MEMORANDUM OPINION ON DEBTOR’S OBJECTION TO CLAIM OF INTERNAL REVENUE SERVICE
. In this case we are called upon to decide whether Michael J. Premo (“Debtor”) bears financial responsibility for the unpaid withholding taxes of two companies in which he was the principal equity owner. The Debt- or has objected to the proof of claim filed by the Internal Revenue Service (“IRS” or “Government”) for withheld but unpaid personal income and social security taxes due from Tri-Cities Computer Mart, Inc. (“Tri-Cities”) and Flint Microcomputers, Inc. Besides the Debtor, three witnesses testified at trial, one of whom was called by the IRS. As the question of which party bore the burden of proof was an issue to be decided after trial, each party tried the case as if it bore the burden. The case was well-tried and the issues were extensively briefed. For the reasons which follow, we sustain the Debtor’s objection. The following shall constitute our findings of fact and conclusions of law as required by Bankruptcy Rule 7052.
This is a contested matter, Bankruptcy Rule 9014, and is within the bankruptcy jurisdiction of the federal court, 28 U.S.C. *517 § 1334. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(B).
FACTS
The Debtor incorporated and began operating Tri-Cities, a retail computer sales company, in 1978. Between 1978 and 1983, the Debtor served as Tri-Cities’ secretary/treasurer and, along with his wife, was responsible for the company’s bookkeeping and accounting duties. Following the resignation of the company’s co-founder, the Debtor became president of TriCities in January, 1983. The company expanded, with gross sales doubling each year from 1978 to 1985. The Debtor, who had no prior training or experience in finance, hired Philip Brzezinski for the newly created position of chief financial officer in April of 1983. As the CFO, Brzezinski assumed responsibility for all accounting aspects of the company, thereby permitting the Debtor to concentrate on sales. In late 1985 or early 1986, Tri-Cities acquired 90% of the stock of Flint Microcomputers. These two companies operated a total of five stores and, by 1987, employed approximately 100 persons.
In early April, 1987, the Debtor received a default notice from its principal financier, Michigan National Bank (“MNB”), which called in Tri-Cities’ debt of some $1.5 million. This was when the Debtor first became aware that the companies were experiencing financial difficulties. MNB, whose loan was secured by, among other things, Tri-Cities’ accounts, inventory and proceeds thereof, notified the companies’ account debtors on approximately April 10, 1987 that payments were to be made directly to the bank. MNB officials came into Tri-Cities’ offices on a daily basis and removed all cash on hand. On or about April 21, 1987, the Debtor retained legal counsel and, on counsel’s advice, hired Donald Gill-ings, a CPA, shortly thereafter to assess the financial status of the corporations. Gillings, counsel and the Debtor then met with MNB officials to negotiate terms of a workout. MNB reviewed the corporate financial statements and expressed concern regarding the accuracy of figures relating •to accounts receivable. Brzezinski would not cooperate in efforts to prepare more accurate financial statements. On April 28, 1987, Brzezinski resigned. Subsequent reconstruction of the financial reports by outside accountants indicated that the companies incurred a $900,000 loss in 1986 rather than a $100,000 profit, as originally reported. Financial statements for April and May of 1987, prepared after Brzezinski’s departure, indicated that, rather than having a net worth of approximately $1 million as reported in prior financial statements, the companies in fact were showing a $3 million deficit. The Debtor first learned of a delinquency in federal withholding tax payments on April 30, 1987, when he and Gillings came across several delinquency notices from the IRS while looking through Brzezinski’s desk.
The Debtor’s efforts to revive his corporations were shortlived and unsuccessful; on May 19, 1987, Tri-Cities filed for bankruptcy under Chapter 11, followed on May 29, 1987 by Flint Microcomputers. Shortly thereafter, on June 9, 1987, the Debtor personally filed for relief under Chapter 11. The IRS filed a proof of claim alleging that the Debtor was personally liable pursuant to § 6672 of the Internal Revenue Code (IRC) for $242,877.13 in unpaid income and social security taxes owing from Tri-Cities and Flint Microcomputers. 1 Section 6672 states in pertinent part:
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall ... be liable to a penalty equal to the amount of the tax evaded, or not collected, or not accounted for and paid over....
26 U.S.C. § 6672(a).
The Debtor does not deny that his companies failed to pay withholding taxes for *518 the time periods in question, but he does deny that he was personally responsible for collecting and paying these taxes. The Debtor also denies that he “willfully” failed to pay the trust fund taxes. Each party claims that the other bears the burden of proof in this case, and that issue will be addressed first.
BURDEN OF PROOF
Pursuant to § 502(a) of the Bankruptcy Code and Bankruptcy Rule 3001(f), a properly executed proof of claim constitutes
prima facie
evidence of its correctness. It is a well-settled principle of bankruptcy law that a party objecting to the claim “carries the burden of going forward to meet, overcome, or at least equalize, what operates in favor of the creditor by the force of section 502(a) and the Rule.” 3
Collier on Bankruptcy,
¶ 502.01[3] (15th ed.1989). The “burden of ultimate persuasion,” however, “is always on the claimant.”
Id.
The underlying rationale for this rule is that a claimant in a bankruptcy proceeding is in the same posture as a civil plaintiff in a non-bankruptcy proceeding, who generally is assigned the burden of proving its claim against the defendant under non-bankruptcy law.
See In re Lewis,
As previously stated, the taxpayer generally bears the burden of proof in non-bankruptcy litigation concerning the correctness of taxes assessed by the IRS.
