Howard v. U.S.

• Citation: 711 F.2d 729
• Decision Date: 12 August 1983
• Docket Number: No. 82-1461,82-1461
• Parties: 83-2 USTC P 9528 Waymon Leon HOWARD, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 729

711 F.2d 729

83-2 USTC P 9528

Waymon Leon HOWARD, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 82-1461.

United States Court of Appeals, Fifth Circuit.

Aug. 12, 1983.

Jackson, Walker, Winstead, Cantwell & Miller, Anderson Wallace, Jr., Dallas, Tex., for plaintiff-appellant.

Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Richard Farber, Patricia A. Willing, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before CLARK, Chief Judge, THORNBERRY and RANDALL, Circuit Judges.

THORNBERRY, Circuit Judge:

INTRODUCTION:

Appellant Waymon Leon Howard [Howard] appeals the district court's grant of summary judgment to the United States finding him personally liable for unpaid federal withholding taxes owed the Internal Revenue Service by his employer. Concluding that Howard was a "responsible person" who, without reasonable cause, willfully failed to collect and pay over these taxes, we affirm.

FACTS:

Eden Marketing Corporation [Eden] was a Texas corporation engaged in the sale of skin care products to various control centers throughout the United States. It was incorporated on May 12, 1978, did business for a short while, and is currently without assets.

Appellant Howard was a director, minority shareholder, Treasurer, and Executive Vice-President of Eden from April 13, 1978 to September 12, 1978, when he resigned. Howard was responsible for Eden's day-to-day operations. Although Mr. Paul Jennings, CEO and majority shareholder, had final responsibility for hiring and firing, Howard hired and fired a number of employees with Jennings' approval during this period.

At the start of his tenure at Eden, Howard himself determined on several occasions which of Eden's bills were to be paid. In May of 1978 Howard caused $8,000 in back taxes to be paid the IRS. The IRS credited this money to the liability of one of Jennings' predecessor partnerships, with which Howard had no connection. Jennings became extremely upset when he learned of Howard's action, and ordered Howard not to pay the IRS any more money. Jennings subsequently relieved Howard of his duties with Eden for several weeks.

Upon being reinstated, Howard was instructed by Jennings not to pay any more bills without Jennings' approval. Although Jennings generally told Howard which creditors he should pay and when, Howard did issue small checks without Jennings' approval on a number of occasions.

From May 12, 1978 to July 6, 1978, Howard was the only authorized signatory on Eden's main checking account, and wrote most of the company's checks. From July 6, 1978 until September 7, 1978, Howard and Comptroller Richard Jameson, an employee working under Howard's supervision, were the only authorized signatories on this account. The bank required only one signature on checks drawn on this account.

Eden incurred employment tax liability for the second, third and fourth quarters of 1978 in the amount of $30,388.53. These taxes included federal income taxes withheld from employees, the employee portion of FICA (Social Security) taxes withheld from Eden's employees, and the employer portion of FICA taxes. Howard was aware that taxes were due and owing to the IRS, at least in some amount, as early as June 1978. At some point during the summer of 1978, Howard contacted a senior IRS official who was also a deacon at his church and asked what he should do about Eden's unpaid taxes. Howard testified at his deposition that the official suggested that he write a letter to the IRS explaining the situation. Howard did not write the letter right away. He continued fulfilling his duties at Eden throughout the summer, writing at least 36 checks to creditors other than the IRS during that period. Howard officially resigned from Eden on September 12, 1978. In his letter of resignation, Howard advised Jennings of his concern over Eden's unpaid taxes. ¹ By letter dated September 20, 1978, Howard advised the local District Director of the IRS that Eden owed somewhat in excess of $30,000 in back taxes. ² Howard did not mention in this letter either his conversation with the senior IRS official, or Jennings' instructions that he pay no further taxes to the IRS without Jennings' approval.

At the time Howard wrote this letter, Eden still had a substantial amount of money on deposit at its bank, as well as substantial assets in the form of inventories and accounts receivable. The IRS did not move to collect the taxes Eden owed until over two years later. By that point, Eden was without assets.

