Slodov v. United States

Decision Date22 May 1978
Docket NumberNo. 76-1835,76-1835
Citation436 U.S. 238,98 S.Ct. 1778,56 L.Ed.2d 251
PartiesIke SLODOV, Petitioner, v. UNITED STATES
CourtU.S. Supreme Court
Syllabus

Petitioner assumed control of three corporations at a time when a delinquency existed for unpaid federal taxes withheld from employees' wages, while the specific funds withheld but not paid had been dissipated by predecessor officers and when the corporations had no liquid assets with which to pay the overdue taxes. During the six-month period of petitioner's control the corporations acquired funds sufficient to pay the taxes, but petitioner used the funds to pay employees' wages, rent, suppliers and other creditors, and to meet current business expenses. On petitioner's withdrawal from the corporations' business, he instituted a bankruptcy proceeding, in which the Internal Revenue Service filed a claim, including the delinquent back taxes, under § 6672 of the Internal Revenue Code of 1954, which imposes personal liability for taxes on "[a]ny 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 . . . ." The Court of Appeals held that petitioner was personally liable for the unpaid taxes under § 6672. While petitioner concedes liability for the collection, accounting, and payment of taxes required to be withheld during the period of his control, he disclaims responsibility with respect to taxes withheld prior thereto, arguing that its conjunctive phrasing made § 6672 inapplicable to him since he was clearly under no duty to collect and account for taxes incurred before that period. The Government maintains that the statutory language could be construed as describing in terms of their general responsibilities the persons potentially liable under the statute without regard to the fulfillment of all the duties with respect to specific tax dollars, and that § 6672 imposed liability on petitioner as a "responsible person" because sums received during the period of his control were impressed with a trust in favor of the Government for the satisfaction of the overdue taxes and petitioner's willful use of such sums to pay other creditors violated the statute's "pay over" obligation. Though relying primarily on § 6672 for its trust theory of liability, the Government suggests as also applicable § 7501, which provides that "[w]henever a person is required to collect or withhold any internal revenue tax from any other person and to pay over such tax to the United States, the amount of the tax . . . shall be held to be a special fund in trust for the United States [which] shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including penalties) as are applicable with respect to the taxes from which such fund arose." Held :

1. The phrase "[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title" was meant to limit § 6672 to persons responsible for paying over taxes that require collection (third-party taxes) and not to limit it to persons in a position to perform all three functions with respect to the specific taxes as to which the employer is delinquent. Petitioner's construction could lead to ready evasion of responsibility under § 6672, and is thus at odds with the statute's purpose of assuring payment by third parties of withheld taxes. Pp. 246-250.

2. Neither § 6672 nor § 7501 impresses a trust on the after-acquired funds of an employer for payment of overdue withholding taxes absent tracing of those funds to taxes collected, and petitioner therefore was not liable under § 6672 for using those funds for purposes other than payment of the overdue withholding taxes. Pp. 253-259.

(a) Section 6672 was not intended to impose an absolute liability without personal fault for failure to "pay over" amounts that should have been collected and paid over so that petitioner could not be liable unless he failed to pay funds held in trust for the United States. Pp. 253-254.

(b) Nothing in the language or legislative history of § 6672 suggests that the effect of the "pay over" requirement was to impress a trust on the corporations' after-acquired cash, and the history of § 7501 makes clear that it was not. Since the very reason for adding § 7501 to the Code was that under existing law the liability of the person collecting and withholding the taxes was merely a debt, § 6672, whose predecessor was enacted while the debt concept of liability prevailed, hardly could have been intended to impose a trust on after-acquired cash. Although the trust concept of § 7501 may inform the scope of the duty imposed by § 6672, the language of § 7501 makes clear that there must be a nexus between the funds collected and the trust created. Pp. 254-256.

(c) A construction of §§ 7501 and 6672 as imposing a trust on all after-acquired property without regard to the interests of others in those funds would conflict with the priority rules applicable to the collection of back taxes, which give secured parties interests in certain proceeds superior to tax liens. Pp. 256-259.

