718 F.3d 743
8th Cir.2013Background
- Westerman, president and owner of WestCorp, oversaw S&S Office World’s collapse after Office Depot entered Hot Springs, Arkansas.
- WestCorp largely paid employees and creditors but underpaid the IRS on employment taxes in 2000–2001.
- IRS assessed a $35,824.45 penalty under I.R.C. § 6672 against Westerman for willful underpayment of trust funds.
- Five payments WestCorp made in 2000–2001 were applied by the IRS to non-trust fund liabilities first, rather than proportionally to trust fund vs. non-trust fund taxes.
- Westerman argued (i) he did not willfully fail to ensure trust fund taxes were paid, and (ii) the IRS should have allocated payments proportionally; the district court granted summary judgment for the government.
- The Eighth Circuit affirmed, holding the IRS could allocate undesignated payments to maximize collection and Westerman was willfully responsible.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Westerman willfully failed to pay the trust fund taxes. | Westerman contends lack of intent; funds later paid. | IRS correctly treated as willful under §6672. | Willful under §6672; liability affirmed. |
| Whether the IRS could allocate undesignated payments to non-trust fund before trust fund. | Deserves designation to trust fund amounts. | IRS may allocate to maximize collection. | IRS allocation of undesignated payments upheld. |
| Whether implied designation or equitable considerations require different allocation. | Implicit designation or fairness demand different result. | Statutory and common-law rules control allocation; equity cannot override. | No implied designation; equity does not override statute. |
Key Cases Cited
- Keller v. United States, 46 F.3d 851 (8th Cir. 1995) (willfulness standard for § 6672 applies to responsible person)
- Oppliger v. United States, 637 F.3d 889 (8th Cir. 2011) (responsible person with notice may be liable for remaining trust funds)
- Slodov v. United States, 436 U.S. 238 (U.S. 1978) (willful failure concept under § 6672; funds misappropriation context)
- Olsen v. United States, 952 F.2d 236 (8th Cir. 1991) (duty to use unencumbered funds after withholding obligation becomes payable)
- Anuforo v. Comm’r, 614 F.3d 799 (8th Cir. 2010) (trust fund liability depends on responsible person and intent)
- Emshwiller v. United States, 565 F.2d 1042 (8th Cir. 1977) (undesignated payments applied to oldest debts; IRS may allocate)