Charles Richard Roth, Plaintiff-Counterclaim v. United States of America, Defendant-Counterclaim
779 F.2d 1567
11th Cir.
1986
Check Treatment

*2 went to the jury were undisputed. The one GODBOLD, Before Judge, Chief JOHN- exception is the conflict in testimony be- SON, Circuit Judge, TUTTLE, and Senior plaintiff, tween Roth, the Dobbins, the Circuit Judge. chief executive officer majority owner of corporation. the TUTTLE, Senior Judge: Circuit testified that he was instructed of 1977 not to pay the withheld This is an appeal by the United States employees’ taxes, but to pay other credi- a from denial the trial court of a motion tors and the salaries of the employees. for j.n.o.v. a jury after had found the Dobbins denied gave that he such instruc- appellee, Roth, was not “responsible per- tions denied that he knew the taxes son” within meaning the of Section 6672 of unpaid. Thus, only the present- issue the Internal Revenue Code of 1954 who ed to the jury was that by a required would be “to tax, collect such charge to jury, the duly objected to by the truthfully account for over such United as follows: tax” to the United government. States Even if you, jury, find that plain- tiff is otherwise a responsible person I. STATEMENT OF THE CASE within the meaning of statute, but also find that plaintiff prevented Taxpayer, Charles Roth, Richard filed from paying payroll by specific this suit to recover $200.00 which he had paid on com- a penalty $22,805.26 imposed pany, you then must plaintiff find that against pursuant to Section 6672 of the did not willfully fail to pay the payroll Internal 1954,1 Code for failure taxes and must relieved of to collect and pay over employment federal liability. taxes withheld from wages em- ployees of Development (la- Leewood Corp. above, As we have stated the evidence Leewood, ter Inc.) for the quarters last two which would establish the fact 6672(a) provides: Section tax, pay over willfully such or attempts any SEC. 6672. FAILURE any TO COLLECT manner to or AND evade defeat such tax or TAX, PAY OVER thereof, shall, OR TO ATTEMPT EVADE in addition to other OR DEFEAT TAX. law, provided penalties penal- be liable to a (a) 9(a), [as amended Sec. Act of Novem- equal ty evaded, to the total amount of the tax 10, 1978, 95-628, ber Pub.L. No. 92 Stat. 3627] collected, or not accounted for and Any person collect, General Rule. required to paid penalty over. imposed No shall be un- for, truthfully account any tax der section offense to this imposed by willfully this title who fails applicable. section is tax, collect such truthfully account for and al- being remitted to the States United “plaintiff is otherwise all times though undis- known had meaning statute” company to transfer them. obligation of the it is as follows. Essentially, puted. involved, company During period par- opportunity offered funds to have more than sufficient orga- corporation to be ticipate in small *3 taxes. all of the withheld estate a real who was by Dobbins nized beneficiary aof a it jury, who was of the developer According to the verdict in a majority stock testimony owned trust which Roth’s must have believed corporations. real estate of other August, number that the in he told Dobbins Develop- of incorporation Leewood After necessary have the company did not funds (“LDC”), name whose Corporation ment taxes. pay payroll to Leewood, Inc., Roth changed to was later accepted the also have must vice executive named was following testimony by Roth: of chairman president and became BY MR. SMITH: LDC director. not a Roth was the board. then, way, Rick. Q. me ask it this Let with builders contracting engaged was payroll you aware Were construction part performing paid? had not been sheet rock putting as projects, such Initially, construction. buildings Yes, under A. sir. secretary and book- his and Roth