Helvering v. Taylor,
In this case, the IRS never assessed the Debtor for the unpaid taxes, presumably because it had not completed its investigation of the taxpaying companies when the Debtor’s bankruptcy was filed. The Government vehemently argued that its failure to assess is of no importance. Because the Debtor has taken no position on this issue, we have no occasion to decide the question. 4
*519
Many cases hold that the IRS bears the burden of proving its tax claim in bankruptcy without regard to whether the tax in question was assessed pre-petition. The earliest case located in which the burden of proof was assigned to the IRS under such circumstances is
In re Gorgeous Blouse Co., Inc.,
There is no doubt that the burden of establishing the claim rests upon the Government. The filing of a sworn proof of claim is sufficient to establish a prima facie case. It “compels the objector to go forward and produce evidence enough to rebut the claimant’s prima facie case. [0]nce this is achieved, it is for the claimant to prove his claim, not for the objector to disprove it.” These principles are applicable to tax claims asserted by the Government.
Id. at 465 (citations omitted).
Gorgeous Blouse
cited
Collier on Bankruptcy
as authority for the proposition that the bankruptcy rule assigning the burden of proof to the claimant applies with equal force when the claimant is a taxing authority.
5
The 14th edition of
Collier
states that “[a]s in the case of other types of claims, a filed proof of a tax claim in proper form establishes a
prima facie
case for the allowance of the claim [citation omitted].
The burden of proof is on the claimant,
but the burden of going forward and introducing evidence to rebut the
prima facie
case is on the objecting party [citing
In re Bradley,
The authority cited in
Collier
is not persuasive,
7
and
Gorgeous Blouse
offers no rationale to justify its holding. Nevertheless, many cases decided subsequent to
Gorgeous Blouse
have reached the same conclusion, often citing
Gorgeous Blouse
or cases which in turn relied upon
Gorgeous
Blouse.
8
In re Fidelity Holding Co., Ltd.,
In another pre-Code case, the Sixth Circuit held that the State of Ohio bore the burden of proving that the bankrupt owed it unpaid payroll premiums.
In re Highway Const. Co. of Ohio,
While a great number of cases have held that taxing authorities must bear the burden of proving their claim against the debt- or just like any other claimant, there are many cases which have held to the contrary.
Resyn Corp. v. United States,
*521 In Resyn, the debtor corporation appealed a judgment against it for income tax deficiencies owed to the IRS. The Third Circuit described the relative burdens of the parties as follows:
The government’s deficiency assessment ordinarily is afforded a presumption of correctness, thus placing the burden of producing evidence to rebut that presumption squarely on the taxpayer. Re-syn first argues that the method of computation adopted by the I.R.S. in determining Resyn’s tax deficiencies was arbitrary and clearly erroneous. The burden of proving that an assessment is arbitrary and excessive rests on the taxpayer; if the taxpayer cannot prove that the assessment was arbitrary, it retains the burden of overcoming the presumption in favor of the government that the assessment was not erroneous.
Most of the other decisions cited above also relied on non-bankruptcy cases in concluding that a debtor must bear the burden of proof in disputes over tax liability, or else cited bankruptcy cases which in turn relied upon non-bankruptcy decisions. The eases so holding did not even mention the general bankruptcy rule regarding allocation of the burden of proof. Thus, the bankruptcy cases which follow the tax-litigation practice of allocating the burden of proof to the taxpayer offer little or no reasoning to justify this result.
The Court of Appeals for this circuit gave some guidance as to how to allocate the burden of proof when that question is undecided:
Burden of proof allocations are governed by principles of fairness, common sense, and logic. A guiding principle is to assign the burden to the “party who presumably has peculiar means of knowledge enabling him to prove its falsity if it false.” See 9 J. Wigmore, Evidence in Trials at Common Law § 2486 at 290 (rev. 1981) (emphasis in original). Another consideration is to allocate the burden of proof to the party to whose case the fact is essential.
First Nat. Bank v. Hurricane Elkhorn Coal Corp.,
It is likewise as to the question of whether the Debtor willfully failed to pay the trust fund taxes. While willfulness would seem to present a subjective question of fact peculiarly within the knowledge of the Debtor, it may nonetheless be established based upon evidence to which both parties have access.
See Calderone,
The last consideration cited in Hurricane Elkhom Coal is circular in the context of this case, as the underlying facts are essential to whichever side bears the burden of proof on the issues in question. Therefore, we are relegated to an examination of the underlying rationale for the competing general rules applicable to tax litigation and bankruptcy claims litigation in order to make a determination as to which rule should control in this case.
As justification for assigning the burden of proof to the taxpayer in non-bankruptcy litigation, the court in Rexach cited five factors which are relevant for present purposes:
the normal evidentiary rule imposing proof obligations on the moving party; [2] the relevant prior Supreme Court precedents indicative, if not determinative of the issue, Wickwire v. Reinecke,275 U.S. 101 , 105,48 S.Ct. 43 , 44-45,72 L.Ed. 184 ... (1927); Welch v. Helvering,290 U.S. 111 , 115,54 S.Ct. 8 , 9,78 L.Ed. 212 ... (1933); Helvering v. Taylor,293 U.S. 507 , 515,55 S.Ct. 287 , 290-91,79 L.Ed. 623 ... (1935); Bull v. United States,295 U.S. 247 , 260,55 S.Ct. 695 , 699-700,79 L.Ed. 1421 ... (1935); [3] the presumption of administrative regularity; [4] the likelihood that the taxpayer will have access to the relevant information; and [5] the desirability of bolstering the record-keeping requirements of the [Internal Revenue] Code.
