Jenkins v. United States

• Decision Date: 15 September 2011
• Docket Number: No. 08-50T,08-50T
• Parties: TIMOTHY L. JENKINS, Plaintiff, v. THE UNITED STATES, Defendant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

TIMOTHY L. JENKINS, Plaintiff,
v.
THE UNITED STATES, Defendant.

No. 08-50T

United States Court of Federal Claims

Filed: September 15, 2011

Tax refund suit; Trial; Responsible officer penalty – 26 U.S.C. § 6672(a); Responsible person; Founder, major stockholder, primary financier, chief executive officer, publisher, and member of the board of directors was responsible person; Willfulness; Obligation to prevent corporate default on payment of withholding tax obligations; Reckless disregard of knowledge that payment was at risk; Unencumbered funds available for payment; Willfulness established; Penalty upheld; Refund denied.

OPINION

Jane C. Bergner, Washington, D.C., for plaintiff.

Allison B. Ickovic, Tax Division, United States Department of Justice, Washington, D.C., with whom was Acting Assistant Attorney General John A. DiCicco, for defendant.

ALLEGRA, Judge:

This tax refund case is before the court following trial in Washington, D.C. At issue is whether plaintiff is liable for a so-called "responsible officer" penalty imposed by section 6672(a) of the Internal Revenue Code of 1986 (26 U.S.C.). For the reasons that follow, the court finds that plaintiff, indeed, was liable for the penalty in question and, therefore, is not entitled to the refund he seeks.

I. FACTS

To say the least, Mr. Timothy L. Jenkins (plaintiff) has had a distinguished career, with a long list of achievements that includes appointments as the interim president of the University of the District of Columbia, a governor of the United States Postal Service, a consultant to the United Nations High Commissioner of Human Rights, and a trustee for Howard University.

Page 2

Mr. Jenkins and Mr. Gary A. Puckrein were cofounders of Dialogue Diaspora, Inc. (DDI), a corporation which published American Visions magazine¹ and promoted African-American culture. Prior to 1991, Mr. Jenkins and Mr. Puckrein discussed various collaboration opportunities. Those discussion began to intensify in 1991, when Mr. Puckrein made several offers of employment to Mr. Jenkins. On or about August 10, 1992, plaintiff and Mr. Puckrein entered into a preorganizational memorandum of understanding governing the creation of the new company. That agreement provided that the parties would each "hold 50% voting stock in the new corporation with parallel compensation." It further indicated that Mr. Puckrein would be the President of the corporation (and hold certain roles regarding television programming), while Mr. Jenkins would assume the title of Publisher of American Visions. And it stated that either party would be individually able to sign all checks under $5,000, but that both would be required to sign all checks over $5,000.²

On August 26, 1992, plaintiff, Mr. Puckrein and Ms. Joanne Harris (Mr. Puckrein's wife) filed articles of incorporation for DDI with the District of Columbia, which articles were accepted by the District on September 21, 1992. The articles listed four directors for the company: plaintiff, Mr. Puckrein, Ms. Harris, and plaintiff's wife, Lauretta Jenkins. On September 15, 1992, Mr. Puckrein received notification that the American Visions trademark had been approved. On or about September 22, 1992, DDI's new board resolved that plaintiff be appointed Chief Executive Officer and Chief Financial Officer of DDI, with the title of "Publisher," and that Mr. Puckrein and Ms. Harris be hired to serve as the President of the Corporation and editor of American Visions, respectively. It was also resolved that DDI would become the designated publisher of American Visions in exchange for its assuming specified debts owed to Brown Printing Company (Brown Printing), which printed the magazine. The board minutes also reflect that the initial distribution of voting stock was 55 percent to Mr. Jenkins, 22.5 percent to Mr. Puckrein and 22.5 percent to Ms. Harris.

On September 22, 1992, plaintiff, Mrs. Jenkins, Warwick Communications, Brown Printing and Mr. Puckrein (on behalf of DDI) executed an agreement that stated that DDI would become the producer, publisher and owner of American Visions. The agreement described Mr. Jenkins as being "an executive officer and an equity participant" in DDI. Under the agreement, Brown Printing agreed to continue to print the magazine at its usual and customary rates. The agreement acknowledged that DDI could not pay Brown Printing on a current basis. Instead, Brown Printing agreed to continue to print the magazine provided that DDI would: (i) make a

Page 3

series of scheduled payments; and (ii) assume all outstanding obligations owed by Warwick (the prior publisher of American Visions). Plaintiff and Mr. Puckrein, agreed to guarantee jointly and severally all payments due to Brown Printing by DDI, and plaintiff agreed to secure his guarantee with a deed of trust in favor of Brown Printing as to property he owned on S Street, N.W., in the District of Columbia (the S Street Property).

