Kinnie v. U.S., 92-1690
| Decision Date | 24 May 1993 |
| Docket Number | No. 92-1690,92-1690 |
| Citation | 994 F.2d 279 |
| Parties | -1979, 93-1 USTC P 50,311, Unempl.Ins.Rep. (CCH) P 17263A William A. KINNIE, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
George M. Malis (argued & briefed), Timmis & Inman, Detroit, MI, for plaintiff-appellant.
Mark D. Lansing, Trial Atty., Gary R. Allen, Acting Chief (briefed), Richard Farber, Samuel R. Lyons (argued), U.S. Dept. of Justice, Appellate Section Tax Div., Washington, DC, for defendant-appellee.
Before: KENNEDY, MILBURN, and NORRIS, Circuit Judges.
Plaintiff William A. Kinnie appeals the district court's grant of summary judgment in favor of defendant United States of America in Kinnie's action seeking recovery of penalties assessed and collected by the Internal Revenue Service ("IRS") under 26 U.S.C. § 6672. On appeal, the issues are (1) whether Kinnie was a responsible person who willfully failed to pay to the United States income and social security taxes withheld from the wages of the employees of the business in which Kinnie owned fifty percent and was the vice-president, (2) whether the district court erred when it entered judgment against Kinnie for an amount that exceeded the cash on hand of the corporation on the date that Kinnie acquired notice that the corporation had not been paying or remitting withholding and social security taxes to the IRS, and (3) whether the district court correctly held that the IRS was authorized to allocate his business employment tax payment between the trust fund portion and non-trust fund portion of the corporation's employment tax liability in the manner in which the government deemed to be in the best interests of the United States, in the absence of a written designation by the corporation as to how its payments should be applied. For the reasons that follow, we affirm.
In reviewing a motion for summary judgment, we must consider the evidence in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); Boyd v. Ford Motor Co., 948 F.2d 283, 285 (6th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1481, 117 L.Ed.2d 624 (1992). Therefore, the facts set forth below are those most favorable to plaintiff Kinnie.
Kinnie and Robert M. Blinstrub formed a corporation, Eastern Michigan Truck Sales, Inc. ("EMTS"), in 1982. The business purpose of the corporation was to lease and service new and used trucks. The corporation operated under franchise or dealer agreements with Mercedes-Benz, Freightliner, Inc., and later with Isuzu Trucks. Blinstrub was president and Kennie was vice-president. Barbara Bertollini was later hired by Blinstrub as secretary and treasurer. Blinstrub and Kinnie, investing equal amounts of money, were each 50 percent owners and agreed that the corporation would be run as a 50/50 partnership. Blinstrub, as general manager, ran the company on a day-to-day basis. Kinnie contends that he was only an investor and that as such his only interest in the corporation was to get the return on his investment.
Beginning in 1985, EMTS began failing to pay to the IRS all the federal income and Federal Insurance Contributions Act ("FICA") or social security taxes which it withheld from the wages of its employees. Under 26 U.S.C. § 7501 these withheld employee taxes are deemed to be held in a trust fund for the United States. The delinquencies appeared on both the year-end financial reports and the monthly financial reports sent to Mercedes-Benz, copies of which were provided to Blinstrub. According to Blinstrub, the payroll taxes were not paid so that the business might continue operations, and it was anticipated that sufficient funds would be available in the future to pay the tax liability.
Kinnie testified in his deposition that he first learned of the unpaid payroll taxes in August or September of 1986. As of September 1986, EMTS had unencumbered assets of $27,601.86. Kinnie admits that he knew the corporation was required to pay withholding taxes, but he assumed that Blinstrub was taking care of the taxes. He testified that when he learned that EMTS had not paid the taxes, he requested that Blinstrub and the corporation's accountant, William Thompson, meet with the IRS. In a November 1986 meeting with the IRS, Kinnie personally guaranteed a loan for $100,000 to pay the delinquent taxes. In his deposition, accountant Thompson testified that he orally directed the IRS to apply 100 percent of the $100,000 to the trust fund portion of the delinquent taxes.
