342 (6th Cir.1971), cert. denied 404 U.S. 912, 92 S.Ct. 229, 30 L.Ed.2d 185. Other courts have utilized a rebuttable presumption that a person is a "responsible person" if he is the founder, chief stockholder, president, and member of the board of directors of the corporation. E.g., McCarty v. United States, 437 F.2d 961, 194 Ct.Cl. 42 (1971).

It is clear that, whichever test is employed, Gray may be considered a "responsible person." Gray was President, a director, and principle stockholder of G.W. His duties as President set forth in the corporate by-laws required him to "supervise and control all of the business and affairs of the corporation." Dk. No. 17, Exhibit C. He was authorized to sign checks on the corporation's behalf. He held substantial control over the corporate finances, determining which creditors would be paid and when, and often writing the checks himself. In short, Gray had sufficient control over the corporation and its finances to be considered a "responsible person" subject to liability under § 6672.

It is no defense that other individuals in the corporation may also have had sufficient control over the corporate finances to be considered "responsible persons" also. The liability under § 6672 is joint and several. Brown v. United States, 591 F.2d 1136 (5th Cir.1979); Hartman, supra. The United States can only collect the amount of unpaid employment taxes once but it may choose the party from whom it will collect. Abrams v. United States, 333 F.Supp. 1134 (S.D.W.Va.1971); Scherer v. United States, 228 F.Supp. 168 (S.D.Idaho 1963). Gray's argument that another individual in the...