Thosteson v. U.S., CIV.A.00-T-622-S.

Decision Date07 August 2001
Docket NumberNo. CIV.A.00-T-622-S.,CIV.A.00-T-622-S.
Citation182 F.Supp.2d 1189
PartiesPeter THOSTESON, Plaintiff, v. UNITED STATES of America, Defendant.
CourtU.S. District Court — Middle District of Alabama

Banks Thomas Smith, Hall, Smith & Jones, G. David Johnston, Johnston, Hinesley, Flowers & Clenney, PC, Dothan, AL, for Plaintiff.

Kenneth E. Vines, U.S. Atty's Office, Montgomery, AL, Cynthia Lewis Stier, Laura M. Conner, U.S. Dept. of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

MYRON H. THOMPSON, District Judge.

Plaintiff Peter Thosteson filed this action against defendant United States, seeking a refund of his partial payment of a penalty assessment made against him pursuant to 26 U.S.C.A § 6672 for withholding taxes from the third quarter of 1994 through November 28, 1995, that his employer, Lorac, Inc., did not remit to the government. A trial was held on August 1 and 2, 2001, and after the close of evidence and argument, the jury returned a verdict in favor of Thosteson for all the quarters at issue.

This cause is now before the court on the oral motion by the government for judgment as a matter of law pursuant to Rule 50 of the Federal Rules of Civil Procedure. For the reasons below, this motion will be granted.

I. LEGAL STANDARD

Rule 50 permits a court to enter judgment as a matter of law if, after an adequate hearing, there is no legally sufficient evidentiary basis for a jury's verdict. See Fed.R.Civ.P. 50. When ruling on a motion for judgment as a matter of law, the court must consider all of the evidence in the light most favorable to the party opposed to the motion. See, e.g., Williams v. United States, 931 F.2d 805, 809 (11th Cir.1991); Smith v. United States, 894 F.2d 1549, 1552 (11th Cir.1990); Thibodeau v. United States, 828 F.2d 1499, 1503 (11th Cir.1987). A motion for judgment as a matter of law should be granted only if, viewing the evidence as a whole and drawing all reasonable inferences in favor of the nonmoving party, no reasonable jury could reach a contrary verdict. See Williams, 931 F.2d at 809.

II. FACTS

Thosteson was an incorporator of Lorac, Inc., an employee leasing business. Initially he was one of the company's vice-presidents, and his main responsibility was sales and "growing" the business. He had limited authority to hire and fire employees, to determine financial policy, to set salaries and wages, to pay employees, and to enter loan agreements on Lorac's behalf. He opened bank accounts for Lorac with People's Bank in Dothan, Alabama, and was a signatory on those accounts with the ability to write checks under his sole signature for amounts up to $ 750. Lorac had two different kinds of checks: Checks that expressly required two signatures for amounts above $ 750, and checks that did not. On at least three occasions, Thosteson wrote checks for more than $ 750 under his sole signature on Lorac checks that did not expressly require two signatures.1 The evidence at trial did not show that those checks were not honored, and conclusively proved that at least one such check was honored.2 Further, Thosteson also had the authority to sign Lorac's Form 941 withholding tax returns, and he did so for the third and fourth quarters of 1995.

In the spring of 1995, Thosteson purchased a 24 % stake in Lorac from its sole shareholder, Garner Umphrey, for $ 288. Umphrey, however, did not cash the check that Thosteson used to pay him. At some point before the bankruptcy, Thosteson also became the president of Lorac.

Thosteson testified at trial that he knew during the entire period at issue in this suit that a responsible person has a duty under the law to assure that withholding taxes are remitted to the United States. And he testified that as of August 28, 1995 he was aware that Lorac had failed to remit withholding taxes to the United States, and that, in October 1995, he became aware of the full amount of withholding taxes that Lorac owed.

The undisputed evidence showed that after Thosteson became aware that Lorac owed withholding taxes to the government and after he became aware of the full amount of the taxes that were owed, he continued to write check after check to other creditors under his signature alone, including checks to Tack and So Forth, Inc. (a joint venture of Lorac and Thosteson's wife),3 himself,4 Builder's Cash and Carry,5 and Garner Insurance Agency.6

II. DISCUSSION

Section 6672 imposes liability upon (1) a responsible person (2) who has willfully failed to perform a duty to collect, account for, or pay over federal employment taxes.7 See, e.g., Williams, 931 F.2d at 810; Thibodeau, 828 F.2d at 1503; George v. United States, 819 F.2d 1008, 1011 (11th Cir.1987). The Eleventh Circuit agrees with the vast majority of other courts in holding that in tax refund cases, such as the case at bar, the burden of proof is on the plaintiff to show that the Internal Revenue Service's findings in assessing a deficiency are incorrect. See, e.g., Trucks, Inc. v. United States, 234 F.3d 1340, 1342 (11th Cir.2000). Specifically in the context of § 6672 cases, the Eleventh Circuit has held that it is the taxpayer's burden to establish that he or she was not willful in failing to pay over withholding taxes. See, e.g., Malloy v. United States, 17 F.3d 329, 331 (11th Cir. 1994). However, the Court of Appeals has not directly decided who bears the burden of proof on the issue of whether a taxpayer is a responsible person in a refund suit for a § 6672 penalty. This court need not reach that issue here because both parties have agreed that the taxpayer in this suit bears the burden of showing that he was not a responsible person,8 and, in any event, the allocation of the burden of proof does not bear on the court's findings, as discussed below, with regard to Thosteson's responsibility and willfulness.

