Gail McClendon v. United States
892 F.3d 775
5th Cir.2018Background
- Dr. Robert McClendon was a director/officer of Family Practice Associates of Houston (FPA); from 2003–2008 FPA failed to remit payroll withholding taxes due to embezzlement by the CPA who handled finances.
- After IRS notified FPA in May 2009, FPA turned receivables and insurance proceeds over to the IRS (totaling several hundred thousand dollars); McClendon and others formed MST Interests and McClendon personally loaned FPA $100,000 to cover May 2009 payroll.
- The IRS assessed approximately $4.3 million in §6672 trust-fund penalties against McClendon for twenty-one quarters; McClendon sued for refund/abatement and the Government counterclaimed to convert the assessment to judgment.
- At summary judgment the district court found McClendon was a responsible person and willfully failed to pay taxes (holding the $100,000 loan was unencumbered and that paying other creditors after notice was willful), and entered judgment for the Government.
- McClendon moved for reconsideration raising for the first time that his §6672 liability should be capped at the amount of available unencumbered funds paid to non-IRS creditors after discovery (arguing all available unencumbered funds were turned over to IRS except the $100,000).
- The district court denied reconsideration (in part applying the wrong Rule 59(e) standard) and certified the interlocutory summary judgment under Rule 54(b); McClendon appealed.
Issues
| Issue | McClendon’s Argument | Government’s Argument | Held |
|---|---|---|---|
| 1. Whether district court erred in denying reconsideration under Rule 54(b)/59(e) | District court applied Rule 59(e) (wrong) and should reconsider under Rule 54(b) | District court properly denied reconsideration; alternatively merits defeat the late argument | Court: Reverse denial of reconsideration because Rule 54(b) governs interlocutory order; remand to apply correct standard |
| 2. Whether summary judgment for $4.3M was proper on willfulness (use of unencumbered funds after notice) | McClendon concedes responsible person but says he did not willfully fail because all available unencumbered funds were turned over to IRS (so at most $100k liability) | Government: McClendon used available funds (e.g., $100k) to pay non-IRS creditors after notice and failed to prove available unencumbered fund accounting; alternatively argues reckless-disregard willfulness | Court: Affirmed that $100k loan was unencumbered, but vacated the rest of summary judgment because McClendon’s deposition, affidavit, and checks raise a genuine issue whether all available unencumbered funds were paid to IRS; remand for further proceedings |
| 3. Whether McClendon’s $100,000 loan was “encumbered” (so excluded from available funds) | Loan was restricted/encumbered for payroll and thus not available to pay IRS | Loan was not encumbered under §6672 jurisprudence and thus available to pay non-IRS creditors | Court: Affirmed district court that the $100,000 was not encumbered for §6672 purposes |
| 4. Whether Government alternatively established willfulness via reckless disregard (gross negligence) | McClendon disputes gross negligence; factual disputes exist about reliance on CPA and post-discovery actions | Government argued gross negligence theory; district court did not decide it on summary judgment | Court: Declined to decide on appeal; remanded so district court can address reckless-disregard argument in first instance |
Key Cases Cited
- Slodov v. United States, 436 U.S. 238 (1978) (discusses trust-fund tax obligations and penalties)
- Barnett v. I.R.S., 988 F.2d 1449 (5th Cir. 1993) (defines responsible person and adopts concept of unencumbered funds)
- Honey v. United States, 963 F.2d 1083 (8th Cir. 1992) (definition of encumbered funds used in §6672 analysis)
- Mazo v. United States, 591 F.2d 1151 (5th Cir. 1979) (responsible persons must apply available unencumbered funds to trust-fund taxes)
- Austin v. Kroger Texas, L.P., 864 F.3d 326 (5th Cir. 2017) (clarifies interplay of Rules 54(b) and 59(e) for interlocutory orders)
- United States v. Stein, 881 F.3d 853 (11th Cir. 2018) (taxpayer’s uncorroborated affidavit/deposition can create fact issue at summary judgment)
- In re La. Crawfish Producers, 852 F.3d 456 (5th Cir. 2017) (summary judgment standard and burden-shifting in tax cases)