LDC of that? you made Q. When were aware complex as in the same keeper had offices middle of Approximately the A. companies. Within his other Dobbins and of ’77. away into however, moved Leewood year, you? to it Q. Okay. made aware Who storing for the used was which warehouse company’s book- Kathy Hosmar A. [the work. in its construction used material keeper], employees times, hired office At all you you includ- when did do payrolls, Q. Okay. What checks signed have Leighwood He didn’t a week. salary of aware ing $700.00 his were taxes? supplies payroll to substantially all bills sufficient to the United the checks to see what Mr. Dobbins IA. contacted em- amount deducted States point. at that done would be deductions, long as payroll ployees conversation? you have a Q. Did au- signature paid. these were Yes, sir. A. checking company’s of the thority on all that conversation? Q. was What checks, he drew most accounts was was that what The conversation A. salary until weekly for his including those money to getting the going do to we the second towards the resigned end he taxes and to company signed as the officer of 1977. He was and how in there it be $115,000.00 would mortgage company it. going to Dobbins belonging property secured by Dobbins. also endorsed and which you? he tell Q. And what buy up to 50 option Roth was to the office— He came A. stock of LDC’s percent object, going I’m MS. PRIVETT: made the Taxpayer he never exercised. pur- same Honor, on the again, Your performed company contracts which poses. testimony, he handled according and, goes This Overruled. THE COURT: of Leewood operations day day to “the the issue goes it authority and mid- From Corporation.” Development of wilfulness. aware taxpayer dle BY MR. SMITH: payroll taxes the fact that Q. Okay. What did Mr. Dobbins tell going longer take than he first you, Rick? anticipated to apartments close the up come with case. A. He came to the office and he looked Q. instructions, at the What any, amount of give taxes that was did he owed you? and we had a discussion on where we

could up money. come with the A. To keep continue to the company going until he could close apart- those And his conversation with me was that ments and those taxes. apartments had some that would be and, upon sold apart- sale those R., II, Yol. p. 79. ments, put he would the necessary funds Thus, plain it is that we have a case in company the taxes. which it is clear that Roth was a Q. give Did he you any instructions— the contemplation *4 Act, the unless he was removed from