The Supreme Court cases cited in Rexach offer no policy arguments other than the traditional allocation of the burden of proof to the plaintiff. Thus, the first two factors enumerated above are somewhat redundant. Moreover, because a party filing a claim in bankruptcy against the debtor is in effect the moving party, these two factors actually militate toward requiring the IRS to prove the validity of its tax claim.
The “presumption of administrative regularity” to which
Rexach
refers has been described as a presumption that, in the absence of evidence to the contrary, “whatever is required to give validity to the official’s act in fact exists.”
Borg Warner Corp. v. CIR,
does not supply proof of a substantive fact. Best, in his Treatise on Ev., § 300, says: “The true principle intended to be asserted by the [presumption] seems to be, that there is a general disposition in courts of justice to uphold judicial and other acts rather than to render them inoperative_” Nowhere is the presumption held to be a substitute for proof of an independent and material fact.
United States v. Ross,
Turning to the fourth factor cited in
Rex-ach,
it may be true that the taxpayer is generally more likely to have access to relevant information. It must be noted, however, that in bankruptcy an objection to a claim may be made by any party in interest, not just the debtor or debtor in possession. 11 U.S.C. § 502(a). There is usually no reason to presume that another creditor, or even a bankruptcy trustee, has greater access to the debtor’s documents than does the IRS. As the court noted in
Brady,
“the estate is a party in interest and not just the taxpayer.”
Another factor cited in Rexach is “the desirability of bolstering the record-keeping requirements” of the IRS. This is a worthwhile objective, but there are already significant incentives for the taxpayer to comply with these record-keeping requirements. 16 It seems unlikely that a bankruptcy exception to the general rule allocating the burden of proof to the taxpayer would result in a significant decrease in compliance with record-keeping requirements, particularly since inadequate record-keeping constitutes a basis for denying a discharge in bankruptcy. 11 U.S.C. § 727(a)(3).
Finally, the concern expressed in Rexach about encouraging taxpayer “delay and inaction” is a legitimate one. However, we do not believe that a taxpayer is likely to view bankruptcy as an appealing means of avoiding imposition of the burden of proof. On balance, then, the policy considerations cited in Rexach do not appear to be especially compelling.
As previously noted, the practice in bankruptcy of requiring the claimant to prove his claim is in essence an application of the general rule allocating the burden of proof to the moving party. Those cases which have invoked this rule even when the claimant is a taxing authority have done so on the basis that (1) the Code lacks any provision which distinguishes government claims from claims of private entities,
Fidelity Holding,
To recapitulate, no reported decision to which we were referred, or which we located on our own, satisfactorily explains why either party in this case should bear the burden of proof in the trial of a bankruptcy claim objection. The policy considerations underlying the tax litigation rule (placing the burden on the taxpayer) are not persuasive. Moreover, these policy considerations are not substantially undermined by recognition of an exception when the taxpayer has filed for bankruptcy and the litigation occurs in the context of an objection to the IRS’ claim. Finally, such an exception is consistent with the Sixth Circuit’s opinion in Highway Construction, as well as the decisions rendered by those bankruptcy and district courts located in this circuit which have considered the issue. 17 Allocation of the burden of proof to the IRS may therefore be justifiable in part as a means of promoting uniformity, if only within the Sixth Circuit. 18
In conclusion, the case law on this issue is almost evenly divided, and marked by little or no attempt to analyze the question in any detail. Nevertheless, a few cases have made valid arguments as to why tax claims should not be treated differently from other kinds of claims against the debtor. Although the policy considerations cited in Rexach would also apply to state tax claims, the Sixth Circuit in Highway Construction made no distinction between state claims and other types of claims. We therefore decline to recognize an exception to the well-established rule allocating to the creditor the ultimate burden of persuasion in a trial of an objection to a claim.
LIABILITY
In order to establish liability under § 6672, the IRS must prove that the person from whom recovery is sought was “under a duty to perform the act in respect of which the violation occurs.” 26 U.S.C. § 6671(b). The “act” specified in § 6672 is “to collect, truthfully account for, and pay over any tax imposed by this title.... ” 26 U.S.C. § 6672(a). For the sake of brevity, the cases have generally characterized this element as necessitating a finding that the individual is a “responsible person.”
Slodov v. United States,
1. Responsible Person
The Debtor argues that it was Brzezinski who, as CFO, had the duty to file tax returns and to make the appropriate tax payments. He states that this responsibility was assigned to Brzezinski by Tri-Cities’ board of directors, as expressly permitted under the corporation’s by-laws. 19 The IRS does not dispute the Debtor’s contention that Brzezinski was responsible for paying the withholding taxes; 20 it instead points to the fact that ’Brzezinski reported to the Debtor and that the Debtor had ultimate authority to control the corporation’s finan *525 cial affairs. It argues that this authority, even if unexercised, is itself sufficient to conclude that the Debtor is a responsible person. We must therefore determine whether the ultimate authority to control corporate tax payments is equivalent, for purposes of § 6672, to having a “duty” to make such payments. 26 U.S.C. § 6671(b).
As with any matter involving statutory interpretation, resolution of this issue should begin with consideration of the lan-guáge of the statute. As previously noted, § 6671 speaks of a “duty” to perform the act in question. The term “duty” is defined as “obligatory tasks, conduct, service, or functions that arise from one’s position.” Webster’s Ninth New Collegiate Dictionary (1985) [hereinafter Webster’s]. Use of the adjective “obligatory” in this definition is consistent with the reference in § 6672(a) to the person “required” to collect and pay the withholding taxes. The word “authority”, on the other hand, is defined as the “power to influence or command thought, opinion, or behavior.” Id.
