Thomas v. U.S., s. 93-3186

• Decision Date: 22 November 1994
• Docket Number: 93-3483 and 93-3484,Nos. 93-3186,s. 93-3186
• Parties: 94-2 USTC P 50,607, 40 Fed. R. Evid. Serv. 1049, Unempl.Ins.Rep. (CCH) P 14318B Lacy THOMAS, Plaintiff-Counterclaim Defendant-Appellant, and Colette Thomas and Percy Giles, Counterclaim-Defendants-Appellants, v. UNITED STATES of America, Defendant-Counterclaim Plaintiff-Appellee. * .
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1109

41 F.3d 1109

94-2 USTC P 50,607, 40 Fed. R. Evid. Serv. 1049,

Unempl.Ins.Rep. (CCH) P 14318B

Lacy THOMAS, Plaintiff-Counterclaim Defendant-Appellant, and Colette Thomas and Percy Giles, Counterclaim-Defendants-Appellants, v. UNITED STATES of America, Defendant-Counterclaim Plaintiff-Appellee.

Nos. 93-3186, 93-3483 and 93-3484 ^*.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 8, 1994.

Decided Nov. 22, 1994.

Lewis Myers, Jr., Chicago, IL, Walter Jones, Jr. (argued), Jorge V. Cazares, Stephen H. Pugh, Pugh, Jones & Johnson, Chicago IL, Linnae Wise Bryant, Brown, Bryant & Porter, Chicago, IL, Cheryl Bonds Rayner, A.A. Rayner & Son Funeral Home, Chicago, IL, for Lacy Thomas.

Gary R. Allen, Kenneth L. Greene, Teresa McLaughlin, Scott P. Towers, Pamela C. Berry (argued), Dept. of Justice, Tax Div., Appellate Section, Washington, DC, John S. Brennan, Asst. U.S. Atty., Office of the U.S. Atty., Civ. Div., Appellate Section, Chicago, IL, Eugene J. Rossi, Dept. of Justice, Tax Div., Senior Trial Atty., Washington, DC, for U.S.

Bruce C. Spitzer, Philip B. Bowman, Jennifer A. Lazewski (argued), Gorham, Metge, Bowman & Hourigan, Chicago, IL, for Colette Thomas.

James D. Holzhauer, Tyrone C. Fahner, Lori E. Lightfoot, Mayer, Brown & Platt, Chicago, IL, for Percy Giles.

Before WELLFORD, ^** MANION, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

Lacy Thomas and Colette Thomas, who are not related to one another, each worked during different periods as the Assistant Vice-President and Controller for the Mile Square Health Center ("Mile Square"), a not-for-profit westside Chicago community health clinic. Percy Giles, an Alderman for the 37th Ward of the City of Chicago, served on Mile Square's Board of Directors, as Mile Square's Treasurer, and as Chairman of the Finance and Planning Committee. Albert Morris was the Chairman of the Board of Mile Square. F. Daniel Cantrell was the President and Chief Executive Officer of Mile Square.

In the 1980's Mile Square faced hard financial circumstances brought on by the loss of a substantial federal block grant in 1985 and by perennially late Medicare and Medicaid reimbursements from the State of Illinois. In the face of its money crunch, Mile Square failed to pay the government taxes that it had withheld from the wages of its employees during the last two quarters of 1987, the first three quarters of 1988, and the fourth quarter of 1989. The Internal Revenue Service assessed one hundred percent penalties against Mr. Thomas, Ms. Thomas, Giles, Cantrell, and Morris under the authority of 26 U.S.C. Sec. 6672. The penalties were in the following amounts: (1) $215,373.50 against Mr. Thomas for the third quarter of 1987; (2) $806,107.20 each against Ms. Thomas, Giles, Cantrell, and Morris for the third and fourth quarters of 1987, the first, second, and third quarters of 1988, and the fourth quarter of 1989.

Mr. Thomas paid part of the assessment and then filed suit seeking a refund of the amount he paid. The government counterclaimed against Mr. Thomas for the balance of the assessment and filed cross claims against Ms. Thomas, Giles, Cantrell, and Morris for the full amount of their assessments. As the litigation progressed, the government dropped its assessment against Ms. Thomas for the third quarter of 1987 and the fourth quarter of 1989, reducing Ms. Thomas' maximum liability to $463,441.98. The government also abated assessments against Giles, Cantrell, and Morris for the fourth quarter of 1989, reducing each of their maximum liabilities to $781,688.44. Just prior to trial, Cantrell settled with the government and agreed to the entry of judgment against him. At the close of the trial of Mr. Thomas, Ms. Thomas, Giles, and Morris, each party moved for judgment as matter of law (formerly called a motion for directed verdict, see FED.R.CIV.P. 50). The district court denied the motions. The jury returned verdicts in favor of Morris but against Mr. Thomas, Ms. Thomas, and Giles in the full amounts of their assessments. Following the return of the verdicts, Mr. Thomas, Ms. Thomas, and Giles each moved for judgment after trial (formerly called a motion for judgment notwithstanding the verdict and sometimes also called judgment as a matter of law) pursuant to FED.R.CIV.P. 50(b), or alternatively for a new trial under FED.R.CIV.P. 59(a). The district court denied these motions as well.

