Wright v. U.S.
| Decision Date | 14 January 1987 |
| Docket Number | No. 86-1540,86-1540 |
| Citation | 809 F.2d 425 |
| Parties | -467, 87-1 USTC P 9130, Unempl.Ins.Rep. CCH 17,150 Stephen R. WRIGHT, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
James O. Beavers, Hershey, Bliss, Beavers & Periard, Taylorville, Ill., for plaintiff-appellant.
Deborah Swann Mbye, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellee.
Before POSNER and COFFEY, Circuit Judges, and PELL, Senior Circuit Judge.
Stephen Wright appeals from a judgment of the district court, made after a two-day bench trial, upholding a $61,000 assessment against him for willful failure to pay withholding taxes. 26 U.S.C. Sec. 6672. (He had paid part of it, then sued for a refund, which is why the case comes to us from a district court rather than the Tax Court.) The only question is whether the finding of willfulness, made by the district court in an oral opinion, is clearly erroneous.
Single Ply Roofing and Sheet Metal Company, a roofing contractor owned and operated by Roger Morlan, got into financial trouble. Its banker put Morlan in touch with two local businessmen, Wright and Neil Pfeiffer, the principals of a pair of construction companies, Caturfield Builders, Inc. and Vector Industries, Inc. Pfeiffer and Wright lent Single Ply $50,000 and agreed to handle Single Ply's business affairs. In exchange, Morlan turned over control of the company to the two men, though he continued as president. Wright was made corporate secretary, Pfeiffer corporate treasurer.
In 1981, when the agreement was made, both Pfeiffer and Wright knew that Single Ply had failed to remit to the government some $20,000 in withholding taxes. Single Ply retained Wright's personal lawyer (Wright testified, however, that he didn't know about this retention) to negotiate the delinquency with the Internal Revenue Service. These taxes eventually were paid and are not in issue in this case.
Pfeiffer handled the administrative end of Single Ply's business. Wright's primary responsibility was to teach Morlan how to estimate the profitability of roofing jobs so that Morlan would know how much to bid and could keep tabs on the costs of the contracts awarded to Single Ply. He met with Morlan every two weeks or so. He did not receive Single Ply's accounts-payable reports (these were reviewed by Pfeiffer), nor did he review its books. He did review job-costing reports that listed labor costs, including withholding taxes, but the reports revealed neither the amount of withholding taxes nor how much of the labor costs were still payable and how much had been paid.
Two signatures were required on all Single Ply checks. Morlan and Pfeiffer signed most of them, but Wright signed a few, including one repaying the initial loan of $50,000; however, Wright and Pfeiffer immediately replaced the loan. It is undisputed that Morlan and Pfeiffer knew that Single Ply was not paying withholding taxes.
Single Ply never did get out of its financial hole, and when after a year and a half the agreement with Morlan expired, Wright and Pfeiffer withdrew. Single Ply collapsed (followed by Caturfield, to which Single Ply owed $137,000, and by Vector), owing the government $61,000 in withholding taxes that had accrued during the period of the agreement with Wright and Pfeiffer. Single Ply, Morlan, and Pfeiffer are insolvent, so the government seeks to collect the entire amount from Wright.
Section 6672 casts the net of liability over "any person required to collect, truthfully account for, and pay over" withholding taxes--any "responsible person" in tax jargon, not just the employer and not just the most responsible person. Howard v. United States, 711 F.2d 729, 737 (5th Cir.1983). Wright, who signed checks (as a principal, not a bookkeeper) to creditors of Single Ply at a time when Single Ply owed withholding taxes to the government--who paid the creditors money supposed to be held for the government--concedes that he had sufficient financial responsibilities within the company to be a responsible person within the meaning of the statute. Cf. Caterino v. United States, 794 F.2d 1, 5 (1st Cir.1986); Bolding v. United States, 565 F.2d 663, 671 (Ct.Cl.1977); but cf. Bernardi v. United States, 74-1 U.S. Tax Cas. (CCH) p 9170, at p. 83,215 (N.D.Ill.1973), aff'd without opinion, 507 F.2d 682 (7th Cir.1974). He further concedes that reckless disregard of a known risk that such taxes will not be paid equals willfulness for purposes of section 6672. Garsky v. United States, 600 F.2d 86, 91 (7th Cir.1979).
If the question for us were whether reckless disregard had been proved, we might well answer "no," though we have no doubt that Wright was at least negligent. He knew that Single Ply had a history of not paying withholding taxes. The history was relevant because Morlan, who had been responsible for the earlier violation of law, continued to be a principal of the company. Wright also knew that Single Ply's finances weren't improving and he must have known how tempting it is for a floundering company to use the money that it has withheld from its employees' paychecks for purposes seemingly more urgent than paying taxes currently. As he was one of only three principals of a small company he would have had no difficulty finding out the truth of the matter--and the burden of taking care is of course relevant to whether failure to take care is negligent, see United States v. Carroll Towing Co., 159 F.2d 169, 173 (2d Cir.1947) (L. Hand, J.). Yet for 18 months he signed checks to creditors of the firm without making any effort to find out whether the government was being paid. The withholding history of Single Ply, and its continuing travails, gave him reason to suspect that withholding taxes were not being paid, and he could have discovered whether this was so in a trice.
His inaction in these circumstances was negligent, but was it reckless, and hence willful for purposes of section...
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