Opinion
CIVIL ACTION NO. 99-0901 SECTION "T"(4).
January 2, 2001
This cause came for hearing on December 20, 2000, upon the Motion of the Plaintiff for Summary Judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The Defendant does not oppose said motion. Having studied the legal memoranda and exhibits submitted by the Plaintiff, the record, and the applicable law, the Court is fully advised on the premises and ready to rule.
ORDER AND REASONS
I. Background
This civil action was brought by the United States of America (hereinafter "Government") pursuant to 26 U.S.C. § 7401 and 7402(a) to reduce to judgment certain outstanding federal tax liabilities of the Defendant, Louis B. Breaux. [Complaint, p. 1]. According to the Complaint, on December 29, 1986, an assessment of a penalty was made against the Defendant in the amount of $120,578.35 pursuant to 26 U.S.C. § 6672 for his "willful failure to collect, pay over, or account for withholding and FICA taxes due on the wages of the employees of L.B. Breaux Contractor, Inc. for the second, third, and fourth quarters of 1984 and the first and second quarters of 1985." Id. at 2. In addition, on February 23, 1987, an assessment of a penalty in the amount of $11,198.80 was made against the Defendant pursuant to 26 U.S.C. § 6672 for his "willful failure to collect, pay over, or account for withholding and FICA taxes due on the wages of the employees of L.B. Breaux Contractor, Inc. for the third, [sic] and fourth quarters of 1985 and the first and second quarters of 1986." Id. at 3.
The United States filed the instant Motion for Summary Judgment praying for judgment in favor of the United States declaring that (1) Louis B. Breaux is liable for the penalty assessed against him on December 29, 1986, pursuant to 26 U.S.C. § 6672 for unpaid federal employment tax liabilities of L.B. Breaux Contractor, Inc. for the second, third, and fourth quarters of 1984, all four quarters of 1985, and the first and second quarters of 1986 in the assessed amount of $120,578.35;(2) that Louis B. Breaux is liable for a penalty assessed against him on February 23, 1987, pursuant to 26 U.S.C. § 6672 for unpaid federal employment tax liabilities of L.B. Breaux Contractor, Inc. for the third quarter of 1986 in the assessed amount of $11,198.80; and (3) that with regard to these two penalties, having allowed for all payments and credits made toward satisfying them, Louis B. Breaux is indebted to the United States in the amounts of (1) $422,441.23 and (2) $39,085.49 through December 4, 2000, plus interest thereon thereafter pursuant to 28 U.S.C. § 1961(c)(1) and 26 U.S.C. § 6621(a)(2) until such time as each penalty is satisfied. (Plaintiff's Motion for Summary Judgment, Doc. 25 page 1).
II. Legal Analysis
A. Law on Summary Judgment
The Federal Rules of Civil Procedure provide that summary judgment should be granted only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. Civ. P. 56(c). The party moving, for summary judgment bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact. Stults v. Conoco. Inc., 76 F.3d 651, 655-56 (5th Cir. 1996) (citing Skotak v. Tenneco Resins. Inc., 953 F.2d 909. 912-13 (5th Cir.) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)), cert. denied, 506 U.S. 832 (1992)). When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. The nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986 emphasis supplied); Tubacex. Inc. v. M/V RISAN, 45 F.3d 951, 954 (5th Cir. 1995).
Thus, where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no "genuine issue for trial." Matsushita Elec. Indus. Co., 475 U.S. at 588. Finally, the Court notes that substantive law determines the materiality of facts and only "facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248(1986).
B. Section 6672 of the Internal Revenue Code
Congress enacted Section 6672 of the Internal Revenue Code as a means of avoiding revenue losses resulting from nonpayment of payroll taxes by providing the government with recourse against those persons responsible for the nonpayment. Section 6672 of the Code provides, in pertinent part, that:
[a]ny 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, 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.
Section 6671(b) defines the word "person" as "an officer or employee of a corporation who, as such officer, employee or member, is under a duty to perform the act in respect of which the violation occurs." I.R.C. § 6671(b). Accordingly, liability under Section 6672 attaches to a "responsible person" who willfully fails to pay the withholding taxes over to the Government. See Logal v. United States, 195 F.3d 229, 232(5th Cir. 1999). This liability is separate and distinct from the corporation's duty to pay the taxes withheld from its employees. See Hornsby v. Internal Revenue Service, 588 F.2d 952, 954 (5th Cir. 1979). However, the Government may only collect the unpaid taxes once from those persons who are responsible for the default. See USLIFE Title Insurance Co. v. Harbison, 784 F.2d 1238, 1243 n. 7 (5th Cir. 1986).
In order to avoid liability under Section 6672, an individual must prove either that he or she is not a "responsible person" as defined in the Code or that his or her failure to pay the taxes over to the Government was not willful. See Logal, 195 F.3d at 232. In determining whether someone is a "responsible party" under Section 6672, the Fifth Circuit takes a broad view. See id. (citing Barnett v. Internal Revenue Service, 988 F.2d 1449, 1454 (5th Cir. 1993)). The Court will look to the person's status in the corporation and whether he or she had actual authority or effective power with respect to the payment of the taxes in question. See Barnett, 988 F.2d at 1545. The Court will consider the following factors in determining whether an individual is a "responsible person" for purposes of Section 6672 liability: (1) whether the person is an officer or member of the board of directors of the corporation; (2) whether the person owns a substantial amount of stock in the company; (3) whether the person manages the day-to-day operations of the company; (4) whether the person has the authority to hire and fire company employees; (5) whether the person makes decisions regarding the disbursement of funds or payments to creditors; and (6) whether the person has the authority to sign company checks. Logal, 195 F.3d at 232 (quotingBarnett, 988 F.2d at 1455).
