Opinion
Case No. 03-16349-BKC-AJC.
September 14, 2004
OPINION
This matter came before the Court on July 22, 2004, on the Objection of Larry Borman ("Debtor") to Proof of Claim Filed by the Internal Revenue Service ("IRS"). The Secretary of Treasury made an assessment against the Debtor pursuant to Section 6672 of the Internal Revenue Code of 1984 and made demand for payment of these assessments. The taxable periods are the first, second, and third quarters of 1997. The date of the assessment and the notice of demand was November 1, 1999. The amount of the assessment is as follows: $8,739.93, $4,491.41, and $5,649.79, respectively, for a total amount of $18,881,13. The issues before the Court are (i) whether the Debtor was a person responsible for remitting the taxes withheld from wages of the employees, and (ii) whether the Debtor's failure to collect, truthfully account for and pay over the withheld taxes was willful. The Court heard the proffers, representations, and arguments of the parties and took this matter under advisement. After reviewing the record, the relevant statutory and precedential authority, and being otherwise fully advised in the premises, the Court makes the following determinations.
BACKGROUND
The Debtor filed a Chapter 13 bankruptcy petition on June 16, 2003. IRS filed an amended proof of claim (Claim # 5) on October 1, 2003, asserting a secured claim of $41,465.00 for a trust fund recovery penalty against the Debtor pursuant to 26 U.S.C. § 6672. The trust fund recovery penalty asserted by the IRS arises out of the Debtor's involvement during January through November, 1997, with a Florida corporation known as Gold Auto Sales and Rental, Inc. ("Gold Auto Sales").
Gold Auto Sales was a corporation engaged in the business of selling and leasing automobiles. The business was originally owned and operated by the Debtor's former father-in-law, David Goldstein. Mr. Goldstein had at least 35 years of experience in the automobile industry and had owned several auto dealerships over the years. In 1996, Mr. Goldstein decided to step back from the business and agreed to sell the business to the Debtor. A sales agreement was drafted between the Debtor and Mr. Goldstein, but it was not executed. This fact notwithstanding, the Debtor managed the day-to-day operations of the business. The Debtor held himself out as President of the corporation, although the books and records of the corporation do not reflect that fact. Furthermore, the Debtor had an office on the business premises and worked full-time.
The Debtor had financial authority during the 1997 quarters at issue. The Debtor and Mr. Goldstein had check-writing authority for Gold Auto Sales. Only one signature was required on the corporate bank account. The Debtor signed checks for the payment of Mr. Goldstein's divorce attorney. In addition, the Debtor signed checks for the payment of alimony to Mr. Goldstein's ex-wife. In fact, the Debtor signed all of the checks on the corporate bank account during the first three quarters of 1997.
Gold Auto Sales had sufficient funds to pay its employment taxes in 1997 had other creditors not been paid before the IRS. The only IRS Form 941 filed for the time period at issue was filed with the IRS in December, 1997, after the Debtor had left the business, and was signed by Mr. Goldstein. The Debtor was aware of the unpaid employment taxes of Gold Auto Sales and learned of the tax delinquency during the first quarter of 1997. The Debtor stipulated that he was a "responsible person" as a matter of law under 26 U.S.C. § 6672.
WHETHER THE DEBTOR WAS A RESPONSIBLE PERSON FOR PAYING OVER THE TAXES WITHHELD FROM WAGES OF THE EMPLOYEES
To impose the 100% tax penalty, a debtor must be a person within the Code under a duty to collect and pay over the taxes and who willfully fails to do so. In the Matter of Brahm, 52 B.R. 606, 608 (Bankr. M.D. Fla 1985). The Debtor stipulated that he was a responsible person. A responsible person within the meaning of § 6672 includes an officer or employee of a corporation who is under a duty to collect, account for, or pay over the withheld tax. Mazo v. U.S., 591 F.2d 1151, 1153 (5th Cir. 1979). Notwithstanding the Debtor's stipulation, a limited discussion on this issue is warranted.
Responsibility is a matter of status, duty, and authority, not knowledge. Responsibility includes the holding of corporate office, control over financial affairs, the authority to disburse corporate funds, stock ownership, and the ability to hire and fire employees. Thibodeau v. U.S., 828 F.2d 1499, 1503 (11th Cir. 1987). In Thibodeau, the court placed the burden of proof on the government to establish that the debtor was a "responsible person" and then the burden shifts to the debtor to prove lack of willfulness. Courts have generally taken a broad view of responsibility. Smith v. U.S., 894 F.2d 1549, 1553 (11th Cir. 1990).
The IRS asks the Court find the Debtor to be a responsible person because he acted as President of the corporation and managed the day-to-day operations. The Debtor had and exercised authority over the business. The Debtor had control over the financial affairs of the corporation as evidenced by the fact that the Debtor signed every check written on the corporate account during the period in question, participated in meetings to determine the priority of payment to creditors, and dealt directly with the corporation's accountant. Thus, irrespective of Debtor's stipulation to his status as "responsible person", the Court finds that the evidence in the case overwhelmingly demonstrates that Debtor was a "responsible person" pursuant to § 6672 of the Internal Revenue Code.
WHETHER THE DEBTOR'S FAILURE TO COLLECT, TRUTHFULLY ACCOUNT FOR, AND PAY OVER THE WITHHELD TAXES WAS WILLFUL
Debtor asserts his failure to pay over the withheld taxes was not willful. He contends he only acted willfully if he actually directed payments to creditors other than the IRS. Furthermore, the Debtor asserts that he was told not to pay the taxes and he would be fired if he did pay them before the creditors that Mr. Goldstein wanted paid.
IRS asserts that the Debtor's conduct was willful because he was aware of the corporation's failure to remit withholding taxes.
"Willfully" is defined as meaning, in general, a voluntary, conscious, and intentional act. Mazo v. U.S., supra, 591 F.2d at 1153. "Willfulness" under § 6672 means the Debtor has knowledge of payment to other creditors after he becomes aware of the failure to remit withheld taxes. Thosteson v. U.S., 331 F.3d 1294, 1300 (11th Cir. 2003). Debtor admitted that he was fully aware of the employment tax delinquency of Gold Auto Sales. Debtor met with Sanford King, the corporation's accountant. King advised the Debtor on a regular basis of the employment tax delinquency. However, the Debtor chose not to pay the taxes, preferring to pay other creditors. Thus, the Debtor, a responsible person, had knowledge of the tax delinquently and knowingly failed to rectify it.
The Debtor's defense is that, although he had knowledge, Mr. Goldstein told him not to pay the taxes and, if he did, that he would be fired. The IRS contends that this "Nuremberg defense" is not available to the Debtor. Debtor's belief that he would be fired if he did not obey orders not to pay employee withholding taxes to IRS did not excuse the debtor from liability. In re Hanshaw, 94 B.R. 753 (Bankr. M.D. Fla. 1988). The fact that the Debtor was told not to pay the taxes and he might have been fired does not negate his liability to pay the taxes.
For the foregoing reasons, the Debtor is a "responsible person" pursuant to § 6672 of the Internal Revenue Code and is liable for the tax liability determined by the IRS to be the amount of $41,465.00.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.