These definitions suggest that the terms “duty” and “authority” are not synonymous. The notion of a duty implies an affirmative obligation to perform specific acts, whereas “authority” is by its nature discretionary. A high-level corporate officer, for example, may have the authority to “command” that any number of actions be taken, but that does not mean that he or she is obliged or required to do so. To equate authority (or power or the right to exercise control) with duty, as the IRS would have us do, would expand the scope of §§ 6671 and 6672 in a manner which appears unwarranted by the language of these provisions.
Cf. Wiggins v. United States,
The IRS places a great deal of emphasis in its brief on the 7th Circuit’s decision in
Monday v. United States,
Corporate office does not, per se, impose the duty to collect, account for and pay over the withheld taxes_ Liability attaches to those with power and responsibility within the corporate structure for seeing that the taxes withheld from various sources are remitted to the Government. This duty is generally found in high corporate officials charged with general control over corporate business affairs who participate in decisions concerning payment of creditors and disbursal of funds.
The IRS cites numerous decisions in support of its contention that individuals with unexercised authority to control corporate payments are necessarily responsible persons. Many of these cases, however, involved an individual who not only possessed such authority, but actually exercised it. In
Builders Finance Co., Inc. v. United States,
Any statements in the foregoing cases which support the IRS’ position are therefore dictum, and unpersuasive dictum at that. In each case, the court evidently believed that the individual’s active participation in payment decisions was significant enough to warrant mention in the opinion. Moreover, none of these cases categorically state the proposition advanced by the IRS, let alone offer a rationale for the interpretation which the Government advocates.
Other cases cited by the IRS actually appear to contradict the proposition it advances. In
Sinder v. United States, supra,
the Court of Appeals affirmed the district court’s ruling that Sinder was not a responsible person during the last quarter of 1971 because he “did not
exercise
any control over [the corporation’s] business” during that time period.
[testified that he had the authority to initially determine which creditors would be paid in that he “reviewed the accounts payable and worked with Cheryl [Goebel] to determine which checks needed to be paid, and then I turned the checks over to Mr. Bosset for ... his approval to mail.” Although plaintiff points to the testimony of Cheryl Goebel to bolster his argument that Bosset really exercised “final” authority, she also testified that plaintiff made the initial decisions as to which checks would be drawn.
Id.
at 474. The court stated that “the test for determining responsibility of a person under § 6672 is essentially a functional one, focusing upon the degree of influence and control which the person
exercised
over the financial affairs of the corporation and, specifically, disbursements of funds and the priority of payments to creditors.”
Id.
(emphasis added). In
Taubman v. United States,
*527
The case which most directly supports the IRS’ position is
United States v. Sweetser,
The delegation of this duty to Mr. Herring is insufficient to relieve defendant of liability. The fact that defendant had the right to exercise control over the financial affairs of the corporation makes him a responsible person within the meaning of the statute regardless of whether he actually exercised daily control over such aspects of the business. Harrington v. United States,504 F.2d 1306 (1st Cir.1974); Turner v. United States,423 F.2d 448 (9th Cir.1970); Datlof v. United States,252 F.Supp. 11 (E.D.Pa.1966), aff'd,370 F.2d 655 (3d Cir. 1966) [cert. denied,387 U.S. 906 ,87 S.Ct. 1688 ,18 L.Ed.2d 624 (1967)].
The cases cited in Sweetser do not support its conclusion. In Harrington (which the IRS also cites in its brief), the First Circuit stated that there was
no error in the [lower] court’s charge that an individual need not be in day-today control of the administrative and financial aspects of the business in order to be the responsible person within the meaning of § 6672, so long as he has the right to control such aspects of the business. This was a correct statement of the law. See Monday, [supra ]; Hewitt v. United States,377 F.2d 921 (5th Cir. 1967).
Harrington’s
reliance on
Monday
and
Hewitt
is misguided. As previously stated,
Monday
actually suggests that authority must be coupled with responsibility; neither
Monday
nor
Hewitt
contains a statement which could fairly be construed as supporting
Harrington’s
conclusion that “power” is all that is needed. It is also worth noting that both
Monday
and
Hewitt
appear to have involved persons who did in fact exercise control over their respective companies.
See Monday,
Just as Monday appears to contradict the proposition for which it is cited in Harrington, the Ninth Circuit’s decision in Turner undermines Sweetser’s contention that an individual with authority to direct payments to the IRS is, without more, a responsible person. In Turner, the court stated:
Section 6672 includes “all those so connected with a corporation as to be responsible for the performance of the act in respect to which the violation occurred”; it reaches those who have “ ‘the final word as to what bills should or should not be paid and when.’ ” [quoting Pacific Nat. Ins. Co. v. United States,422 F.2d 26 , 31 (9th Cir.), cert. denied,398 U.S. 937 ,90 S.Ct. 1838 ,26 L.Ed.2d 269 (1970), and citing United States v. Graham,309 F.2d 210 (9th Cir.1962) ] In this context “final” means significant, rather than exclusive control. Section 6672 “was designed to cut through the shield of organizational form and impose liability upon those actually responsible for an employer’s failure to withhold and pay over the tax. It would frustrate this purpose needlessly to imply a condition limiting the application of the section to those nominally charged with controlling disbursements of a corporate employer, thus immunizing those who, through agreement with or default of those nominally responsible, have exercised this corporate function in fact.” [quoting Pacific National]
Sweetser’s reliance on
Datlof
is also misplaced. There is no statement in that case to the effect that the mere authority to direct disbursements justifies a finding that an individual is a responsible person. Moreover, the plaintiff in
Datlof
clearly exercised his authority on a day-to-day basis; he alone signed many checks made payable to creditors other than the IRS while withholding taxes were delinquent,
The Government also cites
White v. United States,
a responsible person is most frequently defined as a person who has “the final word as to what bills or creditors should or should not be paid and when.” To that effect, see, e.g., United States v. Graham, [supra ]; Bloom v. United States,272 F.2d 215 (9th Cir.1959), cert. denied363 U.S. 803 ,80 S.Ct. 1236 ,4 L.Ed.2d 1146 ... (1960); Sherwood v. United States,246 F.Supp. 502 (E.D.N.Y.1965); Neale v. United States,13 A.F.T.R.2d 1721 (D.Kan.1964); Kolberg v. United States,13 A.F.T.R.2d 1615 (D.Ariz.1964); Schweitzer v. United States,193 F.Supp. 309 (D.Neb.1961).
