Vinick v. C.I.R.
| Decision Date | 02 December 1996 |
| Docket Number | No. 96-1582,96-1582 |
| Citation | 110 F.3d 168 |
| Parties | -1905, 97-1 USTC P 50,333, Unempl.Ins.Rep. (CCH) P 15713B Arnold W. VINICK, Plaintiff--Appellant, v. COMMISSIONER of INTERNAL REVENUE, Defendant--Appellee. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Howard R. Palmer, Quincy, MA, with whom Lawrence F. O'Donnell and O'Donnell, O'Donnell & O'Donnell were on brief, for Plaintiff-Appellant.
Theresa E. McLaughlin, Assistant United States Attorney, with whom Loretta C. Argrett, Assistant Attorney General, Donald K. Stern, United States Attorney, and Sarah K. Knutson, Attorney, Tax Division, Department of Justice, were on brief, for Defendant-Appellee.
Before STAHL and LYNCH, Circuit Judges, and WOODLOCK, * District Judge.
Plaintiff-Appellant Arnold W. Vinick ("Vinick") appeals the grant of summary judgment in favor of Defendant-Appellee, Commissioner of Internal Revenue ("IRS") with respect to the IRS' claim for unpaid federal withholding taxes. We reverse, in part, and remand for further proceedings.
By way of legal context, we begin with a brief discussion of 26 U.S.C. § 6672(a), which governs this dispute, drawing primarily from our decision in Thomsen v. United States, 887 F.2d 12, 14 (1st Cir.1989). The Internal Revenue Code ("the Code") requires employers to withhold federal taxes from employees' wages, see 26 U.S.C. §§ 3102, 3402, and to hold such amounts in trust for the United States. See 26 U.S.C. § 7501. Once an employer has withheld the taxes, the IRS has no recourse against the employee in the event of nonpayment. When an employer fails to remit the withheld taxes, the IRS is not without recourse, for the Code allows the IRS to look beyond the corporate form and hold certain agents and officers of the corporation personally liable for any taxes withheld but not paid. See 26 U.S.C. § 6672(a).
Title 26 U.S.C. § 6672(a) provides that
[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to ... pay over such tax ... 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.
Section 6672(a) thus permits the IRS to recover the full amount of delinquent withholding tax from any "responsible person," i.e., one required to collect, account for and pay over the taxes, if that individual acted willfully within the meaning of the section. See Thomsen, 887 F.2d at 14.
We state the facts in the light most favorable to Vinick, the party opposing summary judgment. See Hoeppner v. Crotched Mountain Rehabilitation Ctr., 31 F.3d 9, 14 (1st Cir.1994).
Vinick is a certified public accountant and is currently a partner in his own accounting firm. He has practiced public accounting for over thirty years. Vinick became acquainted with Richard Letterman, then a practicing attorney, in the early 1970's. Around 1980 Letterman told Vinick about the Jefferson Bronze Company ("Jefferson Bronze"), a foundry in Salem, Massachusetts, and despite its less than stellar financial performance, persuaded him that it would make a good investment.
In 1981, Vinick, Letterman and Peter Mayer 1 agreed to purchase the assets of Jefferson Bronze. In the transaction, each investor acquired one-third of the company, and pledged the equity in his house as part of the financing package. Although the record is unclear as to how, Letterman became president, Vinick had the title of treasurer, and Mayer was given responsibility for the day-to-day management of the foundry.
Vinick, a busy accountant, desired only to be a passive investor in Jefferson Bronze. Despite his nominal position as treasurer, Vinick neither saw the company bylaws nor participated in any way in the fiscal or general management of Jefferson Bronze. From 1981 to 1983, Mayer oversaw the day to day operations of Jefferson Bronze, and Vinick did nothing other than prepare the quarterly tax returns.
By 1983, the company, under Mayer's stewardship, was performing poorly and losing money. That poor performance led to several changes in Jefferson Bronze's structure. Mayer "was dismissed," and Vinick asked Ronald Ouellette, a Jefferson Bronze employee, to assume oversight of the day-to-day operations of the foundry. Vinick and Letterman, in exchange for obtaining the release of Mayer's house from the financing arrangement, acquired Mayer's interest in Jefferson Bronze and each became a fifty percent owner. As part of the restructuring, Vinick and Letterman secured new financing in the amount of $300,000 which was used to pay off the original loan and for working capital, once again pledging each of their houses as collateral.
