James O. Ellison, Senior Judge, United States District Court.
Now before the Court are the cross motions for Summary Judgment of the Plaintiff, Harold Wayne Fisher ("Fisher") (Docket #19) and the Defendant, United States of America ("IRS") (Docket #22). This dispute involves the Plaintiff's potential liability as a corporate officer for unpaid employee withholding taxes.
BACKGROUND
During the year 1988, Wedgewood Golf Corporation attempted to construct a new golf course in Wagoner County, Oklahoma. Construction was never completed and the corporation soon became defunct. During that period of time in 1988 when Wedgewood was operating with employees, federal income and social security taxes were withheld from the employee's paychecks, but the funds were never paid to the Internal Revenue Service. The IRS assessed a 100% penalty against Wedgewood's officers, Norma Cook ("Cook") and Fisher for their alleged failure to account for the withheld taxes pursuant to 26 U.S.C. § 6672. Fisher paid $5740.00 of the assessed tax and then brought this action for a refund. The United States filed a counterclaim against Fisher for the unpaid balance of the assessment and joined Cook as a defendant. The parties have stipulated to facts and filed cross motions for summary judgment.
On June 23, 1993, the United States and Cook entered into a stipulated judgment against Cook only. At some point after that, the Clerk's office mistakenly closed the case and the error was not discovered until February, 2000.
DISCUSSION
A. Facts
The Court finds that the following material facts are not in dispute: Wedgewood was incorporated under the laws of the State of Oklahoma on May 9, 1988. From the inception of Wedgewood until its suspension for failure to meet franchise tax requirements on April 19, 1990, Cook was the sole shareholder of Wedgewood and acted as the corporate president. Cook hired Fisher in May, 1988, to develop a plan for construction and operation of a new golf course in Wagoner County, Oklahoma, to be owned by Wedgewood. Fisher was Vice President of Wedgewood, which title he held from May, 1988 to May, 1989. During this period, Fisher acted as General Manager overseeing the day-to-day operations of Wedgewood. Fisher was responsible for setting the salaries of employees and deciding which equipment the corporation would purchase. Fisher's duties included writing and signing checks for all accounts payable for Wedgewood. Wedgewood effectively ceased operations in December, 1988.
Wedgewood employed the following people from inception, May 1988, through December, 1988, when the corporation ceased operations: Dan Hubbard, Don Ames, Junior Tackett, Brad Tackett, Darren Fisher, Bob Brewer, Mike Barrows, Jeff Walker, Ernest Bays, Bob Buckmaster and Rick Golden.
Cook provided all of the funds for the operations of Wedgewood, including payroll expenses. Wedgewood never had any revenues other than funds provided by Cook. Wedgewood did not borrow money. Fisher would make all deposits to the Wedgewood accounts after obtaining the funds from Cook. Fisher prepared a budget in October of 1988 which included an amount for withholding taxes. Fisher had discussed with the corporate accountant the amount of withholding taxes to include in the corporation's budget. All payroll of Wedgewood was made. Wedgewood's employees were paid their salaries and social security taxes and federal and state income taxes were withheld from their salaries. Wedgewood's employees were given credit for the amounts purportedly withheld from their wages as social security and federal income tax.
Dan Hubbard acted as Golf Course Superintendent, overseeing the labor and construction of the golf course. Hubbard maintained the employee's time in a time book, from which Fisher calculated the net amount of the paychecks. Fisher calculated, wrote, and signed all payroll checks from June 1988 through December 1988.
Wedgewood maintained a checking account for its operations at First Bank of Catoosa in Catoosa, OK, Account No. 133983, as well as a money market account, Account No. 611624. Cook and Fisher had check signing authority. The accounts were used for both operations and payroll. Wedgewood maintained a petty cash account, Account No. 074969, at Security Bank in Tulsa, OK, in the name of Harold Fisher for the benefit of the corporation. Only Fisher had check signing authority on the petty cash account. During the relevant time periods, Fisher wrote and signed almost all of the checks on the corporate checking account. Fisher signed all of the checks on the petty cash account. Fisher did not need any specific authority from Cook to sign a payroll check.