A. At that time— that by status the given by him Q. pay About who to and who not to Although Dobbins. Dobbins testified that pay? he did give any instructions, such time, A. At that thinking he was because he did not even know that the apartments the very would close soon. payments on the 941 past forms were due So instructions to me was to be sure November, until the end we must to make the payroll pay the creditors treat the case the believed Roth’s stay business, so we could that these testimony with respect to this rather than apartments could close and he could that of Dobbins. the taxes and taxes, not to the and it put would company the in bankruptcy. III. DISCUSSION Q. you What did do? issue The.sole before the Court is wheth- IA. done what Mr. Dobbins told me to er it is true that an otherwise do. I made the payroll the person under the if, sheds Act that status creditors that was necessary keep get- withheld, after the taxes are they while ting material, the waiting apart- being are continually withheld, such re- ments to close might be able sponsible person is by directed an officer the taxes. with authority to control his actions as to Q. And this August ’77, was in you corporate affairs not to govern- the say? ment’s trust funds the Internal Revenue Yes, A. sir. Initially, Service. we must consider the nature of the talking funds we are Q. you Did about. talk any time They are amounts which LDC deducted subsequent August pay- of ’77 about payroll checks to its em- roll taxes? ployees for employee’s my A. Not to knowledge, because it income taxes, tax and Security Social to- before I was aware that the gether with the amount that LDS itself taxes was— owed as Security Social taxes for the em- Q. After you talk to him ployees. Next, we must realize that payroll about these taxes? statute requires these funds to weekly. A. Almost withheld employer makes these trust Q. funds of response? Also, What was his the United States. such withholding is treated pay- IRS as Well, response A. got that I ment employees of their taxes. problem was, that whatever the it was a problem closing apartments on Section 7501 of the Internal zoning due to some Vestavia, laws in provides: and Code “respon decisions as what constitutes taxes withheld Liability A. person” any reference to di without collected. We he was least that Roth was instructed government withheld that he would pay the withheld funds the to manager company, caused deductions that was may be a or the middle having ployer. Mazo United Roth knew until the time stop assumption that he lost about internal son son United lected withheld States. special the taxes alties) provisions and limitations same There is no the made from the government. must bear mind (a) instructed making biweekly, assessed, (5th Cir.1979)2; Moore v. United company’s the fact that more and to been General 465 F.2d 514 certainly the manner and required as are States, fund in trust revenue tax “responsible The amount not until the its such of dispute pay over such v. according to his instructed. collected, payments applicable with rule.—Whenever day the to collect employees, fully We weekly pay checks transmit payments, third amount responsible officer shall (5th subject to the same must also remember between from told person” for an em- that, of such fund to the IRS. day affairs of the funds, taxpayer as middle of by such status after such States, 591 F.2d than one quarter for the United be held or withhold not to (including pen- by Dobbins such funds to to continue even after of tax so col- even on the paid fund arose. tax to the required at testimony, respect to other knowing any per- of pay the to be a parties not to Since shall per- any up *5 to to States, rections er, which Cir.1978); les v. United deals with the same F.2d 590 ble erwise a contemplation of the statute remained lia- the Court held that a funds to the United States fact that he anything. The CEO Brown, might well have fired Howard disobeyed Jennings’ responsible for have final word on taxes). the taxes does not make Jennings fired Howard would this context pay. That Howard he had monwealth National proval on a filled issue small checks taxes, Cir.1972) (“responsible person” need not demonstrated for failure to The fact is not a [743] 711 F.2d 729 448 F.2d 509 given by superior only have lost Howard (5th Cir.1972); “responsible person” paid them. Howard had the 464 F.2d [590] Brown v. United here. legal obligations. to at number of States, Court means effective binding precedent 752 would been their [(5th the Jennings without (5th person who was oth- stated: cites one case which instructions and Howard had this Authority to 579 F.2d 938 Bank not to Liddon v. United instructed at least have problem fact occasions. Com at Cir.1983) (a Cir.1982)]. Had Howard status, payment. officer. Neck 591, Jennings’ ap How [v. pay the IRS that he did States, spite authority is of Faced with (the CEO) owed, and power US.], 665 n. 1 duty and withheld bills had he United pay in ev after case (5th (5th less us), See ful- pan leaving frying possibility Fifth Cir- Appeals The Court burns, Howard chose only minor in this “responsibility” has held that cuit hope of vain stay instead to on “status, authority not duty, and context appreciate While avoiding the fire. Most supra, at 1156. knowledge.” cannot position, we difficulty of his appellee deal with cited by the cases prior Prichard, down Circuit handed former Fifth City 661 F.2d 2. In Bonner September Id. at 1981. Cir.1981) (en banc), on adopted close of business the court binding precedent all of the decisions responsibili- condone his abdication of the We conclude that the result in Howard ty imposed upon Moore, him law. See was correct for the reasons stated there (corporate officers who light and in of the additional considerations merely superiors’ followed their instruc- which we have stated here. issuing tions in checks to creditors were The judgment and the REVERSED “responsible persons”). nevertheless case is REMANDED to the district court (footnote omitted.)

Id. at 734-35 that it judgment directions enter a The trial in court the instant case noted and cross-appellant defendant j.n.o.v. the Howard decision expressly but declined it, stating to follow that to pre- follow the GODBOLD, Chief Judge, concurring in cept of Howard would be to condone the part and dissenting part: corporation’s president’s using corpo- vice I concur in holding govern- that the contrary ration money to the instructions ment was judgment entitled n.o.v. for and that this would be the statutory penalty arising out failure equated with embezzlement. over withheld perceive reason, We beyond that stated taxes for the quarter third of 1977. I rejecting Howard for argument Roth’s agree cannot judgment n.o.v. was is, here. That that the funds which accu- properly granted upon based failure mulated in the bank account LDC the fourth of 1977. Whether reason of withholding Security the Social Roth is liable for corporation’s failure taxes and income taxes owed the em- to pay in the fourth anis issue to

