In re Chene
| Citation | 236 BR 69 |
| Decision Date | 02 July 1999 |
| Docket Number | No. 98-2314-CIV-T-17F. Bankruptcy No. 95-4809-8G3.,98-2314-CIV-T-17F. Bankruptcy No. 95-4809-8G3. |
| Parties | Carol Janett CHENE, Debtor. United States of America, Appellant, v. Carole Janett Chene, Appellee. |
| Court | U.S. District Court — Middle District of Florida |
John A. Galotto, U.S. Dept. of Justice, Tax Division, Washington, DC, for USA.
Jay D. Passer, Jay D. Passer, P.A., Tampa, FL, for Carol Janett Chene.
APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF FLORIDA
This cause is before the Court on appeal by Appellant, United States of America, from the Order on Debtor's Objection to Claim No. 8 in Bankruptcy Case No. 954809-8G3, entered September 28, 1998 by United States Bankruptcy Judge Paul M. Glenn (Docket No. 5) and response by Appellee, Debtor, Carole Janett Chene (Docket No. 7).
Whether the Debtor is jointly and separately liable for the civil penalty assessed on September 8, 1986, under 26 U.S.C.A. § 6672 for the tax period ending March 31, 1986, when the Internal Revenue Service (IRS) erroneously refunded $12,602.87 on July 29, 1991, and filed a Certificate of Release of Tax Lien on September 21, 1992, to Debtor's former husband?
On August 5, 1997, Appellant and Appellee filed a Joint Stipulation of Facts. The stipulated facts include: Debtor and her former spouse, Gerald L. Chene, were officers and/or directors in the corporation Chene Productions, Inc., EIN XX-XXXXXXX, during the tax years 1985 and 1986.
On August 11, 1997, Debtor filed a Motion for Summary Judgment on Objection to Claim of Internal Revenue Service in the United States Bankruptcy Court in the Middle District of Florida, Tampa Division. In response, the United States of America, on August 18, 1997, filed a cross-motion for Summary Judgment. Subsequently, the Bankruptcy Court granted Debtor's Motion for Summary Judgement and disallowed IRS Claim No. 8 for $10,301.72, based on the interest to the petition date on the civil penalty assessed against Debtor on September 8, 1986.
On December 21, 1998, the United States of America filed an appeal claiming that the Bankruptcy Court erred when it disallowed the claim of interest accrued upon the civil penalty assessed against Debtor for the tax period ending March 31, 1986.
In evaluating the issues on appeal, the Court reviews the Bankruptcy Court's findings of fact under a clearly erroneous standard. See In re Sublett, 895 F.2d 1381, 1383 (11th Cir.1990); In re Hillsborough Holdings Corp., 176 B.R. 223, 232 (M.D.Fla.1994). While its conclusions of law and application of law to particular facts are reviewed de novo. See Bankruptcy Rule 8013; In re Goerg, 930 F.2d 1563, 1565 (11th Cir.1991); Flagship Marine Services, Inc. v. Belcher Towing Co., 966 F.2d 602, 604 (11th Cir.1992); In re Hillsborough Holdings Corp., 176 B.R. 223, 232 (M.D.Fla.1994). In accordance with these standards, the Court will address each point of error raised by Appellant.
Appellant asserts that the Bankruptcy Court ignored the principle of joint and several liability incorporated into 26 U.S.C.A § 6672, which precludes Debtor from claiming entitlement to credit payments made by her former husband. In addition, Appellant argues that the Bankruptcy Court erred when it found that the erroneous IRS refund and subsequent Certificate of Release of Tax Lien to Debtor's former husband did not affect Debtor's liability and, thus, did not prejudice the Debtor.
Addressing each of Appellant's arguments, this Court will first examine joint and several liability under 26 U.S.C.A. § 6672 as it relates to the facts in this case which involve an erroneous refund and the Certificate of Release of Tax Lien issued to Debtor's former husband. Second, the Court will examine the effect of the erroneous refund on Debtor's tax liability. Finally, the Court will determine whether the error will prejudice Debtor.
