Plaintiff-Appellant Diamond Plating Company, a manufacturing company that applies chrome and nickel plating to metal products, failed to timely file its employment' tax returns for 1998 and 1999 and failed to timely deposit and pay its corrеsponding tax liability. Diamond Plating tardily filed the returns in 2000, and paid the taxes and interest over the next two years. The IRS assessed penalties against Diamond Plating for failure to timely file returns, failure to timely deposit taxes, and late payment of taxes. Diamond Plating paid a portion of the penalties, and then requested a refund and abatement, asserting that financial difficulties caused by the loss of a major customer justified its noncompliance. After the IRS Commissioner denied thе request, Diamond Plating filed suit for a refund of the already paid penalties and for abatement of the remaining penalties. The district court granted summary judgment in favor of the government. We affirm.
I. Background
Diamond Plating is a family-run metal finishing business with about thirty emplоyees in Madison, Illinois. Joseph and Loretta Clark owned all of the company’s stock until Joseph’s death in 1997, at which time Loretta Clark became the sole shareholder. Loretta Clark was also the company president during the rеlevant time period, though she took a limited role in the operation of the business. Clark’s children, Robert Cox and Gina Scaturro, played a more active role in the business, Cox as the vice-president of operations and Scaturro as the secretary-treasurer. Cox was responsible for hiring and firing employees, bidding on jobs, and dealing with customers and vendors, while Scaturro was in charge of all accounting-related activities, including paying creditors, filing Federal Insurance Contributions Act (“FICA”) and Federal Unemployment Tax Act (“FUTA”) tax returns, and depositing and paying the associated taxes. 1
From 1990 to 1993, Diamond Plating’s revenue exceeded $2 million every year, with Virco Manufacturing Company accounting for about 80% of its revenue. At
Beginning with the first quarter of 1998 аnd continuing through the last quarter of 1999, Diamond Plating stopped filing its quarterly Form 941 FICA tax returns and stopped timely depositing and paying its FICA tax liabilities. Diamond Plating also failed to file its yearly Form 940 FUTA tax returns and'failed to timely pay its FUTA liabilities for the years 1998 and 1999. Aсcording to Cox, Diamond Plating would have gone out of business or been forced into bankruptcy if it had paid the taxes on time.
Despite the company’s failure to file returns and pay its 1998 and 1999 FICA and FUTA taxes, Diamond Plating paid all of its creditors during thаt period, though some bills were paid late. Diamond Plating also made payments during the period at issue to Clark for a loan she had made to the company. In addition, Diamond Plating increased corporate officer salаries by a total of $40,000 in 1998, $26,000 in 1999, and $50,000 in 2000.
During 1998 and 1999, Scaturro discussed the company’s financial problems with Clark on a weekly basis, but never informed Clark that the employment taxes had not been paid. Charles French, Diamond Plating’s outside accountant, cоntemporaneously prepared Diamond Plating’s 1998 and 1999 employment tax returns and advised Scaturro to pay them. French knew that Scaturro did not pay the taxes, and he listed them as liabilities on the corporation’s quarterly financial statements.
In March 2000, Scaturro informed Clark that the 1998 and 1999 employment taxes had not been paid and that the tax returns had not been filed. On April 9, 2000, Diamond Plating filed the delinquent quarterly and annual tax returns for 1998 and 1999. In July 2000, Clark obtained two bank loans to help pay the delinquent taxes and interest. Between June 2000 and March 2002, Diamond Plating paid the delinquent taxes and interest, which totaled over $300,000.
The IRS assessed penalties against Diamond Plating for failure, .to timely file its FICA and FUTA returns under 26 U.S.C. § 6651(a)(2), for late pаyment under 26 U.S.C. § 6651(a)(2), and for failure to deposit taxes under 26 U.S.C. § 6656(a). The penalties totaled over $130,000. Diamond Plating paid a portion of the penalties, but then filed a request for refund and abatement of penalties on September 25, 2000. After the IRS denied Diamond Plating’s request by letter dated April 17, 2003, Diamond Plating .filed this lawsuit. The government filed a motion for summary judgment, and the court held a hearing on the motion. Ruling from the bench, the district judge rejected Diamond Plating’s arguments that financial difficulties and dеception by Scaturro precluded it from paying the employment taxes, and concluded that Diamond Plating had no reasonable excuse under the law for its noncompliance. The .district judge granted the government’s motion, a dеcision we review de novo.