The cases cited in
White
do not support the Government’s position. As previously noted, the Ninth Circuit in
Graham
implied that the question of whether the authority to control corporate payments has actually been exercised is critical in determining whether an individual is a responsible person. In
Bloom,
the same court distinguished a case cited by counsel for the alleged responsible person on the grounds that the evidence in the other case “established that the stockholders and directors sought to be charged had wholly delegated such authority to an office manager and
did not participate in any way in the non-payment action.”
The other cases cited in
White
arguably suggest that power alone suffices, but are in any event unpersuasive. The court in
Schweitzer
apparently based its conclusion that the plaintiff was a responsible person on its observation that, as “president, chief executive officer, majority shareholder, and chairman of the Board of Directors” of the taxpaying corporation, he “was a person
*529
with authority under the articles of incorporation to determine what bills would and would not be paid and had authority to direct the payment of the taxes in question.”
A careful reading of the authority cited in White therefore leads to the conclusion that the person with the “final word” is best defined as the individual who ultimately decided which bills were to be paid, rather than the individual who had the unexercised right to decide such matters. This interpretation would be consistent with the decisions in Turner and Pacific National, supra.
White
also described
Belcher v. United States,
For the reasons stated, we find the case law cited by the IRS to be unpersuasive. This is particularly true in light of the fact that so many cases have focused on the extent to which the alleged responsible person actually participated in decisions regarding the payment of corporate debts. If the authority to influence such decisions were deemed sufficient, those cases would have been engaging in a pointless inquiry: the question of whether the individual had actually exercised his authority would be utterly irrelevant. The logical inference to draw from such cases, of course, is that the courts regard the extent to which the individual actually exercised control to be an important consideration. This conclusion seems all the more appropriate given the repeated references in the decisions to the necessity of identifying the individual who had “power and responsibility” to control the disbursal of corporate funds.
See, e.g., Braden,
The IRS does not allege that the Debtor assumed any responsibility for disbursing funds to the corporations’ creditors while Brzezinski was employed by TriCities. The evidence does not establish that the Debtor even conferred with Brzezinski or otherwise participated in decisions regarding which debts were to be paid. The IRS instead relies in essence on the fact that the Debtor could have done these things if he had so chosen. For the reasons discussed above, we believe that this reliance is misplaced, and we accordingly hold that the Debtor was not a responsible person while Brzezinski remained in office.
Taking a somewhat different tack, the IRS also argues that the Debtor cannot escape liability by delegating his duty to collect and pay taxes to others within the corporation.
25
In support of its “no delegation” theory, the IRS cites
Harrington v. United States, supra; Mazo v. United States,
In
Harrington,
one of the plaintiffs claimed he was not responsible for payment of a portion of the delinquent taxes because responsibility for the payment of those taxes had been “delegated” to Harrington.
As a general proposition it may be safely postulated that one who is the founder, chief stockholder, president, and member of the board of directors of a corporation ... is rebuttably presumed to be the person responsible under § [6672] of the Code and is thus liable for the penalty, in the absence of an affirmative showing by him that in actual fact he lacked the ultimate authority to withhold and pay the employment taxes in question, or that his omission was not willful in the statutory sense.
McCarty
therefore does not provide support for the proposition that an individual who delegates his duty to pay corporate taxes to a subordinate continues to be a responsible person notwithstanding that he no longer actually exercises authority with respect to the payment of taxes. To the contrary,
McCarty
would appear to stand for the proposition that a duty may be effectively delegated, so long as the delegator does not continue to make the ultimate decision regarding which debts are to be paid.
Accord, Graham, supra; Cushman v. Wood,
The next issue is whether the Debt- or became a responsible person after Brzezinski’s departure. Although the Debtor concedes that he assumed Brzezinski’s responsibilities upon the latter’s resignation, he contends that he was not a responsible' person because, shortly after Brzezinski resigned, MNB took control of corporate funds and decided which creditors were to be paid from these funds. The response to this argument depends on how one views the “responsible person” designation. If it is regarded as a function not only of the individual’s role within the corporation, but also as dependent upon the nature of the funds in question, then the Debtor’s argument is quite plausible. From this perspective, the Debtor is a responsible person, but his “responsibility” extends only to those funds which are available for payment to the IRS. Thus, the Debtor could be said to have been a responsible person vis-a-vis funds released by MNB for the payment of current withholding taxes, but not as to those funds retained by MNB or released for the express purpose of payment to current vendors.
Conversely, the existence of available funds (or any funds, for that matter), may be viewed as irrelevant to the determina-, tion of whether a corporate employee is a responsible person: the sole inquiry would be whether the person in question was responsible for collection and payment of
*532
the withholding taxes. We believe this viewpoint is better supported by the language of the statute, and is also more consistent with those cases that have interpreted the “responsible person” designation.