The Court must first determine whether Debtor was a responsible person under 26 U.S.C.A § 6672(a) (1999). Then, whether she is relieved of her civil penalty when the civil penalty is paid through the efforts of both responsible parties.
In cases where the IRS has imposed a penalty under Section 6672, the Court must first determine whether the taxpayer was a responsible party. Thibodeau v. United States, 828 F.2d 1499 (11th Cir. 1987); Mazo v. United States, 591 F.2d 1151 (5th Cir.1979); Guito v. United States, 764 F.Supp. 1445, 1450 (M.D.Fla. 1991). A responsible person as defined under 26 U.S.C.A § 6672(a) (1999) is:
Any person required to collect, truthfully account for, and pay over any tax imposed by this title 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 the 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.A § 6672(a) (1999). Debtor does not dispute that she is a responsible person under Section 6672.
When several individuals together exercise complete control over the financial affairs of a business enterprise, each person is a responsible person under Section 6672. Slodov v. United States, 436 U.S. 238, 246-50, 98 S.Ct. 1778, 1784-87, 56 L.Ed.2d 251 (1978); Smith v. United States, 894 F.2d 1549 (11th Cir.1990); Mazo, 591 F.2d at 1156; Guito, 764 F.Supp. at 1450. Further, 26 U.S.C.A. § 6672(d) provides that more than one person may be a responsible person:
If more than 1 person is liable for the penalty under subsection (a) with respect to any tax, each person who paid such penalty shall be entitled to recover from other persons who are liable for such penalty an amount equal to the excess of the amount paid by such person over such person\'s proportionate share of the penalty.
26 U.S.C.A § 6672(d) (1999). In this case, Debtor and her former husband were responsible persons as officers and/or directors of Chene Productions, Inc.
Once the IRS establishes that the taxpayer is a responsible party, the taxpayer challenging the penalty assessment bears the burden of proof that the taxpayer did not act willfully. Smith, 894 F.2d at 1553; Thibodeau, 828 F.2d at 1505; Guito, 764 F.Supp. at 1451. Willfulness may be as simple as the responsible person knowing that the trust fund taxes were not remitted to the government and failing to rectify the situation. Mazo, 591 F.2d at 1157; Hornsby v. Internal Revenue Service, 588 F.2d 952 (5th Cir.1979); Guito, 764 F.Supp. at 1451. In this case, Debtor does not challenge her responsibility for failing to pay taxes.
When there are more than one responsible persons, the Third, Sixth, Fifth, and Eighth Circuit Court of Appeals have held that Section 6672 imposes joint and several liability on each responsible person, and each responsible person can be held for the total amount of withholding not paid. McCray v. United States, 910 F.2d 1289, 1290 (5th Cir.1990); Quattrone Accountants, Inc. v. Internal Revenue Service, 895 F.2d 921, 926 (3d Cir.1990); Sinder v. United States, 655 F.2d 729, 732 (6th Cir.1981); Hartman v. United States, 538 F.2d 1336, 1340 (8th Cir.1976). Moreover, responsible persons under Section 6672 are held jointly and severally liable for the underlying withholding tax delinquency. Mazo, 591 F.2d at 1155; Brown v. United States, 591 F.2d 1136, 1142 (5th Cir.1979).
Although each responsible person is liable for the entire amount of the unpaid withholding tax, the IRS does not recover more than 100 percent of the underlying tax. USLIFE Title Insurance Company of Dallas v. Harbison, 784 F.2d 1238, 1243 (5th Cir.1986); McCray, 910 F.2d at 1290; Quattrone, 895 F.2d at 926; Newsome v. United States, 431 F.2d 742, 745 (5th Cir.1970). The Eleventh Circuit Court of Appeals, United States v. Huckabee Auto Co., 783 F.2d 1546, 1548 (11th Cir.1986), ruled that "it is the policy of the IRS to collect the delinquent tax only once." "Double recovery by the government is not necessary to fulfill § 6672's primary purpose — protection of government revenues." Brown v. United States, 591 F.2d 1136, 1143 (5th Cir.1979).
However, "the fact that more than one person is responsible for a particular delinquency does not relieve another responsible person of her personal liability, nor can a responsible person avoid collection...
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