ployees to the federal became decided a properly jury. instructed trust funds of the United States. With jury found, funds, response interroga- those federal statute tories, created a that Roth distinct and was not “a obligation definite on every collect, sible to truthfully officer. obligation That account for and was to remit such funds Internal income taxes and security social *6 view, In Service. our no taxes withheld wages instruc- from the of the Cor- tion president or the majority poration’s owner employees ending for the third of LDC effectively could bar an 1977”, otherwise and made the same find- responsible officer from paying these ing with respect quarter. to the fourth funds in accordance with the law. Al- concludes, This court law, as a matter though in company’s accounts, bank that under the evidence Roth “per- awas the company was in effect an interloper responsible” son respect with quar- to both part to that bank ac- ters, implicitly holds that the jury in- count represented that the trust funds ac- quoted struction opinion its concerning cumulated because of the by the the effect specific given employees of their federal taxes. Roth Roth by of the company was having once an respon- become “otherwise erroneous. person” pay over the taxes became I. Was person responsible Roth a obligated by statute these funds to payment of withheld and for the Internal Revenue He Service. was un- period? what der obligations no to obey instructions corporate Roth was a employed from his corporate supervisor employee not to do so. Moreover, charged will and day-to-day opera- should be borne in mind as above, corporation noted tion of a during engaged that small mostly second half of 1977, $8,000 in installing received over dry jobs. walls in cheeks construction signed by knowing work, him corporation supervised work, He found pur- obligated to use materials, these funds to chased for materials. debt to the government. corporate bookkeeper kept The him in-

1573 checks, including signed quarter.1 most This continuation of He author- formed. quarterly ity quarter, tax end of salary He to the whether checks. (941’s) time, withholding actually possessed for the last two forms vindi- quarters government of 1977. cates the interest of the responsibility quarter may for a not be corpora- a director of the Roth was not intra-quarter avoided shift of author- designated as executive vice tion but ity.2 president. He was not even a stockholder. Dobbins, president and chairman of the Responsibility the taxes for the board, family owned all the stock. and his quarter presents a October-December num- management of the cor- by-laws The vested Arguably, ber of issues. as a matter of directors, who poration in the board of law, employee a mere authorized to handle stockholders, general supervi- must be corporate by delegation president. No sion of the business president, authorized, and not otherwise ego. that Roth was an alter suggests one responsible person ceases to be a once his proof by-laws under the There is no delegated authority (subject is removed the executive vice being responsible to the end of the funds. authority to handle or disburse Brown). quarter, pursuant to At a mini- short, authority Roth had to handle cor- In mum, stripping employee such an of his corporation, porate funds because taxes before a Dobbins, through president conferred it jury creates a commences issue of whether not, upon expressly He did either him. responsible person he continues to be a implication, possess otherwise the au- quarter during the new which he had no thority money. to handle actual taxes. This court partial does not hold that Roth’s loss of made an has not even authority was a sham. Rather it seems to against Dobbins. assessment that, say he once had unlimited because one is the Whether funds, corporate authority to disburse 6672 “is a matter of as to fall § corporation, limitation as a matter status, duty authority, not knowl law, could not relieve U.S., 1151, edge.” Mazo v. sibility imposed by the statute. (5th Cir.), nom., Latti cert. denied sub recognition applying 6672 some § U.S., 100 S.Ct. more v. U.S. governing corpo the law must be (1979). enjoyed status L.Ed.2d 54 The status and rate affairs. until late when—the corporate employee can be withdrawn: necessarily found—he was instructed *7 amendment; by-laws, derived from Dobbins, by president who was in sole con- removal; office, by and if implied if corporation, pay out of trol of the not to through delegation, by withdraw conferred corporate corporation’s funds the obli- Presumably president had fired al. respon- gation withheld taxes. To be a not have August, Roth in this court would quarter, one need not sible for a tax responsible person for he was a held that of the responsible at the end quarter. Presum the October-December during long as also, ably, the same result would 1136, U.S., quarter. Brown v. 591 F.2d re corporation in reached if (5th Cir.1979). Thus 1140 because corporate authority to handle moved Roth’s responsible person July, until late he was a corporation The em in July-September obligated respect. for all of the is Thus, Brown, would be liable testimony under willful- Roth’s own neither 1. Under July period had fired him even if Dobbins nor "reasonable cause” the third ness II, August was an issue. See Part August. 1 to late in below. 1574