DDI's corporate ledger shows that as of October 3, 1992, plaintiff, Mr. Puckrein, and Ms. Harris owned 550, 225, and 225 shares of DDI's stock, respectively.³ On December 2, 1992, DDI (by Mr. Puckrein as its President) entered into a lease with Mr. and Mrs. Jenkins of the S Street Property.⁴ On or about January 26, 1993, plaintiff, Mrs. Jenkins, Mr. Puckrein and Ms. Harris entered into an agreement entitled "Loan Commitment for Start-Up and Operation Costs of [DDI]." In that document, Mr. and Mrs. Jenkins agreed to: (i) encumber the S Street Property for an amount up to, but not to exceed, $130,000 as security for Brown Printing;⁵ and (ii) lend an amount up to, but not to exceed, $70,000 to DDI for both the direct costs of the publication of American Visions during DDI's start-up year and certain other budgeted operating costs. The agreement established various procedures for drawing on said funds, for security and repayment. On January 28, 1993, Mr. Puckrein and Ms. Harris both countersigned this agreement, with each being described therein as a shareholder of DDI and Mr. Puckrein being also described as an endorser.

To further secure this loan agreement, on January 27, 1993, DDI's Board of Directors (plaintiff, Mrs. Jenkins, Mr. Puckrein and Ms. Harris) executed a "Stand By Voting Trust and Uniform Commercial Code Security Agreement." The first part of this agreement established a voting trust. Mr. Puckrein and Ms. Harris each pledged to that trust approximately five percent of the 225 DDI shares each owned, yielding a total of 22.5 shares. Plaintiff had the option, by exercising this voting trust, of controlling fifty-five percent of the shares of the corporation. Plaintiff and Mrs. Jenkins, jointly and separately, accepted the pledges as trustees of the voting trust.⁶

Page 4

The second part of this agreement was a loan agreement secured by a factor's lien. This part identified plaintiff, along with his wife, as the "Factor," and DDI and Mr. Puckrein as the "Borrower." The agreement provided that Mr. and Mrs. Jenkins would lend the Borrower an amount to exceed the lesser of either $200,000 or the sum of eighty percent of the net current accounts receivable of the Borrower. This loan was secured in favor of the Factor by a "continuing lien upon all merchandise of the borrower and upon all accounts receivable or other proceeds resulting from the sale or other disposition of such merchandise." The Borrower further assigned to the Factor "all of its merchandise and all of its accounts receivable or other proceeds." This agreement further recited that: (i) DDI would provide monthly detailed financial reports to Mr. and Mrs. Jenkins; (ii) Mr. and Mrs. Jenkins had "all the rights and remedies of [DDI] in respect to the merchandise and the accounts receivable," including the right to receive payments from any person owing an account receivable to DDI; (iii) without notice to DDI, all accounts receivable and proceeds were assigned to Mr. and Mrs. Jenkins; and (iv) the Borrower was restricted from performing a number of activities, including borrowing money (except from the Factor), employing additional employees or increasing their salary, or making any expenditures except in the ordinary course of business.

On May 20, 1994, Mr. Puckrein, in his stated capacity as President and Chief Operating Officer of DDI, and plaintiff, acting as a "Personal Surety," signed an "Interest Bearing Bond" in favor of Hilbert R. Sandholm, through Mr. Sandholm's guardian, Sandra L. Reischel, evidencing a $100,000 obligation owed by DDI to Mr. Sandholm. On October 3, 1994, plaintiff executed a promissory note under which both DDI and plaintiff promised to pay Ms. Reischel $90,000, plus interest, within six months. The note was signed twice by plaintiff, once in his capacity as Publisher/CEO of DDI and again as a personal guarantor. The proceeds of this bond were not used to pay off past debts, but rather for growth opportunities.

Mr. Jenkins provided DDI with funds on other occasions. Between August 17, 1992, and November 9, 1994, he wrote a series of checks on his personal account (or that of TLJ International) payable to DDI (or to American Visions), the memo lines on which reflect various purposes relating to the operation of DDI.⁷ All these advances, totaling $253,670.90, were made

Page 5

by plaintiff in response to requests made by Mr. Puckrein. During this period, Mr. Puckrein was primarily responsible for the day-to-day management of the business. In addition, DDI had a financial manager, Samuel Collins, who was responsible for processing all checks...