Lawrence v. United States, Civ. A. No. 3-1955-C.

• Decision Date: 21 April 1969
• Docket Number: Civ. A. No. 3-1955-C.
• Citation: 299 F. Supp. 187
• Parties: Carmen L. LAWRENCE, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Texas

299 F. Supp. 187

Carmen L. LAWRENCE, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 3-1955-C.

United States District Court N. D. Texas, Dallas Division.

April 21, 1969.

Locke, Purnell, Boren, Laney & Neely, by J. J. French, Jr., Dallas, Tex., Palmer, Green, Palmer & Burke, by Philip I. Palmer, Sr., Dallas, Tex., for plaintiff.

John O. Jones, Atty., Dept. of Justice, Tax Division, Fort Worth, Tex., Eldon B. Mahon, U. S. Atty., Martha Joe Stroud, Asst. U. S. Atty., Dallas, Tex., for defendant.

OPINION

WILLIAM M. TAYLOR, Jr., District Judge.

Petitioner here sues for recovery of a 100% penalty assessment made on February 5, 1965 against her individually and as independent executrix of her husband's estate. The Internal Revenue Service levied the assessment pursuant to 26 U.S.C.A. 6672¹ for unpaid excise, withholding and F.I.C.A. taxes of Casa View Country Club, Inc. for the fourth quarter of 1960 and the first, second and third quarters of 1961. Petitioner paid the assessment, and the parties agreed that, in the event a suit for refund of such payment was unsuccessful with respect to either "The Estate of F. A. Lawrence, Carmen L. Lawrence, Independent Executrix", "Carmen L. Lawrence, Individually", the original payment would be applied against the assessment so upheld. The Commissioner further agreed to collect not more than 100% of the total unpaid excise, withholding, and F.I.C.A. tax liability of Casa View Country Club, Inc., for the fourth quarter of 1960 and the first, second and third quarters of 1961.

Casa View Country Club (hereinafter called Casa View) was organized and incorporated on January 24, 1958. Casa View's promoters also incorporated Casa View Management Corporation (hereinafter called Management Corporation). In accordance with a contract dated June 11, 1958, Management Corporation received from Casa View full responsibility with commensurate authority to operate the club. Under the operators' agreement Management Corporation was to plan, direct, manage and supervise the construction of the club's golf course, clubhouse, swimming pool, tennis courts, and other facilities and to manage, direct and operate the same when completed, together with all related activities. Further, Management Corporation determined the initiation fee and other requirements for membership in the Country Club and promulgated rules and regulations to govern the use of the club's facilities. Management Corporation had complete control over the collection and expenditure of all funds.

On November 17, 1958, Management Corporation, having encountered financial difficulties and having its club facilities in a semi-completed state, borrowed $35,000 from Mr. F. A. Lawrence, petitioner's deceased husband. Lawrence, in order to secure his loan, received control over the disposition of the loan proceeds and all other funds of Management Corporation in addition to a share in the debtor's profits. This arrangement included Mr. Lawrence's right to co-sign all drafts or checks drawn on either Casa View or Management Corporation until such time as the $35,000 loan, plus 6% interest, had been fully repaid. Lawrence was also given the prerogative of delegating or foregoing his checksigning authority, but his failure to exercise the right would not cause its forfeiture. The agreement further provided that should the loan not be fully repaid within two years Lawrence automatically acquired Management Corporation with all its assets, as well as the leasehold, with purchase option clause, held by the promoters of Management Corporation and Casa View, which leasehold had been subleased to Casa View. This contingency occurred.

As a result of the November 17th agreement Casa View's bank accounts were closed and two new ones opened on December 1, 1958. These accounts accommodated Lawrence's co-signing authority. On February 4, 1959, the signature authority of one of the accounts was changed so as to allow Lawrence to sign individually or as a co-signer.

Until F. A. Lawrence's death on September 28, 1960, the club manager conducted the day-to-day operations of the club's facilities while Lawrence handled all fiscal matters. At this time the ultimate control formerly held by Lawrence vested in his wife as sole beneficiary and independent executrix under his will. She in turn appointed Richard L. Mackay as attorney for Lawrence's estate and as her personal representative and Lee W. Branch, a certified public accountant, as a financial consultant for her and the estate in March, 1961. On October 12, 1960, Mackay notified both banks handling Casa View accounts of Lawrence's death and that henceforth all Casa View checks would have to be countersigned by J. C. Thomas, the designee of the Lawrence estate. Thereafter all checks drawn on either Casa View account were signed by the club manager and Thomas who was required to obtain approval from either Mrs. Lawrence or the estate's representative before authorizing any disbursements. Accordingly, Thomas consulted periodically with petitioner or representatives of the Lawrence estate as to what bills should or should not be paid until Mrs. Lawrence closed Casa View on Labor Day, 1961.

Any suit under 26 U.S.C.A. § 6672 has three litigable issues:

1. Whether the party-taxpayer is a person within the terms of the statute;

2. Whether the party-taxpayer is the one who is required to collect, truthfully account for, and pay over any tax imposed by this title; and

3. Whether the party-taxpayer

a. willfully failed to collect such tax,

b. willfully failed to truthfully account for and pay over such tax, or

c. willfully attempted in any manner to evade or defeat any such tax.

United States v. Hill, 368 F.2d 617 (5th Cir. 1966) and 26 U.S.C.A. § 6672.

Mrs. Lawrence asserts that neither is she a responsible person under the Act in either of her capacities nor was she willful in failing to pay over the subject taxes.

The term "person" is defined by 26 U.S.C.A. 6671(b)² as including officers or employees of a corporation or member or employee of a partnership who as such is under a duty to pay the tax. This definition, however, is not to be read restrictively. The expressed positions are only illustrative of the type of individuals so covered. United States v. Graham, 309 F.2d 210 (9th Cir. 1962) and United States v. Hill, supra. Ordinarily a creditor as such would not acquire any responsibility for its debtor's taxes even if the creditor exercised a veto power over the debtor's checks, United States v. Hill, supra, but this is not an ordinary situation. Mr. Lawrence here voluntarily assumed this duty and thereby his estate by his November 17, 1958 contract with Management Corporation. In that agreement, as part of his consideration, he received control over the disbursement of all funds of Casa View and Management Corporation. Unlike the supervisory or veto control in Hill, which was to provide the bank creditor with the knowledge of how its funds were spent, Lawrence acquired the veto power in a way in which he substantively decided how the money would be expended. This factual distinction is more simply expressed as an inspection versus a control veto. Supervisory control of the nature possessed by Lawrence while alive and his executrix after death places its owner well within the term "person", as defined by 26 U.S.C.A. 6671(b). Requisite responsibility is predicated on a determination of who "had the final word as to what bills should or should not be paid, and when"; Wilson v. United States, 250 F.2d 312, 316 (9th Cir. 1957); United States v. Graham, 309 F.2d 210, 212 (9th Cir. 1962); and White v. United States, 372 F.2d 513, 178 Ct.Cl. 765 (19...