Vinick v. U.S.A.

• Decision Date: 08 September 1999
• Docket Number: No. 98-2143,98-2143
• Citation: 205 F.3d 1
• Parties: (1st Cir. 2000) ARNOLD W. VINICK, Plaintiff, Appellant, v. UNITED STATES, Defendant, Appellee. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

205 F.3d 1 (1st Cir. 2000)

ARNOLD W. VINICK, Plaintiff, Appellant, v. UNITED STATES, Defendant, Appellee.

No. 98-2143

United States Court of Appeals for the First Circuit

Heard September 8, 1999

Decided March 8, 2000

[Copyrighted Material Omitted] Howard R. Palmer, with whom Lawrence F. O'Donnell and O'Donnell, O'Donnell and O'Donnell, were on brief, for appellant.

Teresa E. McLaughlin, Attorney, with whom Loretta C. Argrett, Assistant Attorney General, and Gilbert S. Rothenberg, Attorney, were on brief, for appellee.

Before Stahl, Circuit Judge, John R. Gibson,^* Senior Circuit Judge, and Lynch, Circuit Judge.

STAHL, Circuit Judge.

Plaintiff-appellant Arnold W. Vinick appeals the district court's determination that he personally is liable for withholding taxes that Jefferson Bronze, Inc. ("Jefferson Bronze") failed to pay. Previously this court vacated a determination that Vinick was a "responsible person" within the meaning of section 6672(a) of the Internal Revenue Code and remanded for further proceedings consistent with our opinion. See Vinick v. United States, 110 F.3d 168 (1st Cir. 1997) (appeal from summary judgment in the government's favor) (hereinafter Vinick I). Following a bench trial, the district court again ruled in the government's favor by finding Vinick to be a responsible person. We reverse.

I.

A.

To ease the logistical burden on employees and to aid in the collection of taxes, the Internal Revenue Code requires employers to withhold from employees' wages social security and federal income taxes. See 26 U.S.C. 3102, 3402 (1994). The money withheld is held by the employer in trust for the United States. See id. 7501. This system protects from later recourse the employees who are deemed to have paid their taxes, even if the employer fails to pay the Internal Revenue Service ("IRS") the money it withheld. See Caterino v. United States, 794 F.2d 1, 3 (1st Cir. 1986) (noting that the IRS "has no recourse against employees who have had income and social security taxes withheld from their wages"). The Code renders liable for the taxes due those it deems to be responsible persons who willfully have neglected to pay the withheld money. See 26 U.S.C. 6672. In pertinent part, 6672 states:

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.

Liability under 6672 falls upon those persons who satisfy both prongs of a two-part inquiry. First, the person must be "responsible" for collecting, accounting for, and paying over the taxes; second, if, and only if, the person is deemed responsible, he is liable if he acted "willfully" within the meaning of this section. See, e.g., Vinick I, 110 F.3d at 170; Caterino, 794 F.2d at 3; Harrington v. United States, 504 F.2d 1306, 1312-13 (1st Cir. 1974). Because we already have determined as a matter of law that Vinick acted willfully, see Vinick I, 110 F.3d at 174, the only issue before us is whether the record supports the district court's conclusion that Vinick was in fact a responsible person. We hold that it does not.

B.

We review the record in the light most favorable to the government. See United States v. Ven-Fuel, Inc., 758 F.2d 741, 744-45 (1st Cir. 1985) (noting that "we present the facts and the reasonable inferences therefrom in the manner most hospitable to the appellee, to the extent consistent with record support").

Vinick, a certified public accountant, has been in private practice since 1962. Prior to that time, he worked for the IRS for eight years. While in private practice, Vinick became acquainted with Richard M. Letterman, then a practicing attorney.¹ In 1981, Letterman, Peter Mayer, and Vinick formed Jefferson Bronze for the purpose of operating a foundry. Norman Leach, who owned a foundry in Salem, Massachusetts, sold them the necessary assets. Letterman was Leach's attorney, Vinick was his accountant, and Mayer was Letterman's brother-in-law.

Jefferson Bronze received from the Small Business Administration ("SBA") a loan to acquire the assets from Leach. Letterman, Mayer, and Vinick, who each owned one-third of Jefferson Bronze's stock, personally guaranteed the SBA loan and pledged their homes as collateral. Letterman became the president and clerk. Vinick was the treasurer. Mayer was neither an officer nor a director, but he was the day-to-day manager of the foundry.

