Mary JOHNSON, Plaintiff-Appellant, Ford Johnson, Counter Defendant-Appellant, v. UNITED STATES of America, Defendant-Appellee.
No. 12-1739.
United States Court of Appeals, Fourth Circuit.
Decided: Nov. 5, 2013.
Argued: Sept. 17, 2013.
Before WILKINSON, DUNCAN, and AGEE, Circuit Judges.
AGEE, Circuit Judge:
Mary Johnson (“Mrs. Johnson“) brought this suit against the United States seeking a refund of payments on a federal withholding tax penalty assessed against her under
I.
The following facts are either uncontroverted, taken in the light most favorable to the Johnsons, or have been admitted by the Johnsons in their pleadings.2 In 1969, Mr. Johnson formed a non-profit corporation, Koba Institute, Inc. (“Koba Insti
This fiscal reality led Mr. Johnson to approach Mrs. Johnson about restructuring Koba Institute so as to facilitate a continuation of their business. In 1998, Koba Institute converted to a for-profit corporation under Maryland law, with Mrs. Johnson as its sole shareholder. Because Mrs. Johnson “was not encumbered by a lien” like Mr. Johnson, her status as the corporation‘s owner enabled Koba Institute to enter into leases and other con
As the sole shareholder of Koba Institute, Mrs. Johnson elected herself as chair of the corporation‘s board of directors in 2001. The corporation‘s bylaws require that the chair of the board “be elected President of the Institute.” (J.A. 615.)6 According to the Johnsons, because they had agreed that Mrs. Johnson would be the primary caregiver of the couple‘s children, Mrs. Johnson “delegated” and “entrusted” her authority in the corporation to Mr. Johnson, and thereafter elected Mr. Johnson president of Koba Institute on February 20, 2001, notwithstanding the contrary bylaw requirement. (See J.A. 16, 478, 480, 1481-82, 1515.) Mrs. Johnson, in turn, served as the corporation‘s vice president.
The same day that Mrs. Johnson appointed herself as board chair, February 20, 2001, Koba Institute‘s board of directors—comprised of the Johnsons and an unrelated corporate secretary—unanimously approved the following resolution:
The present holders of the offices of President, Vice-President, Treasurer and Secretary are authorized to sign checks, drafts, instruments, ... and ... orders for the payment of money from [Koba Institute] accounts, to endorse checks, instruments, evidences of indebtedness and orders payable, owned or held by [Koba Institute], and to ... sign any application, deposit agreement, signature card or other documentation required by the Bank [of America], with the following limitation: ... that either Ford T. Johnson, Jr. (President of the Company/Treasurer) or Mary L. Fogg Johnson (Vice-President of the Company/Chairperson) may act alone or with any other named signatory to said accounts in any transactions with the Bank; however, any transactions ... which are not signed by either [of them] must be signed by at least two of the following people....
(J.A. 612 (emphasis added).) Koba Institute‘s payroll account expressly provided that Mrs. Johnson had the power to “sign singularly” on that account. (J.A. 647, 651, 670; see also J.A. 537-38, 1486-87.)
Having “delegated” her authority to Mr. Johnson, Mrs. Johnson‘s actual involvement at Koba Institute was limited during the 2001 through 2004 period. Nonetheless, she had an office at Koba Institute and received a significant annual salary ranging from approximately $100,000 to $193,000, as well as a corporate car and cell phone. In addition, the rent for Mrs. Johnson‘s residence, shared with Mr. Johnson, was provided by Koba Institute.7
When Mr. Johnson was out of the office, he left explicit instructions for Mrs. Johnson to follow on Koba Institute business, including which checks to sign in his absence. Because of her limited involvement with the corporation‘s daily operations, however, Mrs. Johnson was unaware of “the background or the context” for these checks and did not feel comfortable signing any checks that Mr. Johnson had not authorized. (J.A. 1576.) Accordingly, from 2001 through 2004, she never attempted to write checks that Mr. Johnson had not already approved.
Near the end of 2004, Mrs. Johnson received a notice from the IRS that Koba Institute had not paid its payroll taxes for several quarters from 2001 through 2004. Prior to that time, Mrs. Johnson was unaware that the payroll taxes were unpaid. Upon receipt of the notice, she had “a serious talk” with Mr. Johnson and “told him” that the situation was “unacceptable” and that Koba Institute had “to take steps to make sure that it [did not] happen again.” (J.A. 1501.) Mrs. Johnson then fired the finance director, who had been tasked with making payroll tax payments, and “directed Mr. Johnson to personally handle all future tax payments as of January 2005.” (J.A. 17.) She “required” Mr. Johnson to provide her with “visual proof” of all withholding tax payments that Koba Institute subsequently made. (J.A. 17.) Additionally, at least with regard to the payroll account, Mrs. Johnson no longer followed the prior procedure for check authorization; that is, she no longer required instruction from Mr. Johnson before writing checks herself from the payroll account for payment of the taxes.