On appeal, Mr. Thomas, Ms. Thomas, and Giles each challenge the district court's denial of their motions for judgment as a matter of law and of their motions for judgment after trial. Specifically, they claim that the district court should have found as a matter of law that each of them was not a responsible person and was therefore not required to pay Mile Square's withholding trust fund taxes. They also claim that the district court should have found as a matter of law that, even if each were a responsible party, none possessed the willfulness needed to be liable for nonpayment of the withholding trust fund taxes. Mr. Thomas raises three additional issues for review: (1) whether the district court erred in refusing to modify Jury Instructions Nos. 8 and 13 (defining responsible person and willfulness, respectively) and in refusing Lacy Thomas Jury Instructions Nos. 4, 6, and 8 (each outlining various theories for finding Mr. Thomas not liable); (2) whether the court committed reversible error in refusing to admit Lacy Thomas Exhibit No. 5 (an IRS form); and (3) whether the district court should have granted him a new trial because the verdict was against the weight of the evidence.

I. Denied Motions for Judgment as a Matter of Law

Mr. Thomas, Ms. Thomas, and Giles all raise the issue of whether the district court erred in refusing to find that they were neither responsible nor willful as a matter of law with regard to section 6672 of the Internal Revenue Code (26 U.S.C. Sec. 6672). Because they involve only questions of law, we review motions for judgment as a matter of law de novo. Bowlen v. United States, 956 F.2d 723, 727 (7th Cir.1992); see Tapia v. City of Greenwood, 965 F.2d 336, 338 (7th Cir.1992). We will reverse the district court's denial of the motions for judgment as a matter of law and motions for judgment after trial only if we conclude that a reasonable juror could not have found appellants responsible or willful based on the evidence admitted at trial viewed in the light most favorable to the government. Bowlen, 956 F.2d at 727; Tapia, 965 F.2d at 338.

The Internal Revenue Code of 1986 requires employers to withhold federal Social Security and income taxes from the wages of their employees and to hold those taxes in trust for the government. 26 U.S.C. Secs. 3102, 3402. Employers must report and pay the taxes they withhold quarterly. Congress enacted section 6672(a) of the Code to protect against employers' squandering this trust fund. Section 6672(a) provides that "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" shall be subject to a one hundred percent penalty equal to the total amount of the unpaid taxes. 26 U.S.C. Sec. 6672(a). The Supreme Court has interpreted this statute to impose liability on any person who fails to perform his duty to collect, account for, or pay over the withholding taxes. Slodov v. United States, 436 U.S. 238, 247, 250, 98 S.Ct. 1778, 1785, 1787, 56 L.Ed.2d 251 (1978).

A person must be both "responsible" and "wilful" to be liable for an employer's failure to collect or pay over trust fund taxes to the United States. Bowlen, 956 F.2d at 727. Once the government has assessed a taxpayer for the nonpayment of taxes under section 6672, the taxpayer bears the burdens of production and persuasion to disprove his status as a responsible person who willfully failed to collect, account for, or pay over the taxes. Ruth v. United States, 823 F.2d 1091 (7th Cir.1987).

A taxpayer can be held liable as a responsible person under section 6672 in this circuit "if he retains sufficient control of corporate finances that he can allocate corporate funds to pay the corporation's other debts in preference to the corporation's withholding tax obligations." Bowlen, 956 F.2d at 728. Having significant control does not mean having exclusive control over the disbursal of funds or the final say over whether taxes or bills are paid. Id. More than one taxpayer can be a responsible person in a given instance. Id. The concept of responsibility in this context does not focus on whether a particular taxpayer could himself have paid the taxes; rather, it focuses on whether the taxpayer could have impeded the flow of business to the extent necessary to prevent the corporation from squandering the taxes it withheld from its employees. See id. (noting that "responsibility under section 6672 encompasses all those connected closely enough with the business to prevent the default from occurring."). Indicia of a responsible person include possessing checkwriting authority (and the converse authority to refuse to write checks), id., and holding a corporate office, see Monday v. United States, 421 F.2d 1210, 1214-15 (7th Cir.1970), cert. denied, 400 U.S. 821, 91 S.Ct. 38, 27 L.Ed.2d 48 (1970) (noting that holding corporate office does not per se impose a duty, but that an officer may have such a duty even if he is not the disbursing officer so long as he otherwise has sufficient power within the corporate structure).

"Willful," as the term is used in section 6672, means "voluntary, conscious and intentional--as opposed to accidental--decisions not to remit funds properly withheld to the government." Monday, 421 F.2d at 1216 (citations omitted). Furthermore, willful in this civil context does not mean possessing a specific fraudulent intent or evil motive. Id.; Domanus v. United States, 961 F.2d 1323, 1326 (7th Cir.1992). A...