In re Becker, Docket No. 03-5005.

• Decision Date: 28 April 2005
• Docket Number: Docket No. 03-5005.
• Citation: 407 F.3d 89
• Parties: In Re: Stuart BECKER, Debtor. Stuart Becker, Debtor-Appellant, v. Internal Revenue Service, Appellee.
• Court: U.S. Court of Appeals — Second Circuit

407 F.3d 89

In Re: Stuart BECKER, Debtor.

Stuart Becker, Debtor-Appellant, v. Internal Revenue Service, Appellee.

Docket No. 03-5005.

United States Court of Appeals, Second Circuit.

Argued: October 15, 2004.

Decided: April 28, 2005.

Stuart A. Smith, New York, New York for Debtor-Appellant.

Nicole Gueron, Assistant United States Attorney, New York, New York (David N. Kelley, United States Attorney for the Southern District of New York, David S. Jones, Assistant United States Attorney, New York, New York, on the brief), for Appellee.

Before: OAKES, KEARSE, and CALABRESI, Circuit Judges.

Judge CALABRESI dissents in a separate opinion.

KEARSE, Circuit Judge.

Debtor Stuart Becker appeals from a judgment of the United States District Court for the Southern District of New York, Lewis A. Kaplan, Judge, affirming an order of the United States Bankruptcy Court for the Southern District of New York, Cornelius Blackshear, Judge, entered after a trial, ruling that the Internal Revenue Service ("IRS") was entitled to assert a claim against Becker's bankruptcy estate for unpaid employment taxes despite the fact that the timely assessment against Becker for those taxes had been erroneously abated and was reinstated only after the limitations periods for making such assessments had expired. On appeal, Becker contends that the district and bankruptcy courts should have found the reinstatement ineffective because it was barred either by the statute of limitations or by principles of equitable estoppel. Finding no merit in his contentions, we affirm.

I. BACKGROUND

Under the Internal Revenue Code, 26 U.S.C. § 3101 et seq. ("Code" or "LR.C."), an employer is required to withhold from employee compensation, and remit to the government, employee income taxes, see I.R.C. § 3402, and taxes pursuant to the Federal Insurance Contribution Act ("FICA"), see id. § 3102 (collectively "withholding taxes" or "employment taxes"). See generally id. § 7501(a) ("Whenever any person is required to collect or withhold any internal revenue tax from any other person and to pay over such tax to the United States, the amount of tax so collected or withheld shall be held to be a special fund in trust for the United States."). If the employer has not paid withholding taxes to the government as required, the Code imposes personal liability on any "responsible person," i.e., any person who "has significant control over the enterprise's finances," Hochstein v. United States, 900 F.2d 543, 547 (2d. Cir. 1990), with authority to direct payments from the employer's funds, see, e.g., United States v. Rem, 38 F.3d 634, 642 (2d Cir. 1994), where that person has "willfully fail[ed]" to pay the taxes, I.R.C. § 6672(a). Such a person is liable for, inter alia, 100% of the taxes owed and unpaid (" § 6672(a) liability"). See id.; Hochstein v. United States, 900 F.2d at 546.

The events leading to the IRS's assertion of § 6672(a) liability against Becker are largely undisputed, the facts having been stipulated to just prior to the trial held in the bankruptcy court (see Joint Pre-Trial Order ("JPTO") dated September 10, 1999, approved by the bankruptcy court on September 13, 1999). The events subsequent to the IRS's assessment of that liability were described in testimony given at the bankruptcy court trial and are undisputed except as indicated below.

A. The Assessment, the Erroneous Abatement, and the Reinstatement

Becker, a certified public accountant, was the founder, president, and majority stockholder of Stuart Becker & Company, P.C. (the "Becker Firm" or the "P.C."), a tax advisory firm. To the extent pertinent to this appeal, the P.C. failed to pay the withholding taxes due for the third quarter of 1986 and for all four quarters of 1987 (see JPTO § 5.B.i.). During those periods, Becker "was aware that the P.C. was not paying its withholding taxes and was paying other liabilities." (JPTO § 5.B.ii.)

The Becker Firm's unpaid withholding taxes due for those periods totaled $182,562.49. (See JPTO § 5.B.iii.) In June 1988, the IRS assessed that sum in § 6672(a) liability against Becker; in July 1988, Becker was informed of the assessment by a letter describing the specific periods for which he was being assessed, the amounts attributable to each period, and his right to appeal the IRS assessment. (See id.) Becker did not appeal the assessment. (See Trial Transcript, September 13, 1999 ("Sept. 13 Tr."), at 74-75.)