II. Discussion
The Internal Revenue Code requires employers to withhold FICA taxes
In the instant case, Diamond Plating failed to timely file its employment tax returns for 1998 and 1999, and failed to timely deposit and pay its corresponding tax liability. The sole issue before us is whether Diamond Plating has establishеd reasonable cause to excuse its noncompliance. Although the Code does not define reasonable cause, the relevant Treasury regulation requires Diamond Plating to demonstrate that despite exercising “ordinаry business care and prudence,” it “was nevertheless either unable to pay the tax or would suffer an undue hardship if [it] paid on the due date.” 26 C.F.R. § 301.6651 — 1(c)(1), When assessing Diamond Plating’s ability to pay the taxes, “consideration will be given to all the facts and circumstances of [its] financial situation ....”
Id.
The regulations also provide that the employer will be held to a heightened standard when trust fund taxes are at issue. 26 C.F.R. § 301.6651-1(c)(2). The Supreme Court has described the taxpayer’s burden in establishing reasonable cause as a heavy one.
United States v. Boyle,
Diamond Plating contends that it had reasonable cause for nonpayment of its employment taxes due to financial distress caused by the loss of its main customer in late 1995. Diamond Plating points out that Yirсo accounted for 80% of its business until the end of 1995, when Virco moved its metal finishing in-house. With the loss of Virco’s business, Diamond Plating’s revenue decreased by more than 50% between 1995 and 1996. Diamond Plating urges us to join a number of other circuits by recognizing that financial hardship can, under some circumstances, justify failure to pay and deposit employment taxes, and to find that a reasonable jury could find those circumstances present in this case.
See Van Camp & Bennion v. United States,
We agree with the majority of circuit courts that have considered this issue, and recognize that financial hardship may constitute reasonable cаuse for abatement of penalties for nonpayment of taxes in some circumstances. Nevertheless, we have little trouble concluding that those circumstances are not present in this case. First, Diamond Plating paid taxes in 1996 when its revenue was at its low point, but
We also note that some of the delinquent taxes were trust fund taxes. Rather than remitting these taxes to the government on a quarterly basis after withholding them from employee wages, Diamond Plating used the funds for operating expenses. Because this practice makes the government “an unwilling partner in a floundering business,”
Collins v. United States,
Diamond Plating also argues that Scaturro, the company’s secretary-treasurer, incapacitated the company by concealing the nоnpayment of taxes. We find this argument to be unpersuasive. French, Diamond Plating’s outside accountant, contemporaneously prepared the employment tax returns for 1998 and 1999, and instructed Scaturro to pay the liability and file the returns. Scaturro did not pay the taxes or file the returns, but did not conceal this fact from anyone; the corporate officers did not ask Scaturro about it, and she did not mention it. French was aware of the nonpayment of taxes, and listed the tax liabilities on the corporation’s quarterly financial statements. We cannot understand why French did not alert Clark or Cox about Scaturro’s inaction; nevertheless, Scaturro’s nonperformance of her job responsibilities is not the government’s problem, and did not excuse Diamond Plating from filing, depositing, and paying its taxes. A modest amount of oversight of Scaturro or the quarterly financial statements would have revealed the problem, and the failure to providе such over-sight indicates a lack of ordinary business care and prudence. We accordingly reject Diamond Plating’s invitation to excuse its noncompliance on the basis of Scaturro’s inaction, and conclude that Diamond Plаting has failed to carry its heavy burden of showing reasonable cause for nonpayment of taxes.
III. Conclusion
For the reasons stated herein, we AfFiRM the decision of the district court.
Notes
. Under FICA, 12.4% of wages up to an annual limit must be paid into Social Seсurity, and an additional 2.9%, not subject to an annual limit, goes to Medicare. 26 U.S.C. §§ 3101— 3111. Employers and employees split the cost, with the employee’s portion automatically deducted from his or her paycheck. Id. The FUTA tax requires employers to pay 6.2% on the first $7,000 in wages paid to each employee. 26 U.S.C. § 3301-3311. FICA and FUTA taxes often are referred to as employment taxes or payroll taxes.