28
In
Slodov,
for example, the Supreme Court based its holding that Slodov was not liable under § 6672 on the premise that the funds in question were not subject to the trust imposed by 26 U.S.C. § 7501,
2. Willfulness
For the reasons stated above, the Court concludes that the Debtor was not a “responsible person” during Brzezinski’s tenure. Even if we were to hold otherwise, however, the IRS would also have to prove that the Debtor acted willfully. Nonpayment of taxes is “willful, for § 6672 purposes, if it is voluntary, knowing and intentional even though it is not done with a bad purpose or an evil motive_”
Calderone,
' Many courts, however, have expanded the definition of willfulness to include not only actual knowledge of the delinquency, but also “reckless disregard” as to whether or not a delinquency exists.
Calderone,
Calderone
notwithstanding, the Debtor contends that the Sixth Circuit requires actual knowledge of the delinquency in trust fund tax payments, and that “reckless disregard” as to that fact is insufficient. In support of this contention, he cites
Nolan v. United States,
Blais identified three typical scenarios in which a finding of willfulness has been based on reckless disregard:
First, courts have held that reliance upon the statements of a person in control of the finances of a company may constitute reckless disregard when the circumstances show that the responsible person knew that the person making the statements was unreliable. This requires a finding that the responsible person had knowledge that the other individual had in the past failed to perform adequately with regard to the financial affairs of the taxpayer entity....
Second, courts have held that “[wjillful conduct also includes failure to investigate or to correct mismanagement after having noticed that withholding taxes have not been remitted to the Government.” [citing Kalb,505 F.2d at 511 ] This requires a finding that the responsible person had “notice” that the taxes had not been remitted in the past.... If “notice” as used in Kalb is construed as requiring something less than “knowledge,” cases in this category are in essence quite similar to those in the [next] group....
Third, courts have found that when a responsible person continues to pay other bills knowing that the business is in financial trouble, he willfully violates § 6672 if he fails to make reasonable inquiry as to whether money would or would not be available for payment of the taxes when they become due. [citing Teel,529 F.2d at 905 ],
Blais,
There has been some disagreement in the reported decisions concerning whether reckless disregard is measured by a “subjective” or “objective” standard. Several courts have explicitly stated that a subjective standard applies, meaning that the court must find that the responsible person did in fact possess the relevant knowledge, whether such “knowledge” be with respect to the incompetence of a subordinate, the company’s general financial distress or other pertinent facts.
See Blais,
As a practical matter, however, this distinction is not very significant, inasmuch as the same result can be justified by application of either standard. Assume, for example, that the IRS mailed a series of delinquency notices to the CFO of a corporation; the CFO acknowledged receipt of correspondence from the IRS, but stated that he routinely ignored them. This conduct would obviously amount to gross negligence if measured against what a “reasonable person” would do. A court could legitimately reach the same conclusion under a subjective standard by simply discrediting the CFO’s testimony as being too implausible. Cf
. Prosser, The Law of Torts,
at 185 (4th ed. 1971) (Stating that recklessness is usually defined in part as “unreasonable” conduct by an actor “in disregard of a risk known to him
or so obvious that he must be taken to have been aware of it.”)
(emphasis added). The distinction between a subjective standard and an objective one may therefore boil down to whether one prefers to characterize the relevant information as constituting facts which the responsible person “must have known,”
Burack v. United States,
The Debtor testified that he did not have actual knowledge of the delinquency in tax payments until “the last week of April, 1987,” and the IRS does not dispute this contention. Page 17 of IRS’ trial brief. The IRS instead argues that numerous monthly financial statements relating to most of 1984 and part of 1985 “should have caused [the Debtor] to investigate the status of the withholding tax liabilities.” Id.; pages 6-8 of IRS’ post-trial brief. • In these statements, the entry for “Fed. Deposit-Payable” greatly exceeded the “Taxes-Payroll” entry. The Debtor apparently concedes that these data are reflective of a delinquency, Page 4 of Debtor’s post-trial brief, but contends that he never noticed the discrepancy in his review of the statements. For a number of reasons, this contention appears credible.
It is undisputed that the Debtor's expertise was in computers, not finance or accounting. There is no evidence that he had the training or skill necessary to glean critical information from a fairly detailed financial statement. 32 In his review of these statements, the Debtor concentrated on gross sales and current expenses; he assumed that his outside accountants would highlight any “red flags” in the statements. This expectation may not have been justified in light of the Debtor’s concession that his accountants were responsible only for compiling data and did not provide analysis; on the other hand, it is not implausible that a relatively unsophisticated entrepreneur would make such an assumption. There is also no evidence to suggest that the Debtor had any particular reason to focus on those items in the financial statements relating to tax payments; during the time in question, the Debtor was under the understandable (if mistaken) impression that his companies were operating successfully. Furthermore, testimony showed that Brzezinski endeavored to keep the Debtor in the dark regarding the status of trust fund tax payments. Under these circumstances, the “warning signs” contained in the financial statements would not appear to be so manifest as to justify an inference either that the Debtor must have recognized these signs, or that his failure to recognize them amounted to gross negligence. This conclusion is further supported by the fact that the corporations’ secured creditors also received copies of these financial statements and yet never brought the discrepancies to the attention of the Debtor. It can only be assumed from this that these lending institutions also failed to detect the discrepancy and/or to appreciate its significance.
The IRS argues that, even if the Debtor did not willfully fail to pay taxes prior to April 30, 1987, his conduct after that date was willful to the extent he used “unencumbered” corporate funds to pay creditors other than the IRS.
