White v. United States

• Decision Date: 17 February 1967
• Docket Number: No. 270-62.,270-62.
• Parties: Robert WHITE v. The UNITED STATES.
• Court: U.S. Claims Court

372 F.2d 513 (1967)

Robert WHITE v. The UNITED STATES.

No. 270-62.

United States Court of Claims.

February 17, 1967.

Martin J. Welsh, Cleveland, Ohio, attorney of record, for plaintiff.

Leonard S. Togman, Washington, D. C., with whom was Asst. Atty. Gen. Mitchell Rogovin, for defendant. Lyle M. Turner and Philip R. Miller, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges.

OPINION

PER CURIAM:

This case was referred to Trial Commissioner Franklin M. Stone with directions to make findings of fact and recommendation for conclusions of law. The commissioner has done so in an opinion and report filed on September 28, 1966. Plaintiff has filed no exceptions to or brief on this report and the time for so filing pursuant to the Rules of the court has expired. On November 10, 1966, the defendant filed a motion that the court adopt Trial Commissioner Stone's findings of fact, opinion and recommended conclusion of law as those of the court, to which plaintiff has filed no response and the time for so filing has expired. Since the court agrees with the trial commissioner's findings, opinion and recommended conclusion of law, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in this case without oral argument. Defendant's motion to adopt is granted, plaintiff is therefore not entitled to recover and the petition is dismissed.

OPINION OF COMMISSIONER^*

STONE, Commissioner:

Plaintiff seeks in this action to recover refund of Federal employment tax penalties assessed against him by the Commissioner of Internal Revenue and paid by plaintiff, as a result of the failure of the White Plumbing Company, Inc. (hereinafter sometimes referred to as "the corporation") to pay over to the Government certain Federal income and F.I.C.A. taxes withheld from wages paid to employees of the corporation during the last quarter of 1956 and the first two quarters of 1957. Two questions are presented for decision: (1) whether plaintiff was a "person" under a duty to "collect" and "pay over" to the Government, Federal and F.I.C.A. taxes withheld, within the meaning of sections 6671(b) and 6672 of the Internal Revenue Code of 1954, 26 U.S.C. § 6672 (1958), and (2) whether plaintiff "willfully" failed to take either of the actions outlined in (1), within the meaning of section 6672 of the Internal Revenue Code of 1954, supra.

White Plumbing Company, Inc., was incorporated in the state of Ohio on May 7, 1956, and ceased active operation in the latter part of July, 1957. The board of directors was made up of the three stockholders of the corporation, who owned the following proportions of stock:

                  Robert White (plaintiff)  50 per cent
                  Nicholas Paglia           25 per cent
                  Louis Corsi               25 per cent
                

During the existence of the corporation, plaintiff was president of the corporation and he was authorized by the corporation's code of regulations to exercise, subject to the control of the board of directors and the stockholders, general supervision over the affairs of the corporation. Louis Corsi held the office of secretary-treasurer, and at the same time he was employed on a full-time basis as an attorney for the City of Cleveland, Ohio. The signatures of both plaintiff and Corsi were required on all checks drawn on the corporation's regular commercial bank account and its payroll account.

While plaintiff devoted most of his time to outside plumbing work, he actively conducted the day to day operations of the business, which during the first few months, was run from a barn next to his home. Plaintiff's residence address was used for receiving most business mail, except tax correspondence, including, among other items, bills and bank statements. Plaintiff came to the office daily, hired and laid-off all the employees, ordered materials and supplies, opened mail from suppliers and examined bills sent in by them, set the price of jobs, negotiated all contracts with customers, prepared invoices, disbursed corporate funds by issuing checks cosigned by him and Corsi in payment of suppliers' bills and other business expenses, and deposited the business receipts in the corporation's bank account. He received a salary of $150 per week from the corporation.

