In a summary judgement, a district court has concluded that a
taxpayer who was vice-president, board member, and shareholder of his
family-run company was a responsible person for purposes of the Code Sec. 6672
trust fund recovery penalty. However, the district court found that whether the
taxpayer, who played a perfunctory role in his company, willfully failed to pay
over withholding taxes was an issue of fact to be decided at trial.
Sheila and Robert Nipper,
husband and wife, were the founders of Ruah Enterprises, Inc. (Ruah
Enterprises), a hospice and home health services company. Sheila was Ruah Enterprises'
president, and Robert was its vice-president. Ruah Enterprises was a family
affair. Sheila's children and Robert's step-children were Ruah Enterprises'
chief financial officer (CFO) and treasurer. Their child was its secretary.
Robert was also on Ruah Enterprises' board of directors, and
regularly attended board meetings. He owned 29% of the company (Sheila owned
51%). He advised his wife on employee matters, was a signatory on all Ruah
Enterprises checking accounts, and signed at least a few loans, leases, and
financing statements on Ruah Enterprises' behalf. He also had a lien placed on
his personal property by a Ruah Enterprises' creditor. From 2000 to 2002, he
received an average salary of $42,000 from Ruah Enterprises. In '99, he had
been self-employed as a landscaper, but after '99, his role at Ruah Enterprises
was his only employment.
From its inception in '99 to 2003, Ruah Enterprises withheld its
employees' income taxes and the employees' portion of FICA and Medicare taxes
from its employees' paychecks. However, none of these withheld funds were ever
remitted to the government.
Robert
argued that he was vice-president in name only, and had no actual role in the
running of the business. He argued that he was a signatory on checking accounts
simply as a matter of form, but that in reality he did not sign checks or any
other documents without Sheila's authorization. The few documents Robert did
sign were only at Sheila's request when she was unavailable. He maintained that
he wasn't informed of Ruah Enterprises' failure to pay taxes until the end of
2002 or beginning of 2003.
IRS argued that Robert was a responsible person because he: (1)
was a board member and was authorized to manage Ruah Enterprises' business and
affairs by its articles of incorporation, and to hire individuals to manage the
day to day affairs; (2) regularly attended board meetings; (3) owned 29% of
Ruah Enterprises; (4) received approximately $40,000 per year in salary; (5)
had authority as a signatory on the company banking accounts to write checks;
(6) had authority to sign financing contracts and loans on the company's
behalf; (7) took out a personal loan for the use of the company; and (8)
provided advice to Sheila on employee matters.
In addition, IRS argued that Robert acted willfully because he
proceeded with reckless disregard of an obvious risk that Ruah Enterprises'
payroll taxes weren't being paid to the government. As an officer of the
company, he disregarded the imprudence of entrusting all financial affairs of a
company with many employees to the CFO, a young relative with no college
education or other qualifications, without providing any supervision. Further,
Robert disregarded the unaccounted-for additional $230,000 per year that was
available to the company because of its failure to remit that amount to the
government.
The
district court concluded that Robert was a responsible person under Code Sec.
6672. The court reasoned that the existence of authority in the general management
and fiscal decision making of the corporation, irrespective of whether that
authority was actually exercised, was determinative. While Robert argued that
he did not exercise his authority, except occasionally and at Sheila's request,
he could and should have paid the company's taxes. Robert was in a position
where he could have ensured that the taxes were paid. He did not do so.
The
district court, denying IRS's request for summary judgment on this issue, found
that it had not been shown that Robert willfully failed to pay over the
withholding taxes. The court concluded that while Robert's neglect of any
responsibility or duties in managing the company was likely negligent, there
was a dispute of material fact as to whether it rose to the level of reckless
disregard in order to satisfy the second requirement for Code Sec. 6672
liability.
While Robert's lack of involvement didn't prevent him from being
a responsible person, it was relevant to whether he acted willfully. IRS didn't
provide uncontested facts on how sophisticated a business manager Robert was.
The district court knew only that Robert knew nothing about his wife's field of
home healthcare, and that he was self-employed as a landscaper in '99. These
facts did not provide convincing proof that he was a sophisticated business
manager who should have had a clear view of the concerns of a large business
and his responsibilities.
While IRS provided evidence that Robert was informed of the
failure to pay taxes, he provided contrary evidence that he wasn't so informed
until the end of 2002 or beginning of 2003.
In a summary judgment motion, the
district court said it had to make all permissible inferences of fact in
Robert's favor.
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