Due to Mrs. Johnson‘s “revamped oversight of tax payments,” Koba Institute began remitting its post-2004 payroll taxes to the IRS in full and, generally, on time. (J.A. 17.) The corporation did not, however, pay the outstanding delinquent payroll taxes for the 2001 through 2004 delinquent periods although it continued to pay its other business debts, such as employee wages and Mrs. Johnson‘s compensation. Subsequently, the IRS assessed trust fund recovery penalties (the “100% penalty“) against Mr. and Mrs. Johnson individually, pursuant to
On March 30, 2009, Mrs. Johnson filed suit in the United States District Court for the District of Maryland seeking a refund of the penalty she had paid, asserting that the
The Government filed separate motions for summary judgment against Mr. and Mrs. Johnson, contending that each was liable under
The Johnsons jointly opposed the Government‘s motion to strike, and separately opposed the Government‘s motions for summary judgment. Mr. Johnson also moved for partial summary judgment against the Government as to him.
The district court granted the Government‘s motions for summary judgment, denied Mr. Johnson‘s motion for partial summary judgment, and denied the Government‘s motion to strike as moot. With respect to Mr. Johnson, the district court determined that the assessment against him was valid, rejecting his argument that the assessment was not made within the three-year limitations period established by
With respect to Mrs. Johnson, the district court held that she had also failed to show a genuine dispute of material fact regarding her liability. The court determined that “Mrs. Johnson was a responsible person at Koba Institute during the relevant quarters even though her participation in the corporation‘s affairs was minimal,” and that she had acted “willfully” in failing to see to it that the outstanding tax liabilities were paid. (J.A. 253, 268.)
The district court also concluded that the judgment entered against Mrs. Johnson would not result in a double recovery for the Government. The court noted the Government‘s policy of retaining only one full satisfaction of an underlying tax liability despite it being able to attempt to collect against any responsible party, and reasoned that any potential issues could be avoided through careful drafting of the final judgment order.
Finally, the district court denied as moot the Government‘s motion to strike the reports of the Johnsons’ expert and to exclude his testimony at trial, finding that in their opposition to the Government‘s motions for summary judgment, the Johnsons had “neither relied upon [the expert‘s] reports nor produced any evidence to create an issue of material fact” that would prohibit the entry of summary judgment against them. (J.A. 271.)
The district court accordingly entered judgment in favor of the Government and against Mrs. Johnson for $304,355.90 and
The Johnsons timely noted this appeal, and we have jurisdiction pursuant to
II.
The Internal Revenue Code (“I.R.C.” or the “Code“) requires employers to withhold federal social security and income taxes from the wages of their employees. See
The Code “assure[s] compliance by the employer with its obligation to pay” trust fund taxes by imposing personal liability on officers or agents of the employer responsible for “the employer‘s decisions regarding withholding and payment” of the taxes. Id. at 247 (interpreting
Personal liability for a corporation‘s unpaid trust fund taxes extends to any person who (1) is “responsible” for collection and payment of those taxes; and (2) “willfully fail[s]” to see that the taxes are paid. Plett v. United States, 185 F.3d 216, 218 (4th Cir. 1999); O‘Connor v. United States, 956 F.2d 48, 50 (4th Cir. 1992). Once the IRS assesses a taxpayer for this liability, the taxpayer has the burden of proof at trial on both elements of
We review de novo a district court‘s grant of summary judgment to the Government, resolving all disputed facts in favor of the taxpayer. See Id. To defeat summary judgment, however, the taxpayer—like any other litigant—must identify an error of law or a genuine issue of disputed material fact. See
III.
With the foregoing principles in mind, we turn to the claims of error raised on appeal. Mr. Johnson contends that the grant of summary judgment was errone
A.
Mr. Johnson contends that the assessment of the 100% penalty against him was not “made within the limitations period set forth in
Mr. Johnson has not challenged the basis for the district court‘s decision in any meaningful way. See
Accordingly, we affirm the district court‘s grant of summary judgment against Mr. Johnson individually.
B.
We next address the argument that the district court erred in granting summary judgment against Mrs. Johnson. Specifically, Mrs. Johnson contends that she was not (1) a “responsible person” for the payment of Koba Institute‘s withholding taxes; and (2) did not “willfully” fail to pay over those taxes. We must disagree with Mrs. Johnson because the undisputed record shows that she was properly liable for the 100% penalty.
1.