552 F.2d 159, 6 Cir., reversed.

Bennet Kleinman, Cleveland, Ohio, for petitioner.

Steven R. Barnett, for respondent.

Mr. Justice BRENNAN delivered the opinion of the Court.

Petitioner, an orthodontist by profession, on January 31, 1969, purchased the stock and assumed the management of three corporations engaged in the food vending business. The corporations were indebted at the time of the purchase for approximately $250,000 of taxes, including federal wage and Federal Insurance Contribution Act (FICA) taxes withheld from employees' wages prior to January 31. The sums withheld had not been paid over when due, however, but had been dissipated by the previous management before petitioner acquired the businesses. After petitioner assumed control, the corporations acquired funds sufficient to pay the taxes, but petitioner used the funds to pay employees' wages, rent, suppliers and other creditors, and to meet other day-to-day expenses incurred in operating the businesses. The question to be decided is whether, in these circumstances, petitioner is personally liable under § 6672 of the Internal Revenue Code of 1954, 26 U.S.C. § 6672—which imposes personal liability for taxes on "[a]ny 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 . . . "—for the corporations' unpaid taxes withheld from wages prior to his assumption of control. The Court of Appeals for the Sixth Circuit held that petitioner was personally liable under § 6672 for the unpaid taxes. 552 F.2d 159 (1977). We granted certiorari.1 434 U.S. 817, 98 S.Ct. 54, 54 L.Ed.2d 72 (1977). We reverse.

I

The case arose from the filing by the Internal Revenue Service (IRS) of a claim for the taxes in a proceeding instituted by petitioner in July 1969 for a real property arrangement under Chapter XII of the Bankruptcy Act. The facts determined after hearing by the bankruptcy judge, 74-2 USTC ¶ 9719 (ND Ohio 1974), are not challenged. Petitioner purchased and assumed managerial control of the Tas-Tee Catering, Tas-Tee Vending, and Charles Corporations on January 31, 1969. When he bough the stock, petitioner understood, and the purchase agreement reflected, that the corporations had an outstanding obligation for taxes in the amount of $250,000 due for payment on January 31, including withheld employee wage and FICA taxes (hereinafter trust-fund taxes). During the purchase negotiations, the sellers represented to petitioner that balances in the various corporate checking accounts were sufficient to pay these taxes as well as bills due other creditors. Relying on the representation, petitioner, on Saturday, February 1, sent four checks to the IRS in payment of the taxes. On Monday, February 3, petitioner discovered that the accounts were overdrawn and stopped payment on the checks. Thus, at the time that petitioner assumed control, the corporations had no liquid assets, and whatever trust-fund taxes had been collected prior to petitioner's assumption of control had been dissipated.

Petitioner immediately advised the IRS that the corporations had no funds with which to pay the taxes, and solicited guidance concerning how the corporations should proceed. App. 36. There was evidence that IRS officials advised petitioner that they had no objection to his continuing operations so long as current tax obligations were met, and that petitioner agreed to do so and to endeavor to pay the arrearages as soon as possible. Tr. 37-38. The IRS never represented that it would hold petitioner harmless under § 6672 for the back taxes, however.

To continue operations, petitioner deposited personal funds in the corporate account, and, to obtain inventory, agreed with certain suppliers to pay cash upon delivery. During petitioner's tenure, from January 31 to July 15, 1969, the corporations' gross receipts approximated $130,000 per week for the first few months but declined thereafter. The corporations "established a system of segregating funds for payment of withheld taxes and did, in fact, pay withheld taxes during the period February 1, 1969, to July 15, 1969." App. 30. The bankruptcy judge found, and the IRS concedes, that the $249,212 in taxes paid during this period was approximately sufficient to defray current tax obligations. No taxes owing for periods prior to February 1, were paid, however, and in July 1969 the corporations terminated operations and filed for bankruptcy.

II

Several provisions of the Internal Revenue Code require third persons to...

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