Slodov v. U.S., s. 75-2496

Decision Date05 April 1977
Docket NumberNos. 75-2496,75-2497,s. 75-2496
Citation552 F.2d 159
Parties77-1 USTC P 9328 In the Matter of Slodov, Debtor. Ike SLODOV, Appellant Cross-Appellee, v. UNITED STATES of America on behalf of the Internal Revenue Service, Appellee Cross-Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

Frederick M. Coleman, U. S. Atty., Cleveland, Ohio, Scott P. Crampton, Gilbert E. Andrew, Appellate Section, Tax Div., Dept. of Justice, William A. Friedlander, Jeffrey S. Blum, Washington, D. C., for appellee cross-appellant.

Bennet Kleinman, Kahn, Kleinman, Yanowitz & Arnson, Cleveland, Ohio, for appellant cross-appellee.

Before EDWARDS, CELEBREZZE and LIVELY, Circuit Judges.

LIVELY, Circuit Judge.

These consolidated appeals concern the personal liability of a controlling officer of a corporation for income taxes and social security taxes withheld from the wages of employees but never paid over to the government. The controlling officer is now the debtor in proceedings for a real property arrangement under Chapter XII of the Bankruptcy Act. The following statement of the case appears in the opinion of the Bankruptcy Judge, 74-2 USTC P 9719, adopted by the district court in its memorandum opinion, 75-2 USTC P 9829, following a petition for review:

Ike Slodov, the debtor, entered into an agreement for the purchase of the stock on the 31st day of January, 1969, of Tas-Tee Catering, Tas-Tee vending, and The Charles Corporation. The above-named companies were sometimes referred to as Russell's Foods, Inc. However, for the purpose of this Opinion, the above-named companies will be referred to as Tas-Tee Catering. Ike Slodov assumed control and command of Tas-Tee Catering on January 31, 1969, and continued through the period from January 31, 1969, to July 15, 1969, except for a short two-week period from May 23 through June 4, 1969, when he withdrew from the company's direction.

During the purchase negotiations, it was represented to Doctor Slodov that there was sufficient money in the treasury to pay all taxes and to pay the creditors for any outstanding bills. Doctor Slodov took charge the afternoon of January 31, 1969, and on February 1, the next day, sent out four company checks to Internal Revenue for payment of the liabilities. On Monday, February 3, Doctor Slodov discovered that there was no money in the treasury to pay the taxes and ordered a stop payment of the checks immediately. Doctor Slodov discovered that there was $100,000 owing to Horton Dairy and that there was no money in the treasury to pay them. The meat bills were unpaid, and the rental truck bills were not paid. The paper cup and plate companies were not paid and many other creditors.

There was no money in the treasury to pay any of the above-mentioned debts.

The Internal Revenue Service filed its proof of claim for unpaid taxes in this case on November 2, 1970, and supplemental proof of claim on November 30, 1970. The initial proof of claim was amended on October 15, 1973. The Internal Revenue Service claims were based on Section 6672 of the Internal Revenue Code:

"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 a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable. (Aug. 16, 1954, c. 736, 68A Stat. 828)."

Ike Slodov, the above-named debtor, objected to the claim of the United States for Internal Revenue taxes filed herein on November 30, 1970, in the sum of $229,511.58, supplemental to proof of claim No. 29 filed on November 2, 1970.

The claim of the United States related to two distinct periods, one covering income taxes and social security taxes withheld from wages of employees ("trust fund taxes") prior to January 31, 1969 and the other being concerned with such taxes withheld after Dr. Slodov took control of Tas-Tee Catering on that date. Claim No. 29 encompassed both time periods, and the Bankruptcy Judge sustained Slodov's objections to that claim in its entirety. Upon review, the district court affirmed the order of the Bankruptcy Judge with respect to that portion of Claim No. 29 which related to taxes withheld by Tas-Tee Catering prior to the time that Slodov took control, but reversed the order with respect to taxes withheld after control passed to him. Both parties have appealed.