ployee do, do cannot more than he can and by this case—the extent to which 6672 is not intended to hold liable for § corporate employees who are under the authority failure to exercise he does not direction corporate officers are have, or, it, even if he has his failure persons. In Geiger U.S., v. 583 is not willful. Roth authority sign had F.Supp. (D.Ariz.1984), 1166 Geiger was a “significant checks. is a This factor be consultant who exercised an unusual de- it generally cause ability comes with the gree of influence and corpo- control over a choose paid.” which creditors will be Bu rate Also, business. though he was not a U.S., 1282, rack v. 461 F.2d 198 Ct.Cl. 855 shareholder, director, officer or he was au- (1972). case, In this after late checks, thorized sign so, and did Roth did not ability have the to choose. assigned accounts receivable to a bank us- majority rely upon U.S., Howard ing the title acting president. After a (5th (not 711 F.2d Cir.1983) binding). non-jury trial, the court found that he was “status, But duty Howard had and authori- responsible person. It distinguished ty,” director, because he was a minority Howard: stockholder, treasurer, and executive vice Although defendant maintains president corporation, in addition to plaintiff position in a responsibili- running its day-to-day operations. The sta- ty for the giving acts rise to the violation tus, duty possessed he as case, in instant the recent decision treasurer and president executive vice con- States, Howard v. United during periods tinued question. Pre- (5th Cir.1983), where a “subservient” sumably chief executive officer had no person was held to duty have a to pay authority to tell Howard treasurer not as taxes, “person” withheld there was a perform his duties as treasurer. The shareholder, director, substantial and ex- Fifth Circuit found: had the “Howard sta- ecutive vice corporation. tus, duty the taxes This Court convinced has owed, only and would have lost that au- although shown thority ease, after he them.”3 In this checks he only did so at the behest and can find that Roth no authority direction of Kennedy, Mr. in the latter’s taxes once that was with- capacity Standard, drawn. therefore, plaintiff lacked the “final Two other Fifth Circuit emphasized cases word” as defined United States v. distinguishable. also are (9th Graham Cir.1962)], F.2d 210 [309 In supra, taxpayer gen was the supra, National Insur- Pacific manager eral corporation, and his ance v. United 422 F.2d 26 sign checks or to corporate use funds to taxes was never removed. Id. at 1168-69. His defense was thought that he the con troller was taxes. Moore v. U.S., (9th Cir.1979) Klotz v. 602 F.2d 920 U.S., (5th Cir.), denied, cert. present similar to the case. Klotz was 409 U.S. 93 S.Ct. 34 L.Ed.2d 688 director, secretary-treasurer, purchas- (1973), taxpayers were corporate officers ing agent for a one of two majority and a of the board of directors joint signatories required corporate *8 who, held, the court authority ultimate corporation checks. The failed to its expenditure over the of funds. withholding for the third and fourth There quarters is not a dearth of collapsed on the 1969 and in January specific point that recognizes the court is 1970. who lent money Persons to the cor- recognizes 3. Footnote 4 in Howard that a re- moved. 711 at n. 4. person sponsible can have his re- person, bur- responsible a to be affairs, found and its over to take began poration him. is on lack of willfulness signa- proving as a added den was representative their statute, fell out Klotz 1155. For this account. F.2d at the bank tory to mid-August Howe. and voluntary, conscious president, is a willfulness re- checks was sign authority to act, acting with a reckless 1969 his intentional out of the “effectively” He was moved. risk. Id. or obvious regard of a known re- August and end by the corporation responsible state of It is “the The district court October. in late determination,” mind, subjective person’s entirely controlled lenders held that evi- came forward 1157. Roth Id. at finances, Howe neither corporation’s if he Even issue. dence to create person and responsible was a Klotz nor and enjoy corporate status to continued appeal On willful. was that neither during the fourth pay taxes authority to unnecessary to reach found Ninth Circuit pres- of the the instructions despite quarter affirmed issue but person responsible jury to ident, properly instructed it is nor Howe neither Klotz ground that on the bearing in mind what decide whether — facts neither under willful because was to exer- failure told him—Roth’s Dobbins negligent. than any more was authority was willful. and his status cise reasoning of the case, the present In the on instruction separate jury nowas There stands and essentially circular is court dur- recognized because, was as willfulness head: “Because its on statutory scheme conferences, the instruction charge ing the re- authority he is a and has status to Roth directions effect of on the bound therefore and person sponsible own contained its from authority cannot be his status pay; on willfulness.5 instruction responsible as a terminated because (N.D. F.Supp. 379 U.S., 245 Cellura Responsibility pay.” he is bound case. present 1965) to the parallel is Ohio an inference quarter fourth during the a restau- manager of as hired au- Plaintiff status from drawn be that must difficulty financial in serious It was The “burdened rant. contrary. not the thority, As soon a cash basis. operating circular: on is likewise trust” rationale with a corporation bank account its deposited were fourth “For the funds not they trust favor could with a so that impressed they withdrawn held funds were ais therefore stockholder government; sole of the attached. he failed because gave plaintiff corporation of the Again, obligations.” trust carry out the creditors priority on sta- from must derive responsibility prime con- her her that He told paid. status authority, not tus and operating keep the restaurant towas cern pay. responsibility all others. ahead trade creditors there during the last to be were lack Tax liabilities Roth’s the evidence Plaintiff do so. is demonstrated money available in toto funds Dobbins took Some that in October instructions. these out carried Roth’s corporation.4 govern- to the the affairs available per- November, although he in late stopped available paid the ment, plaintiff un- some duties formed against delin- applied they were over and early 1978. til The district obligations. withholding quent cause” liable II. Willfulness “reasonable found court will- not act she 6672 because under § lia- element required is a Willfulness fully: Once one penalty. bility for the § overruling also, court comment 5. See in the record to find able not been I4. have willfulness was recognizing objection, re- majority’s statement support for the at 1569. opinion, 779 F.2d Majority quarter. issue. second end signed toward the *9 On the state of this record the Court find” that Roth was liability relieved of plaintiff finds that prevented does not come within he paying scope 6671(b) of 26 specific U.S.C. instructions from the §§ 6672. Plaintiff’s was limited to company pretermitted necessity general bills under the instruc- it. employer. plaintiff tions of her While respectfully I dissent. employer not have to check with her particular bill, as to of a she priorities as to creditors,

