Raymond Nakano v. United States
742 F.3d 1208
9th Cir.2014Background
- Nakano was National Airlines’ Senior Vice President and CFO; he was personally liable under §6672(a) for unpaid excise taxes after National’s bankruptcy.
- National filed for Chapter 7 in May 2003 and did not pay certain quarterly excise taxes despite collection and trust obligations.
- National’s third-quarter 2000 payment was attempted but returned due to restructuring and no further payments were made.
- Stabilization Act after 9/11/2001 deferred some excise tax payments for airlines and allowed Treasury discretion on further deferral; National received a $21 million government grant.
- National filed returns for later quarters but again failed to remit the applicable taxes; IRS later assessed $11.57 million and demanded payment during Chapter 7 proceedings.
- District court granted summary judgment to the government; on appeal, issues are (1) willfulness of nonpayment under §6672 and (2) Stabilization Act implications for trust status and liability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failure to pay was willful under §6672(a). | Nakano contends encumbered funds (from bankruptcy) may not support willfulness. | National’s failure was a willful nonpayment to prioritize other creditors over the United States. | Willfulness established; encumbered funds rule adopted (not satisfied here). |
| Whether Stabilization Act deferrals negate §6672 liability or trust status. | Stabilization Act removes trust status so deferred funds are not liable under §6672. | Deferral does not repeal trust status or §6672 liability; funds remained trust funds. | Stabilization Act does not defeat trust status or §6672 liability. |
| Whether the assets were encumbered under the Honey standard. | Argues bankruptcy obligations encumbered funds and precluded liability. | Bankruptcy obligations do not automatically encumber funds to defeat §6672 liability. | Plaintiff failed to show encumbrance under Honey; liability affirmed. |
| Whether Slodov precludes §6672 liability for deferred funds. | Deferred funds should not be subject to §6672 due to Slodov rationale. | Slodov does not apply because funds were already in the trust prior to dissipation. | Slodov does not foreclose §6672 liability for deferred funds in this context. |
Key Cases Cited
- Sotelo v. United States, 436 U.S. 268 (1978) (establishes burden shift in §6672 actions)
- Davis v. United States, 961 F.2d 867 (9th Cir. 1992) (defines willfulness in §6672 actions)
- Begier v. Comm’r, 496 U.S. 53 (1990) (trust-fund taxes; liability when funds not timely remitted)
- Slodov v. United States, 436 U.S. 238 (1978) (after-acquired funds; limits of trust status)
- Conway v. United States, 647 F.3d 228 (5th Cir. 2011) (upholds §6672 liability for deferred Stabilization Act funds)
- Honey v. United States, 963 F.2d 1083 (8th Cir. 1992) (defines encumbered funds test for §6672 liability)
- Purcell v. United States, 1 F.3d 932 (9th Cir. 1993) (context on encumbrance and priority of funds)
- Champlin Refining Co., 341 U.S. 290 (1951) (statutory interpretation guidance; not implying repeal by later acts)