It's A New Year -- How About a Tax Reminder?
by Michael Fox
Actually a pretty scary reminder, for anyone who can be deemed a "responsible person" for purposes of ensuring that the wages withheld from employees are turned over to the government. Employers are required to withhold and pay over certain taxes from their employees. While the primary responsibility is the employer's, a penalty for such a failure equal to the unpaid tax can be collected from "[a]ny person" who was "required" but "willfully" failed to pay over the withheld taxes. I.R.C. § 6672 (2000). Last week the 1st Circuit pointed out what we could be talking about:
The jury verdict in this case depends on the legal proposition that someone in Lubetzky's position had to confront top management and quite possibly resign from his position if he wanted to avoid the risk of liability ... This is a harsh dilemma with which to confront someone, and we have found little case law that deals with the issue in such stark terms. Lubetzky v. USA (1st Cir. 12/29/04).
What was Lubetzky's position? At trial he described himself as a "glorified bookkeeper," who was told which bills to pay by the owners of the company, and felt as if he would have been "stealing" if he paid bills, including the withheld taxes, without permission from management. Unfortunately for him, at one time he became treasurer which under the company's bylaws made him the chief financial officer. But back to the dilemma the court agreed Lubetzky found himself in - resign his job or put himself at risk for the penalty for not paying the taxes. Harsh as it seems, the case law was not on his side:
In Brounstein v. United States, 979 F.2d 952 (3d Cir. 1992), a former salesman who was the (perhaps nominal) president and (clearly actual) assistant treasurer and check-writer was held liable even though the Third Circuit assumed arguendo that Brounstein's effective superior might have told him not to pay--and might have fired Brounstein had he done otherwise. "Instructions from a superior not to pay taxes do not," said the court, "take a person otherwise responsible under [the statute] out of that category." ...
Similar in effect is Roth v. United States, 779 F.2d 1567 (11th Cir. 1986), where the Eleventh Circuit said: In our view, no instruction by the president or the majority owner of [the corporation] could effectively bar an otherwise responsible officer from paying these funds in accordance with the law. .... accord Howard v. United States, 711 F.2d 729, 734 (5th Cir. 1983) ("The fact that Jennings might well have fired Howard had he disobeyed Jennings' instructions and paid the taxes does not make Howard any less responsible for their payment.").
It probably didn't make Lubetzky, who ended up on the wrong end of a judgment in excess of $90,000, feel any better to hear the court refer to the "murky standards for imposing liability."