With respect to the "willful" element contained in Section 6672, a responsible person is considered to have acted willfully if he or she knew the taxes were due but instead used corporate funds to pay other creditors. See Logal, 195 F.3d at 232 (citations omitted). In addition, a responsible person will be considered to have acted willfully if he or she recklessly disregarded the risk that the taxes may not be remitted to the government. See id. (citing Gustin v. United States, 876 F.2d 485, 492 (5th Cir. 1989)). Finally, a responsible person who learns of the underpayment of taxes but fails to use later-acquired unencumbered funds to pay the taxes is said to have acted willfully for purposes of Section 6672 liability. See id. (citing Barnett, 988 F.2d at 1458). The Fifth Circuit addressed the "willfulness" element in the summary judgement context in Mazo v. United States, 591 F.2d 1151, 1157 (5th Cir. 1979), when it stated that "evidence that the responsible person had knowledge of payments to other creditors after he was aware of the failure to pay withholding tax is sufficient for summary judgment on the question of willfulness." Mazo, 591 F.2d at 1157 (citations omitted).
III. Application of the Law to the Facts
In the present motion for Summary Judgment, the Government argues that Breaux was undoubtedly a "responsible person" for purposes of Section 6672 liability. After considering the six factors discussed above, this Court agrees with the Government that Breaux was in fact a "responsible person." First, it is undisputed that Breaux was the President, a director, and the sole shareholder of L.B. Breaux Contractor, Inc. ("Contractor") from the company's inception until the company filed for Bankruptcy. Second, it is undisputed that Breaux managed the daily operations of Contractor, which included the exercise of authority to make hiring and firing decisions. Third, Breaux made the following statement to the IRS in 1986: "[a]ll checks drawn on the corporate account were signed by me or by persons acting under my specific instructions as to which creditor should be paid and the amounts that should be paid to said creditor." (Plaintiff's Exhibit 1-A, page 4). Therefore, Breaux satisfies all six of the factors set forth by the Fifth Circuit as important in determining whether a person is a "responsible person" for purposes of Section 6672 liability. Accordingly, this Court finds that Breaux is indeed a "responsible person" under Section 6672 of the Internal Revenue Code.
With respect to the willfulness element required for liability to attach under Section 6672, the Government argues that Breaux acted willfully because he knew the taxes at issue were due but nevertheless used corporate funds to pay other creditors. The Government submitted evidence showing that Contractor remitted no payments with regard to federal employment taxes it withheld from its employees' wages during the ten quarters upon which the Section 6672 penalties are based. Furthermore, the Government submitted evidence showing that Breaux was aware "from the beginning" that the employment taxes became due but were not being paid to the Government. (Plaintiff's Exhibit 1-A, page 2, paragraph 23 and Answers of Defendant to Requests for Admission, page 6, paragraph 21). Therefore, it is clear that Breaux had actual knowledge that the taxes at issue were not being paid as required by law.
Although Breaux was aware that the employment taxes were due for the period of time in question, Contractor failed to pay those taxes and instead paid its employees wages during that period, including Breaux himself, his wife, and his son. (Answers of Defendant to Requests for Admission, pages 6-7, paragraph 22). In addition to paying employee wages during the ten quarters at issue, the Government submitted evidence showing that Contractor paid a broad array of other creditors during that time period in which the employment taxes went unpaid. For example, the Contractor's Form 1120 S for the tax years 1984, 1985, and 986 show payments for "contract labor" as well as payments to other creditors. (Plaintiff's Exhibits 6, 7 and 8). As stated above, such evidence is sufficient for summary judgment on the question of willfulness. Therefore, because Breaux used corporate funds to pay other creditors at a time in which he knew that the employment taxes were due, this Court finds that Breaux acted willfully in failing to pay the taxes at issue.
For the reasons stated above, this Court finds that Breaux qualifies as a "responsible person" who willfully failed to pay Contractor's withholding taxes over to the Government for the ten quarters in question. Therefore, Breaux is subject to liability under Section 6672 of the Internal Revenue Code for "a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over." I.R.C. § 6672(a). Consequently, this Court finds that Louis B. Breaux is indebted to the United States in the amounts of (1) $422,441.23 and (2) $39,085.49 through December 4, 2000, plus interest thereon thereafter pursuant to 28 U.S.C. § 1961 (c)(1) and 26 U.S.C. § 6621(a)(2) until such time as each penalty is satisfied.
This Court notes that the amounts of the penalties were taken from the Certificate of Assessments and Payments prepared by the Internal Revenue Service. (Plaintiff's Exhibit 9). It is well established that such a Certificate is presumptively sufficient to establish a prima facie case that a taxpayer owes the tax liabilities reflected in the Certificate when a taxpayer fails to produce evidence to counter this presumption. See e.g., United States v. McCallum, 970 F.2d 66, 71 (5th Cir. 1992). In the present case, Breaux did not produce any evidence to dispute the amounts assessed on the IRS's Certificate of Assessments and Payments. Therefore, the Court accepts the tax liabilities reflected in the Certificate.
IV. Conclusion
This Court finds that the evidence discussed above clearly shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Accordingly,
IT IS ORDERED that the Government's Motion for Summary Judgment (Doc. 25), be, and the same is hereby GRANTED pursuant to Rule 56 of the Federal Rules of Civil Procedure.