A person is responsible within the meaning of § 6672 if he or she has a duty to collect, account for, or pay over taxes withheld from the wages of a company's employees. See, e.g., Williams, 931 F.2d at 810; Thibodeau, 828 F.2d at 1503; George, 819 F.2d at 1011. Responsibility is a matter of status, duty, and authority, not knowledge. See Thibodeau, 828 F.2d at 1503; Mazo v. United States, 591 F.2d 1151, 1156 (5th Cir.)9, cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). However, the law is clear that § 6672 responsibility is a matter of the power and authority to make payment of withholding taxes, and is not dispositively determined by corporate title or position. See Neckles v. United States, 579 F.2d 938, 940 (5th Cir.1978). "Indicia of responsibility include the holding of corporate office, control over financial affairs, the authority to disburse corporate funds, stock ownership, and the ability to hire and fire employees." George, 819 F.2d at 1011.

The undisputed evidence in this case establishes beyond any doubt that Thosteson was a responsible person under § 6672: He had sufficient control over the financial affairs and day-to-day operations of Lorac, he had power to disburse corporate funds under his own name and authority, he held the position of a vice-president, he was a signatory on Lorac's bank accounts, and he set employee salaries, including his own. That other individuals may also have had these powers at Lorac is immaterial. The law is unambiguous that there may be more than one responsible person in a corporation, see Williams, 931 F.2d at 810 n. 7, and the fact that other persons involved with Lorac may have been responsible as well does not detract from the conclusion that Thosteson is a responsible person. This is most dramatically demonstrated by these facts: He was a signatory on some bank accounts with the ability to write checks under his sole signature for amounts up to $ 750 on some occasions and the ability to write checks for more than $ 750 under his sole signature on others. Moreover, after Thosteson became aware that Lorac owed withholding taxes to the government and after he became aware of the full amount of the taxes that were owed, he continued to write check after check to other creditors under his signature alone.

The only changes in Thosteson's authority or position within Lorac during the period at issue in this suit were that he purchased, or attempted to purchase, a 24 % stake in Lorac from Garner Umphrey, and that at some time Thosteson became Lorac's president. However, neither of these changes altered the authority that Thosteson had — and exercised — to make payments to Lorac's creditors. And, as stated, corporate titles are not determinative of responsibility under § 6672. See Neckles, 579 F.2d at 940. And even if these changes altered Thosteson's authority, the evidence is undisputed that as of the end of the third quarter of 1995, Thosteson's authority was no less than he enjoyed since Lorac was incorporated, and, additionally, he was the company's president. Viewing all the evidence as a whole, and drawing all factual inferences in Thosteson's favor, no reasonable jury could have found that he was not a responsible person under § 6672.

The court now turns to the issue of Thosteson's willfulness. The term "willfulness" as used in criminal tax statutes is defined as the "voluntary, intentional violation of a known legal duty." Cheek v. United States, 498 U.S. 192, 200, 111 S.Ct. 604, 610, 112 L.Ed.2d 617 (1991). At a minimum, to satisfy the willfulness...

To continue reading

Request your trial
4 cases
  • Xactware, Inc. v. Symbility Solution Inc., 2:05 CV 603 JTG.
    • United States
    • U.S. District Court — District of Utah
    • December 1, 2005
    ... ... 160 F.3d at 1379, the court held that "[t]he statutory character of the `offer to sell' requires us to look back to federal law on the conceptualization of the `offer to sell' itself." However, the ... ...
  • Thosteson v. U.S., 01-14520.
    • United States
    • U.S. Court of Appeals — Eleventh Circuit
    • June 2, 2003
    ...Carry [for $923, dated October 13, 1995], and Garner Insurance Agency [for $45,000, dated October 13, 2001]. Thosteson v. United States, 182 F.Supp.2d 1189, 1191-92 (M.D.Ala.2001) (notes On appeal, Thosteson emphasizes the role of Garner Umphrey, who has also been sued by the government but......
  • Thosteson v. U.S., No. 01-14520.
    • United States
    • U.S. Court of Appeals — Eleventh Circuit
    • September 11, 2002
    ...Carry [for $923, dated October 13, 1995], and Garner Insurance Agency [for $45,000, dated October 13, 2001]. Thosteson v. United States, 182 F.Supp.2d 1189, 1191-92 (M.D.Ala.2001) (notes On appeal, Thosteson emphasizes the role of Garner Umphrey, who has also been sued by the government but......
  • Thostenson v. United States
    • United States
    • U.S. Court of Appeals — Eleventh Circuit
    • June 2, 2003
    ...[for $923, dated October 13, 1995], and Garner Insurance Agency [for $45,000, dated October 13, 2001]. Thosteson v. United States, 182 F. Supp. 2d 1189, 1191-92 (M.D. Ala. 2001) (notes On appeal, Thosteson emphasizes the role of Garner Umphrey, who has also been sued by the government but h......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT