Conway v. United States
647 F.3d 228
5th Cir.2011Background
- Conway founded National in 1995 and served as CEO, president, and board chair; he was a major stockholder with authority over hiring, firing, and disbursement decisions.
- National collected transportation excise taxes from passengers and held them in trust to remit to the Government; it filed quarterly returns and, pre-petition, attempted to pay taxes but later bankruptcy altered payment behavior.
- National filed for Chapter 11 in December 2000; accounts were closed and reorganized, delaying tax payments, with the IRS deposit of a December 2000 tax payment not debited before the bankruptcy.
- Stabilization Act (2001) allowed deferral of certain excise taxes; IRS extended deferral to January 15, 2002; National received about $21 million in government infusions.
- Post-petition, National largely paid taxes to creditors but failed to remit approximately $8 million of 2001 excise taxes; Conway was later assessed personally under § 6672.
- District court granted summary judgment against Conway under § 6672 for both pre- and post-petition periods, finding him a responsible person and his failure willful.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was Conway a responsible person under § 6672? | Conway contends not a responsible person pre-petition/ post-petition. | Conway, as founder/CEO with signing authority, qualifies as responsible. | Yes; district court properly found Conway was a responsible person for all periods. |
| Was Conway's failure to pay over taxes willful? | Willfulness disputed due to reasonable cause and deferrals. | Willfulness shown by knowingly preferring other creditors over taxes; limited reasonable-cause defense. | Willful; no genuine issue of material fact given knowledge of liability and preference of other creditors. |
| Did reliance on counsel or Stabilization Act provide reasonable cause? | Counsel advice or Stabilization Act may negate willfulness. | Reliance on counsel is narrowly limited; Stabilization Act does not convert taxes into working capital. | No; neither reliance on counsel nor Stabilization Act constitutes reasonable cause here. |
Key Cases Cited
- Slodov v. United States, 436 U.S. 238 (U.S. 1978) (broad view of 'responsible person' under § 6672)
- Logal v. United States, 195 F.3d 229 (5th Cir. 1999) (six-factor test for 'responsible person')
- Mazo v. United States, 591 F.2d 1151 (5th Cir. 1979) (liability includes duty to collect/pay taxes even if funds diverted)
- Newsome v. United States, 431 F.2d 742 (5th Cir. 1970) (reasonable cause limited; may defeat willfulness in narrow cases)
- Barnett v. IRS, 988 F.2d 1449 (5th Cir. 1993) (duty to ensure taxes are paid; factors for responsible person)
- Howard v. United States, 711 F.2d 729 (5th Cir. 1983) (willfulness not negated by good faith belief of payment arrangements)
- Bowen v. United States, 836 F.2d 965 (5th Cir. 1988) (willfulness not defeated by belief in loan or difficulty)
- Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009) (legislative history not controlling where statutory language clear)