classes and under such in-

structions the Internal Revenue was at

the end of the list. plaintiff

The Court finds that had no taxes ahead of trade

creditors, prefer and the decision to trade

creditors over Internal originat- employer,

ed with her and not

plaintiff. The Court further finds that

there is no evidence that on her

own accord failed to taxes to the George JONAS, Samuel Internal Revenue when excess funds Petitioner-Appellant, were available. jury Id. at 382. A could reach a similar also, U.S., here. See Klotz v. conclusion WAINWRIGHT, Sec., Louie L. Florida supra, distinguishing negligence from will- Department Corrections, Florida Pa- fulness. Commission, Respondents- role & Pro. As the case stands the has a Appellees.

judgment for the fourth without No. 84-5841. determination a factfinder that Roth Non-Argument Calendar. willfully acted quarter. to that Failure to exercise is not neces- United Appeals, States Court of sarily willful one express has no or Eleventh Circuit. implied authority oth- er than direction of the Jan.

thinks that his has been circum- A jury might

scribed. find that Roth’s

“subjective determination,” Mazo, see

that he could not the taxes.

Finally, no factfinder has addressed the cause,”

issue of may “reasonable collect, for,

excuse a failure to account withholding taxes. 1155; U.S.,

F.2d at Newsome v. (5th Cir.1970). Under the circum- case,

stances of this reasonable cause is a

jury issue. No instruction on reasonable asked,

cause presumably above, is,

the same reason set out

plenary instruction that “must