During all relevant time periods, Fisher served as an officer of the corporation under the title of Vice President. Fisher signed checks on the corporation's checking accounts, and was the sole signatory on at least one checking account. Fisher either participated or recommended hiring of employees for the corporation. He was paid a salary of $3,000.00 per month beginning September 7, 1988. Fisher worked directly with and answered only to the President, Norma Cook ("Cook"). He supervised the other employees of the corporation.
During the relevant time periods, Wedgewood had sufficient funds in its checking accounts to pay the employment taxes as they came due. Wedgewood paid creditors in preference to the IRS for employment taxes.
Prior to February 1989, Wedgewood did not file employment tax returns, Forms 940 and 941, for the taxable quarters ending June 30, 1988, September 30, 1988 and December 31, 1988. Wedgewood failed to pay employment taxes for the quarters ending June 30, 1988; September 30, 1988 and December 31, 1988.
Jay Grooms is the Revenue Officer that was assigned by the IRS to investigate and review the delinquent account of Wedgewood. Ray Factory was the Group Manager who supervised Jay Grooms during the investigation of Wedgewood. The Internal Revenue Service issued its report of currently not collectable taxes as to Wedgewood on December 15, 1989, which determination was made by the IRS Revenue Officer, Jay Grooms. The report was also approved by Group Manager Ray Factory. One or about October 30, 1989, the IRS made its recommendation, IRS Form 4183, regarding 100% Penalty Assessment against Cook and Fisher whereby each was assessed liability for the trust fund portion of the taxes due in the amount of $17,454.53. The reason for the recommendation was that each "had the duty to perform, or the power to direct, the act of collecting, accounting for and paying over trust fund monies."
On February 5, 1990, a delegate of the Secretary of the Treasury made an assessment in accordance with law against Fisher by reason of Fisher's failure to either collect, truthfully account for, or pay over employment taxes of Wedgewood Golf Corporation ("Wedgewood") for the quarterly tax periods ending June 30, 1988, through December 31, 1988.
Cook executed IRS Form 433-B, titled Collection Information Statement for business on behalf of Wedgewood, dated September 13, 1989. The form indicates Fisher as Vice President and Secretary and Cook as President. The form also indicates there were no assets of the corporation.
B. Summary Judgment Standard
Summary judgment pursuant to Fed.R.Civ.P. 56 is appropriate where "there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); Windon Third Oil Gas v. FDIC, 805 F.2d 342 (10th Cir. 1986). In Celotex, the court stated:
The plain language of Rule 56(c) mandates the entry of summary judgment . . . and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.
477 U.S. at 317 (1986). To survive a motion for summary judgment, the nonmovant "must establish that there is a genuine issue of material facts . . ." The evidence and inferences therefrom must be viewed in a light most favorable to the nonmoving party.
Conaway v. Smith, 853 F.2d 789, 792 n. 4 (10th Cir. 1988). Unless the moving party can demonstrate its entitlement beyond a reasonable doubt, summary judgment must be denied.
Norton v. Liddel, 620 F.2d 1375, 1381 (10th Cir. 1980).
An issue is "genuine" if there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). An issue of fact is "material" if under the substantive law it is essential to the proper disposition of the claim. id. If a party that would bear the burden of persuasion at trial does not come forward with sufficient evidence on an essential element of its prima facie case, all issues concerning all other elements of the claim and any defenses become immaterial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
C. Liability for Employment Withholding Taxes
Sections 3102 and 3402 of the Internal Revenue Code, 26 U.S.C. § 3102 and 3402, require employers to withhold social security and income taxes imposed on employees from the employees' wages. The withheld taxes are part of the wages of an employee and are held in trust for the benefit of the United States. 26 U.S.C. § 7501. Section 6672 provides that when a "responsible person," the person charged with collecting, accounting for and paying over withholding taxes, "willfully" fails to do so, he is liable for a penalty equal to the amount of the unpaid taxes. If an assessment is made against a corporate officer, the burden of proof by a preponderance of the evidence is on the officer to show that he was not a responsible person or that he did not act willfully. Calderone v. United States, 799 F.2d 254, 258 (6th Cir. 1986).
A person is "responsible" within the meaning of the statute if that person is required to collect, truthfully account for or pay over any taxes withheld from the wages of a company's employees. Slodov v. United States, 436 U.S. 238, 250, 98 S.Ct. 1778, 1786, 56 L.Ed.2d 251 (1978). Several factors are examined to determine whether a person is a "responsible person":
Indicia of responsibility include 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. United States, 828 F.2d 1499, 1503 (11th Cir. 1987);
see also Gephart v. United States, 818 F.2d 469, 473 (6th Cir. 1987). Among other things, therefore, a corporate officer or employee is responsible if he or she has significant, though not necessarily exclusive, authority in the "general management and fiscal decisionmaking of the corporation."