33
Pages 26-27 of IRS’ post-trial brief. The Debtor responds that the funds in question were not “unencumbered.” The failure to make withholding tax payments is not willful if the responsible person does not have unencumbered funds with which to make the payments.
See Mazo,
The courts have generally refrained from specifying what constitutes “unencumbered” funds for purposes of § 6672. However, a review of the case law suggests that the term “unencumbered” can appropriately be defined as funds which are available to the taxpayer for use in its discretion.
See Sorenson v. United States,
Where the taxpayer’s discretion in the use of funds is subject to restrictions imposed by a creditor holding a security interest in the funds which is superior to any interest claimed by the IRS, the funds are regarded as encumbered if those restrictions preclude the taxpayer from using the funds to pay the trust fund taxes.
See Slodov, 436 U.S.
at 259,
The IRS initially argued that “[t]here was approximately $98,000 available to pay the bills after [the Debtor] concedes he knew of the past-due tax obligations.” Page 17 of IRS’ trial brief. The Debtor contends that these funds were subject to a security interest held by MNB, and were not available for payment to the IRS of delinquent taxes. The IRS subsequently modified its position, arguing that there was “at least $22,000” in cash sales available for payment to the corporations’ employees that were “not subject to the Bank’s security interest.” Page 27 of IRS’ post-trial brief. However, the security agreement between MNB and Tri-Cities includes as collateral the proceeds of inventory (Page 1 of security agreement). The *536 Debtor testified that the funds used to pay employees came directly from MNB, and were forwarded to Tri-Cities for the specific purpose of paying payroll. The IRS does not dispute this contention, but instead suggests that the funds in question were not encumbered because they were not funds which “may be paid only to the creditor holding the security interest.” Page 20 of IRS’ post-trial brief.
The IRS’ contention that funds are encumbered only if the lienholder requires that they be paid directly to it is without merit. In determining whether funds are encumbered, the cases have focused on the extent to which the employer has unimpaired access to or control of the funds. From the Debtor’s perspective, funds are just as “unavailable,” for purposes of paying the IRS, whether the creditor requires that the funds be applied toward the indebtedness or instead directs payment to some other entity. The proposition advanced by the IRS therefore runs contrary to these cases, and the IRS cites no authority or rationale to support its argument.
As previously stated, the fact that funds are subject to a security interest does not itself warrant a finding that the funds are “encumbered.” The IRS is therefore correct in stating that “[t]he mere existence of a security interest in favor of one creditor cannot be held to a give a responsible person the blanket license to prefer all types of other creditors over the United States.” Page 20 of IRS’ post-trial brief. However, there is no indication that the Debtor received a “blanket license” from MNB to disburse the funds in question as he pleased; to the contrary, the evidence demonstrated that MNB permitted the funds to be used only for current payroll purposes and payment of minimal operating expenses such as rent and utilities. Although the Debtor was allowed to and did pay current withholding tax obligations, MNB did not permit any of the funds to be applied toward delinquent withholding taxes. Funds which are subject to such restrictions are clearly “encumbered.”
See McCullough v. United States,
CONCLUSION
For the reasons stated, we hold that the Debtor’s objection to the IRS’ claim against the estate is correct and that the Debtor’s estate is not liable for the 100% penalty under § 6672. A separate order sustaining the objection and disallowing the claim has been entered.
Notes
. These taxes, which must be deducted from employee wages, are held in trust by the employer pursuant to § 7501 of the IRC, and are thus frequently referred to as "trust fund taxes.”
Slodov v. United States,
. Although liability under § 6672 is characterized as a "penalty,” the provision is essentially an "alternative collection source for trust fund taxes.”
United States v. Energy Resources Co., Inc.,
— U.S.-,
. Pursuant to § 7422(e) of the IRC, however, a person who has filed suit against the IRS to recover tax or penalty payments bears the burden of proof as to issues (other than fraud) raised by any counterclaim made by the IRS for an asserted deficiency relating to the tax or penalty in question. 26 U.S.C. § 7422(e). See also Rule 142(a), Tax Court Rules of Practice and Procedure, 26 U.S.C.A. foil. § 7453.
.We note, without adopting their views, that several courts have apparently disagreed with the Government’s position.
See In re Unimet Corp.,
. Gorgeous Blouse also cited In re Clayton Magazines, 77 F.2d 852 (2d Cir.1935) for the same proposition. That case, however, is not on point; nowhere in Clayton did the court indicate that the government bore the burden of proving its claim against the bankrupt.
. No statement to this effect could be located in the 15th edition of Collier.
.
Bradley
involved a proof of tax claim filed against the bankrupt by the City of New York. In addressing the evidentiary weight of the claim, the court stated that "[t]he filing of the sworn proofs of claim by the city amounted to prima facie cases, and no additional proof was required to be produced, unless some evidence contradicting it was produced by the objector. While the burden of proving a claim rests on the claimant, the claimant had made out a pri-ma facie case when it filed the verified proof of claim_”
.Of the cited cases, all involved the IRS as the tax claimant except Fidelity Holding (State of California), Avien (City of New York), Koontz (State of Missouri), Seafarer (State of New York), and LGJ Restaurant (State of New York).
.
Fidelity Holding
cited
LGJ Restaurant
in support of its conclusion, and
LGJ Restaurant
in turn relied upon
In re Cavanaugh Communities Corp.,
. The persuasive force of Highway Construction is limited, however, as the court was apparently not presented with the argument that different rules regarding the burden of proof should apply to tax claims. Moreover, the claimant in Alexander, which Highway Construction cited, was not a taxing authority.