The Code defines a “responsible person” as one “required to collect, truthfully account for, and pay over any tax,”
Because this analysis focuses “on substance rather than form,” holding a corporate title alone does not render a taxpayer a “responsible person.” O‘Connor, 956 F.2d at 51. While a determination of that status is necessarily fact-based, summary judgment is nonetheless appropriate where, in the absence of genuine disputes of material fact, it is clear “as a matter of law” that the taxpayer satisfies this test and is a “responsible person.” Barnett, 988 F.2d at 1454 & n. 10 (acknowledging that “countless courts have found responsibility [for purposes of
Although “a party cannot be presumed to be a responsible person merely from titular authority,” O‘Connor, 956 F.2d at 51, status as an officer or director is “nevertheless material” to this determination, Teets v. United States, 29 Fed. Cl. 697, 706 (Fed. Cl. 1993). Mrs. Johnson had been the corporation‘s sole shareholder since 1998 and consequently had the effective power to change the officers and directors as she chose and thereby direct the business of the corporation. Separately as both vice president and chair of the board of directors since early 2001, Mrs. Johnson enjoyed considerable actual authority at Koba Institute.
The corporation‘s bylaws, board resolutions, and banking documents demonstrate that Mrs. Johnson was a “responsible person,” as it is clear that she had effective control of the corporation, including its finances. See Taylor v. IRS, 69 F.3d 411, 416-17 (10th Cir. 1995) (holding corporate director and officer a “responsible person” as a matter of law because he “possessed sufficient control over corporate finances, had authority to borrow funds and write checks and thereby had the ‘effective power’ to pay those taxes” (quoting Barnett, 988 F.2d at 1454)). The foregoing corporate documents indicate that Mrs. Johnson, while serving as chair of the board, would also serve as president of the corporation, a role that included authority to manage Koba Institute‘s daily affairs and to execute checks and other legal documents on its behalf. Although Mrs. Johnson “delegated” and “entrusted” this authority to Mr. Johnson prior to 2005, (See J.A. 16, 478, 480, 482, 1481-82, 1515), remaining only minimally involved in the corporation‘s affairs as board chair and vice president, delegation of such authority does not relieve a taxpayer of responsibility under
Although Mrs. Johnson maintains that any authority she held was merely technical in nature, the undisputed evidence establishes that she possessed both legal and actual authority over Koba Institute. See United States v. Landau, 155 F.3d 93, 103 (2d Cir. 1998) (if taxpayer fails to show a genuine dispute of material fact on nature of authority, the court “may reasonably conclude that the documentary evidence of authority reflects the reality“). Mrs. Johnson‘s voluntary minimal involvement in daily corporate affairs before 2005, however, and assertions that Mr. Johnson exercised all daily operating authority fail to create a genuine dispute of material fact regarding limitations on her effective power as to the trust fund taxes. Any deferral by Mrs. Johnson in the exercise of her authority never altered the fact that she possessed “effective power” over Koba Institute at all times. See Barnett, 988 F.2d at 1454. Indeed, Mrs. Johnson‘s actions immediately after learning of the tax delinquencies in December 2004—a period that “cast[s] light” on her responsibility from 2001 through 2004—demonstrate that her actual authority was co-extensive with the legal authority she possessed. Erwin, 591 F.3d at 321.
Mrs. Johnson admits in her pleadings that she “fired the finance director,” the employee tasked with making payroll tax payments, as soon as she discovered that Koba Institute had not remitted these taxes as required by law. (J.A. 17.) She also “directed Mr. Johnson to personally handle all future tax payments as of January 2005” and “required” him to provide her with “visual proof” of all tax payments the corporation made. (J.A. 17.) These admissions indicate that Mrs. Johnson‘s status in the corporation during the quarters at issue enabled her to have “substantial input into [its financial] decisions [from 2001 through 2005], had [s]he wished to exert [her] authority.”10 Barnett, 988 F.2d at 1455 (quotation marks omitted).
Moreover, the fact that, from 2001 through 2004, Mrs. Johnson followed the corporation‘s internal policy and did not write checks without knowing that Mr.
While she may not have been running the day-to-day operations of the corporation between 2001 and 2004, Mrs. Johnson had a non-delegable responsibility to monitor Koba Institute‘s financial affairs. See Barnett, 988 F.2d at 1457 (“[W]e believe that not only is it a bad business practice for a high-level company official such as [Mrs. Johnson] to fail to monitor [the corporation‘s] finances, it also subjects [her] to being held a responsible party under
We therefore conclude that the Government presented undisputed evidence that established as a matter of law that Mrs. Johnson was a “responsible person” under
2.