Between 1983 and 1987, Ouellette continued to run Jefferson Bronze and Vinick's involvement continued to consist, with a few exceptions, of preparing the quarterly tax returns. During 1985, Ouellette informed Vinick that Jefferson Bronze had become delinquent in its withholding taxes. Vinick informed Letterman of the problem and all three shareholders agreed to attend a meeting with a revenue officer to resolve the situation. Upon arrival, however, Letterman and Ouellette refused to attend the meeting. They waited outside in the car while Vinick alone met with the revenue agent and negotiated a payment plan. "On rare occasion" during this period, Vinick also reported Jefferson Bronze's poor performance to Letterman and sought suggestions for ways to improve the company's operations. At some point between 1983 and 1987, apparently because of the continued poor performance of the company, Letterman and Vinick borrowed $35,000 from the former owner. That debt was secured with personal guarantees.
In 1987, Letterman decided to assume oversight of the daily operations of the foundry. Vinick continued to prepare the quarterly tax returns. He and Letterman secured an additional $300,000 of financing, this time by pledging the assets of the company and their personal guarantees. As a condition of the loan, the lending bank required Jefferson Bronze to transfer its checking account to the bank and insisted that both Letterman and Vinick become signatories on the account. Vinick, however, never exercised his check signing authority nor did he have access to the corporate checkbook. His involvement in the management of Jefferson Bronze remained minimal.
After Letterman took over active management of the company, Vinick spoke with either Letterman or his wife (who served as bookkeeper) once every four to five weeks. On occasion he would discuss "the problem of unpaid taxes" and would urge the Lettermans to remit these taxes. Specifically, each time he prepared a quarterly tax return he discussed the withholding taxes with the Lettermans, learned whether or not the taxes had been deposited, and if not, urged the Lettermans to make the deposits. Each time he raised the issue with the Lettermans, they promised to pay the taxes, and Vinick relied on their assurances. Beginning in April 1989, Jefferson Bronze again fell behind in its withholding tax obligations.
In December 1990, the IRS made an assessment against Vinick and Letterman, each in the amount of $49,129 for unpaid withholding taxes for the last three quarters of 1989 and the first two quarters of 1990. Vinick paid one quarter's worth of the assessment, filed a claim for a refund, and upon IRS denial, brought a refund suit in district court. The IRS counterclaimed for the balance of the assessment and moved for summary judgment against both Letterman and Vinick. The district court, concluding that both Vinick and Letterman were responsible persons who acted willfully under § 6672(a), granted summary judgment for the IRS. Vinick alone now appeals. 2
We review the award of summary judgment de novo. See Ortiz-Pinero v. Rivera-Arroyo, 84 F.3d 7, 11 (1st Cir.1996). Summary judgment is appropriate in the absence of a genuine issue of material fact, when the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). A fact is material when it has the potential to affect the outcome of the suit. See J. Geils Band Employee Benefit Plan v. Smith Barney Shearson, Inc., 76 F.3d 1245, 1250-51 (1st Cir.), cert. denied, --- U.S. ----, 117 S.Ct. 81, 136 L.Ed.2d 39 (1996). Neither party may rely on conclusory allegations or unsubstantiated denials, but must identify specific facts derived from the pleadings, depositions, answers to interrogatories, admissions and affidavits to demonstrate either the existence or absence of an issue of fact. See Fed.R.Civ.P. 56(c) and (e).
As in other tax litigation, the person challenging an assessment under § 6672(a) bears the burden of proving that he is not a responsible person. See Caterino v. United States, 794 F.2d 1, 5 (1st Cir.1986). Vinick thus bears the ultimate burden of proving that § 6672(a) does not impose liability on him for Jefferson Bronze's unpaid withholding taxes. See id. At the summary judgment stage, however, the IRS, as the moving party, has the burden of demonstrating the absence of a genuine issue of material fact as to whether § 6672(a) applies and that it deserves judgment as a matter of law. Vinick's burden, as the party opposing summary judgment, remains the same as any opposing party: he must demonstrate that disputed facts preclude summary judgment. See O'Connor v. United States, 956 F.2d 48, 50 (4th Cir.1992).
In granting summary judgment in favor of the IRS, the district court determined both that Vinick was a responsible person and that he acted willfully as a matter of law. We consider each of these issues in turn.
As we have noted, "[c]ourts have explicitly given the word 'responsible' a broad interpretation." Caterino, 794 F.2d at 5. Specifically,...
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