Under the Internal Revenue Code, an employer is required to remit federal employment taxes to the IRS on a quarterly basis. See26 U.S.C. § 3101 et seq.;26 C.F.R. §§ 31.6011(a)–1(a)(1), .6011(a)–4(a)(1), .6071(a)–1(a)(1). These taxes include three distinct components: (1) federal income taxes withheld from employees' wages under 26 U.S.C. § 3402(a); (2) FICA (Social Security plus Medicare) taxes withheld from employees' wages; and (3) the employer's FICA tax contribution (matching the employees' contributions). See Mot. at 3; see also Gessert v. United States, 627 F.Supp.2d 942, 946–47 (E.D.Wis.2009) (describing components of employment taxes owed by a corporation). The first two components are considered to be held in a “special fund in trust for the United States” until they are remitted to the government, see26 U.S.C. § 7501; Slodov v. United States, 436 U.S. 238, 243, 98 S.Ct. 1778, 56 L.Ed.2d 251 (1978); accordingly, they are designated as the “trust-fund” portion of employment taxes, while the third component is the “non-trust-fund portion.” See26 U.S.C. § 7512; 26 C.F.R. § 301.7512–1.
To illustrate, if an employee earns $45,000 in wages and $4,000 was withheld in federal income tax, the trust-fund and non-trust-fund portions of the employment tax would be calculated as follows:
Amount |
|
Social Security (12.4 % wages)
|
| Employee's Share (6.2 % wages)
|
| Employer's Share (6.2 % wages)
|
| Employee's Share (1.45 % wages)
|
| Employer's Share (1.45 % wages)
|
| (Income Tax + Employee's Share of Medicare & Social Security) |
| (Employer's Share of Medicare & Social Security) |
The distinction between the trust-fund and non-trust-fund portions of employment taxes is critical, as a separate provision of the tax code, 26 U.S.C. § 6672, provides the IRS with an additional vehicle for collecting the former portion of the tax. This section “allows the IRS, in effect, to pierce the corporate veil and proceed against individual officers or employees responsible for collecting the offending company's quarterly employment taxes.” United States v. Farr, 536 F.3d 1174, 1177 (10th Cir.2008); see also United States v. Schroeder, 900 F.2d 1144, 1146 (7th Cir.1990) (“Section 6672, in effect, gives the United States the ability to collect wayward trust fund taxes not only from an erring business, but also from those individuals responsible for guarding against such an error.”).
Specifically, § 6672(a) provides:
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 law, be liable to pay a penalty equal to the amount of the tax evaded or not collected or not accounted for and paid over.
The IRS's ability to collect under § 6672 only applies to the taxes that the employer was obliged to withhold on the employees' behalf, not to the non-trust-fund portion of the employment tax. See26 U.S.C. §§ 3402, 3102, 3301. While labeled as a “penalty,” § 6672 is not punitive insofar as it does not authorize the IRS to collect any amount over and above the withheld tax itself. See Erwin v. United States, 591 F.3d 313, 319 (4th Cir.2010) ( “Although labeled as a ‘penalty,’ § 6672 does not actually punish; rather, it ‘brings to the government only the same amount to which it was entitled by way of the tax.’ ”) (quoting Turnbull v. United States, 929 F.2d 173, 178 n. 6 (5th Cir.1991)); East Wind Indus. v. United States, 108 Fed.Appx. 723, 727 (3d Cir.2004). Interest, however, can accrue on 6672 assessments that go unpaid. See26 U.S.C. § 6601(a) (Treasury Department's general power to collect interest).
Because the IRS may collect payments for the trust-fund portion of a corporation's liability both from the corporation itself and from the individuals charged with a 6672 assessment, this could conceivably lead to its collecting many times the corporation's original tax liability. IRS policy dictates, however, that once an amount equal to the original liability is in hand, payments in excess will be returned to responsible persons, thus preventing a “double collection.” USLIFE Title Ins. Co. v. Harbison, 784 F.2d 1238, 1243 n. 7 (5th Cir.1986); see also East Wind Indus., 108 Fed.Appx. at 727.
In sum, § 6672 allows the IRS to collect trust-fund portions of a company's unpaid employment taxes directly from the corporate officers who should have withheld them, as long as it takes no more than what is owed. Non-trust-fund portions, however, can be collected only from the company.
B. Ross's Civil & Criminal Liability Spectrum's failure to remit employment taxes to the IRS, coupled with Ross's subsequent actions to willfully defeat the collection of these taxes, subjected him to both civil and criminal liability. The Court will discuss each in turn.
From the Third Quarter of 1998 through the Second Quarter of 2002, Spectrum failed to submit more than $200,000 in employment taxes to the IRS. See Defendant's Statement of Undisputed Material Fact (Def.'s SUMF), ¶ 8. A breakdown of the corporation's overall employment taxes, as well as the trust-fund and non-trust-fund portions, is set forth below:
| Table A: Employment Taxes |
| Social Security (12.4% of wages)
|
|
Employer's Share of Medicare |
| No documentation submitted for this quarter. |
| *While the IRS indicates that no 6672 Assessment was made for this quarter, see Exh. 76–F, and thus provides no breakdown of the trust-fund and non-trust-fund portions, Spectrum failed to remit taxes in the amount of $12,037.34. See Exh. 77–F. The Court has thus noted this amount in the Total Employment Tax column and has placed the entirety of this in the Non–Trust–Fund Portion Column, as no portion of these taxes was ever assessed to Ross under § 6672. |
| * *The exhibits submitted by the IRS contain errors with respect to certain calculations; these errors have been corrected in this Table. |
| The Court notes that other minor discrepancies result in the totals being off by negligible amounts. |
While the total employment taxes owed by Spectrum for this period totaled $233,150.80, Ross could only be personally liable under § 6672 for the trust-fund portion: $155,621.32. See Section I.A, supra.
Pursuant to its authority to collect the trust-fund taxes from Ross, the IRS assessed the following “IRC 6672—Trust Fund Penalty Assessments” against him on the dates set forth below:
| Table B: 6672 Penalties & Interest |
| (from date of assessment until payment) |
| *A number of the assessment values in this table may vary by less than a dollar from the figures in Table A. This is so because the data in Table A was culled from the Spectrum tax
|
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