Around October 1, 1956, the business was moved to a new, permanent location called the "store" and plaintiff hired Mrs. Frances Oberdick as the firm's bookkeeper and office girl. Until this time, Corsi had performed the bookkeeping work at his home and prepared all county, state and Federal tax returns for the corporation. The tax notices and returns were sent directly to Corsi's residence until some time after the business moved its operations to the new site. Tax notices and return forms received by Corsi at his home subsequent to that time were taken to the corporation's business office and left there by him. After Mrs. Oberdick was employed, Corsi took all the bookkeeping records in his possession to the store, showed her how to use them, and thereafter Mrs. Oberdick assumed all of the routine office and bookkeeping duties previously discharged by Corsi, including the preparation and mailing of Federal income tax returns, which Corsi checked for correctness before instructing that they be sent to the Internal Revenue Service along with checks in payment thereof. Corsi was not paid a salary for his services. No Federal withholding tax returns were ever prepared or filed by plaintiff (which fact is qualified to the extent indicated in footnote ^2* of the findings), nor did he ever give any tax returns to Mrs. Oberdick to complete.

For a short time after the corporation's operations were moved early in October 1956, Corsi went to the business office about once every week or ten days. Thereafter, his visits became increasingly infrequent. While at the store, he limited his activities almost entirely to reviewing tax returns prepared by Mrs. Oberdick and signing blank corporate checks, which he gave to plaintiff to use in paying financial obligations of the corporation. These presigned blank checks were completed by plaintiff or by Mrs. Oberdick at the direction of plaintiff (and occasionally at the direction of Corsi). All checks, including those in payment of taxes, which were prepared and sent out by Mrs. Oberdick at the direction of Corsi, were written with plaintiff's knowledge. Plaintiff paid most of the bills received and expenses incurred by the corporation with checks presigned in blank by Corsi. Suppliers who were not paid went to plaintiff for payment, and he would promise them payment as soon as possible. Plaintiff directed Mrs. Oberdick in the preparation of the payroll, signed the payroll checks already presigned by Corsi, and paid the employees himself.

The corporation withheld from wages paid to its employees during the third quarter of 1956 and the first two quarters of 1957, certain amounts with respect to Federal income and F.I.C.A. taxes. These amounts were reported to the Government on corporate withholding tax Forms 941, prepared and filed by Mrs. Oberdick at Corsi's direction, for the quarters ending September 30, 1956, March 31, 1957, and June 30, 1957. The taxes for these quarters had not been paid by the due date and were still owing when the corporation ceased active operation in July 1957. During the period when plaintiff knew that these taxes were owing, and could have paid them with checks presigned by Corsi and given to him, he chose, instead, to make payments to other creditors so that he could continue to carry on the business.

I. Was plaintiff a "person" under a duty to "collect" and "pay over" income and F.I.C.A. taxes withheld, within the meaning of sections 6671(b) and 6672 of the Internal Revenue Code of 1954?

Sections 6671(b) and 6672 of the Internal Revenue Code of 1954, supra, are so interrelated that they must be read and considered together in resolving the questions raised in this case.¹

Section 6671(b) of the code provides:

RULES FOR APPLICATION OF ASSESSABLE PENALTIES

* * * * * *

(b) Person Defined. — The term "person", as used in this subchapter, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs. 26 U.S.C. § 6671(b) (1958).

Section 6672 of the code provides:

FAILURE TO COLLECT AND PAY OVER TAX, OR ATTEMPT TO EVADE OR DEFEAT TAX

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. No penalty shall be imposed under section 6653 for any offense to which this section is applicable. 26 U.S.C. § 6672 (1958).

The purpose of the section is to permit the taxing authority to reach those responsible for the corporation's failure to pay the taxes which are owing. Dillard v. Patterson, 326 F.2d 302 (5th Cir. 1963); United States v. Graham, 309 F.2d 210 (9th Cir. 1962). Accordingly, the section is generally understood to encompass all those officers who are so connected with a corporation as to have the responsibility and authority to avoid the default which constitutes a violation of the particular Internal Revenue Code section or sections involved, even though liability may thus be enforced on more than one person. See Linda Scott v. United States, 354 F.2d 292, 296, 173 Ct.Cl. 650 (1965), citing Scherer v. United States, 228 F.Supp. 168, 170 (D.C.Idaho 1963).

In reaching a determination with respect to the person or persons upon whom to impose responsibility and liability for...