SLODOV'S APPEAL

The taxpayer asserts that the district court erred in holding that he is liable for trust fund taxes of Tas-Tee Catering for the period from February 1, 1969 to July 15, 1969. This claim of error has two bases first, that it is clear from the evidence that Slodov caused the corporation to collect, truthfully account for and pay over all trust fund taxes due to the United States for the period after January 31, 1969 during which he controlled the affairs of the corporation; and second, that there was an agreement between the Internal Revenue Service and the corporation by which payments during this period were to be applied to the current liability of the corporation for income taxes and social security taxes withheld from the wages of employees. The taxpayer testified at length concerning an agreement for the application of payments, and his testimony was supported by that of two former Tas-Tee Catering employees who were called by the government. The IRS agent in charge of the case testified that no such agreement existed and that if it did exist, IRS was not bound by it. He applied some of the payments to other tax liabilities of the corporation, including the employer's share of social security taxes.

The Bankruptcy Judge found that the total payments from Tas-Tee Catering to IRS during the period February 1, 1969 July 15, 1969 were virtually identical with the total liability of the corporation for trust fund taxes during that period and that, except for the decision of an IRS agent to apply these payments to the corporate share of social security taxes, " . . . there would have been no withholding tax deficiencies subsequent to February 1, 1969." The Bankruptcy Judge also found that the payments made by Tas-Tee Catering to IRS during this period were made pursuant to " . . . an understanding, agreement, and request to Internal Revenue Service for application of the withholding taxes to current withholding liabilities." Even though the IRS agent testified that he was not bound by an agreement for the application of payments by a taxpayer, it is undisputed that several of the payments were applied in accordance with the agreement at a time when the corporation had extensive liability for its own share of current social security taxes as well as withholding tax liability for previous periods. The Bankruptcy Judge concluded from these findings that the trust fund taxes which accrued during the period of Dr. Slodov's control of Tas-Tee Catering were paid in full and that payment of other corporate debts during this period was not evidence of willful failure to pay withholding taxes since there had been no showing that corporate funds were intentionally used to prefer other creditors over the United States.

In reviewing the decision of the Bankruptcy Judge the district court did not refer to the finding that all trust fund liability of the corporation during the period of Dr. Slodov's control had been paid in full. With respect to an agreement between IRS and the corporation, the district court held that if such an agreement did exist it would not affect Dr. Slodov's individual liability under Section 6672. The main thrust of the district court's holding was to the effect that the Bankruptcy Judge applied an incorrect legal standard in determining whether or not Dr. Slodov's conduct in paying other debts of the corporation was willful within the meaning of Section 6672. Though the government contended otherwise in the district court, it now concedes that a designation by a taxpayer as to how a voluntary payment of taxes is to be applied is binding on the Internal Revenue Service. It continues to argue, however, that there is no evidence of an agreement between Tas-Tee Catering and IRS as to the application of payments and no evidence that a request was ever conveyed to personnel of IRS that the amounts paid should be applied first to the current trust fund liabilities of the corporation. It maintains that the findings of the Bankruptcy Judge are clearly erroneous.

If the district court had considered the findings of the Bankruptcy Judge, review would have been subject to Rule 810, Federal Rules of Bankruptcy, which provides:

Rule 810. Disposition of Appeal; Weight Accorded Referee's Findings

Upon an appeal the district court may affirm, modify, or reverse a referee's judgment or order, or remand with instructions for further proceedings. The court shall accept the referee's findings of fact unless they are clearly erroneous, and shall give due regard to the opportunity of the referee to judge of the credibility of the witnesses.

In McDowell v. John Deere Industrial Equipment Co., 461 F.2d 48, 50 (6th Cir. 1972), we held that it is firmly established in this circuit that findings of fact of a Referee in Bankruptcy (now Bankruptcy Judge) should not be disturbed by a district judge unless there is "most cogent evidence of mistake or miscarriage of justice." A review of the evidence heard and received by the Bankruptcy Judge discloses ample support for his findings both with respect to the existence of an agreement for the application of the payments in question to current trust fund liabilities and that designations accompanied specific payments.

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