Kizzier v. United States, 598 F.2d 1128, 1132 (8th Cir. 1979).
Denbo v. United States 988 F.2d 1029, 1032 (10th Cir. 1993)
It is clear from the depositions of Fisher and Cook that each was trying to distance themselves from the corporation to avoid tax liability. Cook tried to paint a picture of herself as the inexperienced investor who supplied the capital, but left the day-to-day operations up to Fisher. Fisher on the other hand tried to portray himself as the lowly employee that had no responsibility for anything and only followed Cooks instructions. However, the evidence clearly shows that Fisher was a "responsible person". He had the ability to sign checks and the responsibility to pay all of the bills. He calculated the net payroll amounts and signed all of the payroll checks. Fisher claims he was not a responsible person due to the fact that he never paid anything without getting Cook's approval and Cook would supply money to the corporation as it was needed to pay bills. However, this will not help him escape liability. Cook may have been the sole source of funds to the corporation, but Fisher had the ability to determine how the money was spent. He could have just as easily written a check to the IRS for the withholding taxes as pay other creditors of the corporation.
The evidence shows that during a significant portion of 1988, Cook was out of state taking care of her sister who was seriously ill and Fisher was left with the responsibility of running the corporation alone during that time.
"Willfulness" is present if the responsible person had knowledge of the tax delinquency and knowingly failed to rectify it when there were available funds to pay the government. As a "responsible person", the government contends, Fisher had a duty to see that corporate funds were not used for any other purpose so long as the delinquent taxes were unpaid. Fisher knew that the withholding taxes were not being paid out of the corporate accounts and the funds were available when the taxes became due. He also knew that, at the same time, other creditors were being paid because he was writing the checks. As previously stated, he could have just as easily written checks to the IRS for the withholding taxes which would have required Cook to deposit additional funds to pay the other creditors in order to keep the business running. The trust funds held for the United States Government are not to be used as operating capital for the business. Cline v. United States 997 F.2d 191, 194 (6th Cir. 1993).
Fisher also argues that actions of the IRS have caused them to be estopped to collect the assessed penalty from Fisher. Fisher asserts that he had several conversations with IRS Revenue Officer, Jay Grooms where he notified Grooms of Wedgewood corporate assets that could be seized by the IRS and applied to the tax liability. Fisher asserts that Grooms agreed to investigate the existence of such assets, but he failed to do and the assets were sold by Cook. Fisher's argument is without merit for several reasons. A party seeking to establish equitable estoppel against the government has the burden of demonstrating the following traditional elements of estoppel: (1) the party to be estopped must have known the facts; (2) the party to be estopped must intend that his conduct will be acted upon or must so act that the party asserting the estoppel has the right to believe that it was so intended; (3) the party asserting the estoppel must be ignorant of the true facts; and (4) the party asserting the estoppel must rely on the other party's conduct to his injury. Penny v. Giuffrida, 897 F.2d 1543, 1546 (10th Cir. 1990); Muck v. United States, 3 F.3d 1378 (10th Cir. 1993). The application of estoppel against the government is less than clear. Heckler v. Community Health Services, Inc., 467 U.S. 51, 59, 104 S.Ct. 2218, 2223-24, 81 L.Ed.2d 42 (1984) Assuming, arguendo, that these facts warranted applying estoppel against the government, Fisher has failed to present any evidence that he relied upon Grooms' promises and changed his position for the worse based upon that reliance. At that point, he was already liable for the unpaid taxes and he did not do anything that injured his position.
The United States is entitled to judgement against Fisher in the amount of $17,454.53 less the $5,740.00 already paid by Fisher. In addition Fisher is entitled to credit for any sums the government has collected from Norma Cook or the assets of Wedgewood. The United States shall submit a proposed judgment to the Court within 20 days of the date of this order.
IT IS THEREFORE ORDERED ADJUDGED AND DECREED that the Plaintiff's Motion for Summary Judgement is denied and the Defendant's Motion for Summary Judgment is hereby granted.