Having found Mrs. Johnson a “responsible person,” we turn to the other necessary element of
Mrs. Johnson contends that she did not act “willfully” in failing to remit Koba Institute‘s delinquent payroll taxes because she did not learn of the deficiency until the IRS notified her in December 2004. This argument, however, overlooks that a taxpayer may act “willfully” for purposes of
The record demonstrates that Koba Institute continued to make payments to other creditors using unencumbered funds following Mrs. Johnson‘s receipt of the IRS notice in December 2004. The Government has produced numerous salary checks that the corporation issued to Mrs. Johnson in 2005, which Mrs. Johnson readily cashed. Yet it is undisputed that Mrs. Johnson, a “responsible person,” knew that payroll taxes for numerous quarters from 2001 through 2004 remained unpaid. Mrs. Johnson‘s failure to remedy the payroll tax deficiencies upon learning of their existence in December 2004, while
3.
In sum, we conclude that the Government has presented undisputed evidence sufficient to establish as a matter of law that Mrs. Johnson was a “responsible person” under
C.
Finally, we briefly address the claims raised by the Johnsons with respect to the district court‘s determination of the amounts of their respective 100% penalty liabilities. Relying on the reports of their expert witness, Leo Bruette (“Bruette“), the Johnsons assert that there is a genuine issue of material fact as to the amounts of that liability. They allege that Bruette identified “numerous errors, omissions[,] and inconsistencies” in the tax assessments made against them, which therefore undermined the Government‘s proof of the amounts owed. (Br. 26.)
The district court, however, found that the Johnsons “neither relied upon Bruette‘s reports nor produced any evidence to create an issue of material fact” that would preclude summary judgment. (J.A. 271.) Indeed, the Johnsons did not discuss or cite Bruette‘s reports in either of their opposition briefs to the Government‘s summary judgment motions, in Mr. Johnson‘s motion for partial summary judgment, or even as exhibits in opposing summary judgment. Further, the Johnsons do not contest the district court‘s factual conclusion in this regard on appeal. The reports, therefore, could not—and did not—create a genuine issue of material fact.
We also find that Mrs. Johnson‘s concerns regarding double recovery are without merit.13 Mrs. Johnson asserts that entering judgment against her could result in double recovery for the Government because it may collect a significant portion of the unpaid trust fund taxes through an offer in compromise that Koba Institute negotiated with the IRS. We note that Mr. Johnson raised a similar argument when the Government previously sought judgment against him for trust fund recovery penalties at Koba Associates, which was clearly rejected by the district court. See Johnson v. United States, 203 F.Supp.2d 416, 425 (D. Md. 2002), aff‘d, 50 Fed. Appx. 113 (4th Cir. 2002) (unpublished) (per curiam), cert. denied, 540 U.S. 812, 124 S.Ct. 60, 157 L.Ed.2d 25 (2003). In that case, Mr. Johnson argued that the Government “might attempt to obtain some sort of double recovery from both Koba [Associates] and [him] in excess of the established amount of withholding taxes due.” Id. After explaining that the Government may attempt to satisfy a debt for unpaid payroll taxes against the business or the taxpayer, the district court clarified that the IRS follows an “established administrative policy” of only collecting such tax delinquencies once. Id.; see also id. at 425-26 (“[T]he mere fact that the [Government] is attempting to secure a second source for the payment of taxes owed does not necessarily mean that it will attempt to exhaust both sources in excess of the debt.“). The court reasoned that “any lingering concerns of double recovery” could be allayed “by a carefully drafted judgment order of the district court.” Id. at 425. We agree with the district court‘s reasoning in the prior case, and note that similar precautions were taken in this case. The district court‘s judgment order specifically provides that the judgments against the Johnsons will “be reduced to the extent that the United States ... has collected or will collect on those debts pursuant to the offer in compromise it approved with Koba Institute.” (J.A. 274.)
Accordingly, we conclude that the district court correctly determined the amounts of the Johnsons’ respective tax liabilities under
IV.
For all of the foregoing reasons, we affirm the judgment of the district court.
AFFIRMED.
AGEE
Circuit Judge
Notes
Any person required to collect, truthfully account for, and pay over any tax imposed by this title [a “responsible person“] who willfully fails to ... 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, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
The President [who] shall be chairperson of the Board of Directors ... shall preside at all meetings of the Board and/or officers. [S]he shall review, approve and recommend to the Board all proposed projects and budgets on an annual basis. [S]he shall be authorized to execute ... legal papers, documents and instruments on behalf of the Institute. [S]he shall have general authority to manage the business and affairs of the Institute on a day to day basis, subject to and in accordance with the directions of the Board of Directors.
(J.A. 617-18.) The bylaws also authorize the board members to “approv[e] ... proposed projects and budgets,” “establish[] ... banking relations including [the] power to borrow money,” and “control and manage[] ... property, including [the] power to purchase, ... and dispose of the same.” (J.A. 616-17.)