Responsibility for collecting these unpaid taxes was assigned to IRS Revenue Officer Paul Peters. By October 10, 1989, Peters had collected $7,499.97 of the $182,562.49 due. He thus prepared an IRS Form 3870 ("First Form 3870") in order to request an adjustment to Becker's account to reflect the reduction of the original assessment pro tanto. On this form, Peters stated that the Becker Firm "has a reduced balance for . . . trust fund taxes due. A levy on an account receivable resulted in payment of above amount. Therefore, the 100% assessment must be reduced by this figure." (Government Exhibit O (emphases added); see Sept. 13 Tr. at 105.) Peters sent this First Form 3870 to the IRS Brookhaven Service Center ("service center"). However, he had neglected to fill in the amount of the partial payment and the resulting requested "reduc[tion]."

As sent to the service center by Peters, the First Form 3870 showed neither the amount of the requested adjustment nor the amount of the original assessment. At the service center, someone wrote on this form the amount of the original assessment, $182,562.49, in the box headed "Credit Adjustment." The IRS employee who processed this form then abated Becker's liability in full. On November 20, 1989, the IRS sent Becker a notice for the period ending December 31, 1987, showing a balance due of only $20.78.

In early December 1989, Peters discovered that the entire assessment against Becker had been abated. After conferring with a number of colleagues as to how to have the error corrected, Peters sent a new Form 3870 ("Second Form 3870") to the service center on January 10, 1990, stating that the service center's abatement of the assessment in full was a mistake. Peters requested that the assessment against Becker for the unpaid amount of the withholding taxes be reinstated to the extent of $175,062.52, "represent[ing] the original assessment minus the proposed abatement," plus interest. (Government Exhibit P.)

Some months later, Peters was informed that it would take the service center six months to reverse the abatement of the assessment. (JPTO § 5.B.iv.) Peters determined that he could not undertake any collection efforts against Becker until the assessment was reinstated.

In the meantime, Peters informed Becker that the assessment had been abated erroneously and would be reinstated. Peters testified that he first had such a conversation with Becker in July 1990 and that Becker did not suggest that the abatement was correct but rather responded that he would pay the assessment upon its reinstatement. (See Sept. 13 Tr. at 109-11.) Peters testified that he discussed the matter with Becker again on September 27, 1990, and that Becker stated that he wanted to pay the remaining amount on the assessment when reinstated. (See id. at 111-12.) Becker, in contrast, testified that he had believed the assessment had been abated correctly rather than erroneously (see id. at 43-44) and that he did not find out that he still had a § 6672(a) liability "problem" until after September 1991 (id. at 47). And in a December 1996 deposition Becker had testified that he did not recall that Peters had "[]ever told [him] that there had been an erroneous abatement that the IRS was going to reverse and reinstate" (Deposition of Stuart Becker ("Becker Dep."), at 253-54; see also id. at 231 ("[t]o the best of [Becker's] knowledge," "Peters never told [Becker] that the 6672 penalty for third quarter '86 and the four quarters of '87 would be reinstated")). However, some six months before giving that deposition testimony, Becker had submitted to the court his affidavit revealing explicitly that he and Peters discussed the anticipated reinstatement at least as early as September 1990 and that Becker had stated that he would be prepared to pay the assessment upon its reinstatement:

On or about September 27, 1990, I spoke with Revenue Officer Peters to inform him I would shortly have the funds available to pay my § 6672 liabilities if the abatement of those penalties were reversed and there was a balance due.

(Affidavit of Stuart Becker dated June 20, 1996 ("Becker Aff."), ¶ 6.) When cross-examined about this affidavit at trial, Becker testified that he had no recollection of such a conversation but that his affidavit was truthful. (See Sept. 13 Tr. at 78-80.)

The § 6672(a) liability assessment against Becker was reinstated by the IRS service center on or about April 18, 1991. However, the reinstatement was recorded in a so-called "nonmaster file," i.e., a handwritten file maintained only at a service center, not one entered and maintained electronically in the IRS's computerized master files. (See Trial Transcript, September 14, 1999 ("Sept. 14 Tr."), at 74-76.) In 1991, reversals of erroneous abatements were customarily recorded only in nonmaster files because such reversals were not compatible with the IRS's master-file software; and account activities processed in a nonmaster file were not reflected in a taxpayer's master file. (See id.) On September 11, 1991, based on the status of Becker's master file, which did not reflect the reinstatement recorded in his nonmaster file, the IRS filed a release of its tax lien against Becker. (See JPTO § 5.B.ix.) As late as November 1992, Becker's master account file still did not reflect his reinstated remaining § 6672(a) liability. (See id. § 5.B.x.)

In the meantime, on September 3, 1991, Peters had learned from the service center of the reinstatement of the assessment against Becker in...