The IRS then issued assessments in the amount of the unpaid taxes under section 6672(a) of the Internal Revenue Code ³ against both Howard and Jennings. Howard was assessed $22,671.76, representing all of Eden's unpaid federal and FICA employees' withholding taxes for the second and third quarters of 1978. Howard paid a small portion of this assessment and instituted suit for a refund. The IRS counterclaimed for the unpaid balance of the assessment, and attempted to bring Jennings into the suit as an additional defendant on the counterclaim. Unfortunately, the IRS was unable to effect personal service on Jennings. The district court granted the IRS' motion for summary judgment based on the undisputed facts set forth above. The court determined that: (1) Howard was a person responsible for the collection and payment of taxes under sections 6671(b) and 6672(a); (2) Howard willfully failed to pay over the taxes owed; and (3) Howard lacked a saving "reasonable cause" for his willful failure to pay these taxes. Howard appeals that decision to this Court.

ANALYSIS:

Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In considering whether to grant a motion for summary judgment, the court must view the evidence in the light most favorable to the party opposing the motion. Trevino v. Celanese Corp., 701 F.2d 397, 407 (5th Cir.1983).

Sections 3102 and 3402 of the Internal Revenue Code require employers to withhold federal income tax and social security taxes from their employees' wages. The money withheld constitutes a special fund held in trust for the United States. I.R.C. § 7501 (1977). Each employee is credited by the Government with the taxes withheld from his wages, even if they are never remitted to the Government. 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). When a corporate employer neglects to pay the required taxes, section 6672(a) authorizes the Government to assess the full amount of taxes due against the corporation's responsible officers in the form of a penalty. Slodov v. United States, 436 U.S. 238, 98 S.Ct. 1778, 1783, 56 L.Ed.2d 251 (1978); Moore v. United States, 465 F.2d 514, 517 (5th Cir.1972), cert. denied, 409 U.S. 1108, 93 S.Ct. 907, 34 L.Ed.2d 688 (1973). This penalty is distinct from and in addition to the employer's liability for these taxes. Newsome v. United States, 431 F.2d 742, 745 (5th Cir.1970).

Before it may assess the penalty under section 6672(a) for employees' unpaid federal income and FICA taxes, the IRS must show that the person assessed was a person responsible for the payment of those taxes who, without reasonable cause, willfully failed to collect, account for or pay over the taxes to the IRS. See note 3, supra.

Responsible Person

The district court found that Howard was responsible for the collection and payment of taxes under I.R.C. sections 6671(b) and 6672(a). Howard argues that he was not a "responsible person" under these two statutes because: (1) he was not the majority shareholder in Eden; (2) CEO Paul Jennings, who had ultimate control over all payments by Eden to private creditors and to the IRS, ordered him not to pay any taxes; and (3) the IRS did not seek to impose the section 6672(a) penalty on Rick Jameson, one of Howard's subordinates who, like Howard, was authorized to write checks on Eden's main checking account.

Howard's arguments are without merit. The fact that he was a minority shareholder is itself legally insufficient to establish that he was not a "responsible person," and is relevant only to the extent that it supports his second argument, that he was merely following Paul Jennings' orders in refusing to pay the taxes owed.

Responsibility in this context is a matter of status, duty and authority. Mazo, 591 F.2d at 1156. Howard was a director, minority shareholder, Treasurer and Executive Vice-President of Eden during the second and third quarters of 1978. He ran Eden's day-to-day operations. He was the sole signatory on the corporation's main checking account for a substantial portion of that period, and shared check-signing authority with Rick Jameson for the remainder of the relevant period. During a prior quarter, it was he who directed that $8,000 in back taxes be paid the IRS. See Brown v. United States, 464 F.2d 590, 591 (5th Cir.1972) ("responsible person" was person successful in securing payment of withholding taxes during prior quarter), cert. denied, 410 U.S. 908, 93 S.Ct. 962, 35 L.Ed.2d 270 (1973). Howard's duties, prerogatives, and prior acts are more than sufficient to establish that he was a "responsible person" for the purpose of section 6672(a) liability. Commonwealth National Bank of Dallas v. United States, 665 F.2d 743, 755 (5th Cir.1982) (lending bank officer with power to see that corporate borrower's taxes were paid, and to make decisions as to disbursement of funds, was a "responsible person"); Mazo, 591 F.2d at 1155-56 (general manager in charge of corporation's day-to-day...