In late 1986, Kinnie directed an accountant to review the corporate records for possible diversion of corporate funds by Blinstrub for personal and other improper use and directed Bertollini to make the corporate records available to the accountant. In February 1987, the $100,000 was paid to the IRS; however, the IRS applied only approximately 50 percent to the trust fund portion of the back taxes instead of 100 percent as orally directed by Thompson and applied approximately 50 percent to the non-trust fund portion of the back taxes owed.
In March 1987, Kinnie forced Blinstrub to leave the management of the corporation, allegedly because lenders refused to provide capital to EMTS as long as Blinstrub was associated with EMTS. After Blinstrub left, Kinnie authorized each check that was made by EMTS to its creditors. Kinnie used his personal funds to pay creditors, payroll, and, at times, the IRS. He also obtained personal loans to pay creditors and payroll. Kinnie closed EMTS in May 1987 because Mercedes-Benz and Freightliner refused to continue their dealerships with EMTS or any entity associated with Blinstrub.
Subsequently, Kinnie began a new corporation by the name of Great Lakes Freightliner, Inc. ("Great Lakes") which operated for the same business purpose, at the same address, with virtually the same employees and customers as that of EMTS. Great Lakes operated as a franchise or dealer for Mercedes-Benz and Freightliner. Kinnie was the sole owner of Great Lakes. The assets of EMTS, including its inventory, were taken over by Great Lakes, and before EMTS ceased to exist, it paid Great Lakes over $78,000. Great Lakes also used EMTS' Visa and Mastercard credit cards until it received cards issued in its name. In addition, Kinnie personally borrowed money which he used in incorporating Great Lakes; however, none of those borrowed funds were used to pay the tax liability. In addition, Great Lakes paid creditors, suppliers, and its payroll rather than the trust fund portion of taxes owed by EMTS. Kinnie knew of and allowed the payments to other creditors. Between August 1986 and July 1987 more than $500,000, an amount three times the funds necessary to pay the entire trust fund liability, passed through EMTS' and Great Lakes' bank accounts.
The IRS made a penalty assessment under 26 U.S.C. § 6672 against Kinnie for the unpaid federal income and social security taxes. This assessment included $137,892.76 for the last quarter of 1985, the first three quarters of 1986, and the second quarter of 1987. Kinnie paid a portion of the assessment against him and sought a refund and tax abatement from the IRS, which was denied.
On March 16, 1990, Kinnie filed an action in the district court seeking a refund and tax abatement for the penalty of $137,892.76 assessed for the last quarter of 1985, the first three quarters of 1986, and the second quarter of 1987. The IRS responded by filing a counterclaim seeking the balance of the assessment plus interest from Kinnie. The government then filed a motion for summary judgment which the district court granted in favor of the government in its memorandum opinion of August 7, 1991. 771 F.Supp. 842. The district court entered judgment against Kinnie on October 4, 1991, and ordered Kinnie to pay $84,559.06, the amount remaining of the delinquent trust fund taxes plus interest. Kinnie made a motion to reconsider which the district court denied on April 30, 1992, and this timely appeal followed. 1
This court reviews a district court's grant of summary judgment de novo. See Brooks v. American Broadcasting Cos., 932 F.2d 495, 500 (6th Cir.1991). Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Canderm Pharmacal, Ltd. v. Elder Pharmaceuticals, Inc., 862 F.2d 597, 601 (6th Cir.1988). As previously stated, we must consider the evidence in the light most favorable to the nonmoving party. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513; Boyd, 948 F.2d at 285.
The requirements for liability under 26 U.S.C. § 6672 are clearly set forth in Gephart v. United States, 818 F.2d 469 (6th Cir.1987) (per curiam). 26 U.S.C. §§ 3102 and 3402 require that employers withhold from the wages of their employees the employees' social security and federal income taxes. Id. at 472. As previously stated, these taxes are held in trust for the government and are referred to as "trust fund taxes." Id. The monies in the trust fund may not be used for any purpose other than to pay the employees' social security and federal income taxes. Id. 26 U.S.C. § 6672 provides that "any person" who willfully fails to account for and pay over its employees' withholding taxes shall be liable for the full amount not paid over to the government. Id. at 473. 2 26 U.S.C. § 6671(b) defines "person" as "an officer or employee of the corporation ... who as such officer or employee ... is under a duty to perform the act in respect of which the violation occurs." Id.
Two requirements must be met before one can be liable under section 6672. The...
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