Throughout the history of his involvement in the corporation, Vinick never gave up his accounting practice and never had an office at Jefferson Bronze. Although Letterman and he both were signatories on the company's checking accounts, Vinick never signed checks prior to the company's filing of its Chapter 11 petition. Vinick, however, did prepare the corporation's quarterly employment tax returns.

Soon after its formation, Jefferson Bronze began what would become a long period of financial difficulties. Early on, in 1983, Letterman fired Mayer, and he and Vinick then acquired Mayer's share of the corporation, obtained his release from liability on the SBA loan, and each became a half owner of Jefferson Bronze. Subsequently, Vinick asked Ronald Ouellette, who had worked in the foundry under Leach, to take over as the new manager.

Ouellette ran the office and the foundry, and his wife Diane Ouellette worked part time as the bookkeeper in the office and signed the company checks and payroll returns. Vinick occasionally would visit the Ouellette home to collect information needed to complete the quarterly returns. After their preparation, Vinick would return the completed, unsigned forms to the Ouellette home. Usually once a month, Vinick would discuss with Ron Ouellette the financial condition of the corporation and would stress to him the need to pay the taxes.

During Ouellette's tenure as manager, Jefferson Bronze's financial troubles continued. Often, the corporation failed timely to pay the withholding taxes due. Regardless, the corporation always filed its tax returns on time. At some point, Letterman and Vinick obtained from Leach a $35,000 loan, which they secured with personal guarantees. In 1985, Vinick negotiated with an IRS revenue officer a payment plan for the taxes Jefferson Bronze owed. Vinick relayed to Ouellette the terms of the plan, and Ouellette complied with the plan's requirements. After Jefferson Bronze completed payment of these taxes, it experienced no further tax delinquency until Letterman took over as manager.

In January 1988, Letterman decided on his own to take over as the day-to-day financial manager of the corporation. Letterman moved his law practice to Jefferson Bronze's office and relieved Ouellette of his financial responsibilities, but retained him as the foundry manager. Letterman's wife, Ellen Letterman, took over as office manager and bookkeeper. Vinick continued to collect the financial information, to prepare the tax returns, and to leave them for Letterman to sign. While he also continued to advise Letterman to pay the corporation's taxes, the record is undisputed that Vinick became less involved in the financial affairs of the corporation as Letterman's role increased.

In May 1988, Jefferson Bronze refinanced its SBA loan with a $300,000 loan from National Grand Bank. Letterman and Vinick met with the bank's vice president, Eliot Rothwell, who negotiated the loan. The bank's practice required all principals of any closely held corporation to be account signatories, and it made no exception for Jefferson Bronze. Letterman and Vinick each signed the note evidencing the loan twice, once in an individual capacity and once in a corporate capacity. Each further personally guaranteed the loan by pledging his house as collateral. Around March 1989, the corporation became delinquent on its loan from National Grand Bank, and Letterman and Vinick met with Rothwell to discuss the financial future of Jefferson Bronze.

By July of 1990, the company's continuing financial difficulties forced it to file for bankruptcy protection under Chapter 11. After doing so, it opened two new bank accounts at Heritage Cooperative Bank ("Heritage"): a debtor in possession account and a tax account. Both accounts required two signatures, Letterman's and Vinick's, on every check, even though Letterman retained possession of the checkbooks. For the first time in Jefferson Bronze's existence, Vinick's signature appeared on Jefferson Bronze checks.

In 1990, during the bankruptcy period, Vinick signed every check on the Heritage accounts, but it is unclear when he signed them. On several occasions, Juli Young, the bank employee who filed all paid checks, called Vinick down to the bank. Upon arrival, she presented to him for his signature checks that the bank already had negotiated with only Letterman's signature.² On July 26, 1991, National Grand Bank foreclosed on its loan. Later that year, Jefferson Bronze finally closed its doors.

Meantime, from April 1989 to June 1990, during Letterman's tenure as manager and prior to Vinick's ever having signed a company check, Jefferson Bronze again fell behind in its withholding tax obligations. On December 17, 1990, the IRS assessed against Vinick a penalty pursuant to 6672 for the total amount owed, $49,129. The assessment alleged failed withholding payments for the last three quarters of 1989 and the first two quarters of 1990. On December 24, 1990, the IRS made a like assessment against Letterman.

Vinick paid $3,731 and filed a claim for a refund. The IRS denied that claim, and Vinick commenced this suit. The government counterclaimed for the balance due and moved for summary judgment against...