. In Green, Judge Scholl in effect reversed his decision as to the burden of proof in Motor Freight Express, supra, apparently in response to the Third Circuit’s decision in Resyn.
. Judge Paskay’s decision in
Stroupe,
which related to an IRS claim for unpaid income taxes, appears to contradict his earlier holding in
In re Brahm,
. An "intermediate” position was taken in
In re Hanshaw,
. We are inclined to agree with the 7th Circuit's suggestion that the presumption of administrative regularity is itself "a thin reed on which to rest tax liability.”
Zeeman v. United States,
. Moreover, a leading treatise argues that the significance of "access to records” is overstated:
A doctrine often repeated by the courts is that where the facts with regard to an issue lie peculiarly in the knowledge of a party, that party has the burden of proving the issue.... This consideration should not be overemphasized. Very often one must plead and prove matters as to which his adversary has superi- or access to the proof. Nearly all required allegations of the plaintiff in actions for tort or breach of contract relating to the defendant’s acts or omissions describe matters peculiarly in the defendant's knowledge. Correspondingly, when the defendant is required to plead contributory negligence, he pleads facts specially known to the plaintiff.
McCormick on Evidence, § 337, at 950 (3d ed. 1984). Where, as in this case, the issue of liability is to be resolved primarily by testimonial evidence, the question of access to records becomes even less significant.
. Section 6001 of the IRC imposes an obligation on the taxpayer to "keep such records ... and comply with such rules and regulations as the Secretary may from time to time prescribe. Whenever, in the judgment of the Secretary it is necessary, he may require any person ... to ... keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title.” 26 U.S.C. § 6001. The IRC also provides that “[i]f no method of accounting has been regularly used by the taxpayer, or if the method used does not clearly reflect income, the computation of taxable income shall be made under such method, as, in the opinion of the Secretary, does clearly reflect income.” 26 U.S.C. § 446(b). Moreover, failure on the part of a taxpayer to produce pertinent documentation may subject him to an inference that the documentation would have been unfavorable to his case. See generally 29 Am.Jur.2d, Evidence, § 175 et seq.
. The decisions in Unimet and Slodov (both from Ohio) and Butcher (from Tennessee) are the only such cases located within the Sixth Circuit.
.
Compare Burnett v. Coronado Oil & Gas Co.,
. The by-laws provide in Article V, Section 2 that "[t]he Board of Directors may ... appoint such other officers ... as they may deem necessary for the transaction of the business of the Corporation. All officers and agents shall respectively have such authority and perform such duties in the management of the property and affairs of the Corporation as may be designated by the Board of Directors.”
.As the IRS correctly points out, the fact that Brzezinski may be a responsible person does not preclude the possibility that other persons were responsible as well.
Gephart v. United States,
. Power is defined as the "possession of control, authority or influence over others." Webster’s.
.
It also bears noting that in
Pacific National,
from which
Turner
quoted extensively, the Ninth Circuit stated that liability under § 6672 is limited to those persons "who
exercise
the corporation's power to determine whether or not to pay the withheld tax.”
. It is also worth noting that
White
simply reviewed
Belcher
and other cases which it believed focused on ultimate authority; it did not find it necessary to decide whether to adopt the reasoning of these cases.
.It could be argued that, even if such an individual does not exercise his authority to control tax payments, he may nevertheless be liable under § 6672 if his failure to act was "willful.”
Cf. Neale v. United States,
. Since we have held that the Debtor was not otherwise a responsible person while Brzezinski was acting as CFO, the act of "delegation” to which the IRS presumably refers is the corporate restructuring whereby responsibility for tax payments was vested in the newly created position of CFO. At the time of this restructuring, of course, the corporation was not delinquent in its tax payments. There is no indication, nor does the IRS allege, that the corporation was restructured in an effort to thwart IRS collection efforts.
.
Mazo
held that the delegation of duty did not constitute a "reasonable cause” for the responsible person’s failure to remit taxes.
. The passage from White, supra, regarding the "final word” is quoted with approval in McCarty; both cases were decided by the same panel of judges.
. From a practical standpoint, it matters little whether the availability of funds is regarded as a legitimate consideration in determining whether an individual is a responsible person. If the funds in question are indeed unavailable for payment to the IRS, a responsible person cannot be held liable under § 6672 because his failure to make payment from those funds is not willful.
See Mazo,
. This is not to suggest that MNB could not also be subject to liability. As previously noted, more than one person may be deemed a "responsible person” under § 6672, and lending institutions may be subject to liability pursuant to § 6672 for withholding taxes that were not paid by the taxpayer.
Commercial Nat. Bank of Dallas v. United States,
. The opinion in Wright thus contradicts the position subsequently taken by the same court in Sawyer, supra, with regard to whether a subjective or objective standard applies.
. The cases are in agreement that negligence which falls short of gross negligence does not constitute willful conduct.
Calderone,
. The entry for "Fed. Deposit-Payable" is one of 14 items under "Current Liabilities” in the balance sheet; the "Taxes-Payroll” entry is on a separate page and is one of 34 items under "Expenses” in the Statement of Income.
.As previously discussed, the courts have indicated that knowledge of financial distress may trigger an obligation on the part of a responsible person to make further inquiry regarding the status of tax payments and to take appropriate action.
Blais,
. The existence of a superior lien, without more, does not create an encumbrance for purposes of § 6672: there must be conditions imposed by the lender which render the funds unavailable for payment to the IRS of the trust fund taxes for the time period in question.
See Olson,