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No. 906206 UNITED STATES COURT OF APPEALS FOR THE
SECOND CIRCUIT 936 F.2d 707; 1991
U.S. App. LEXIS 13113; 91-2 U.S. Tax Cas. (CCH) P50,332; 68 A.F.T.R.2d (RIA)
5174; Unemployment Ins. Rep. (CCH) P16,103A November 26, 1990, Argued June 24, 1991, Decided SUBSEQUENT
HISTORY: [**1] As Amended August 5, 1991. As Amended
September 11, 1991. PRIOR
HISTORY: Appeal from a
judgment of the United States District Court for the District of Connecticut,
T. F. Gilroy Daly, Judge, awarding the Commissioner of Internal Revenue $
210,460.68 plus interest. DISPOSITION: Affirmed. COUNSEL: Martin A. Stoll, New York, New York,
for Plaintiffs-Appellants. Robert I.
Baker, Attorney, Tax Division, Department of Justice, Washington, District of
Columbia (Shirley D. Peterson, Assistant Attorney General, Gary R. Allen,
Kenneth L. Greene, Attorneys, Tax Division, Department of Justice, Washington,
District of Columbia, Stanley A. Twardy, Jr., United States Attorney for the
District of Connecticut, Hartford, Connecticut, of Counsel), for
Defendant-Appellee. JUDGES: Altimari and Mahoney, Circuit Judges,
and Sprizzo, District Judge. * * The Hon. John E. Sprizzo, United States District Judge for the
Southern District of New York, sitting by designation. OPINION BY: MAHONEY OPINION: [*708] MAHONEY, Circuit Judge The Internal Revenue Code requires employers to deduct income and
social security taxes from their employees’ wages, and to hold these
sums in trust for the United States. 26 U.S.C. §§ 3102(a), 3402(a),
7501(a)
(1988). In addition, 26 U.S.C. § 6672(a) (1988) n1 provides [**2] that officers or employees of a corporation who willfully fail
to collect and pay over these “trust fund taxes” are liable
to a penalty equal to the amount of the delinquent taxes.
26 U.S.C. § 6601(e)(2)(A) (1988) n2 imposes interest on assessable
penalties. - - - - - - -
- - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n1 Section
6672(a) provides in relevant part: Any 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. n2 Section
6601 provides in relevant part: (a) General rule. — If any amount of tax imposed by this
title (whether required to be shown on a return, or to be paid by stamp or by
some other method) is not paid on or before the last date prescribed for
payment, interest on such amount at the underpayment rate established under
section 6621 shall be paid for the period from such last date to the date paid.
… (e) Applicable rules. — Except as otherwise provided in
this title — … (2) Interest on penalties, additional amounts, or additions to the
tax — (A) In general. — Interest shall be imposed under
subsection (a) in respect of any assessable penalty … only if such
assessable penalty … is not paid within 10 days from the date of
notice and demand therefor, and in such case interest shall be imposed only for
the period from the date of the notice and demand to the date of payment. - - - - - - -
- - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [**3] This appeal
presents the question whether two individuals who were assessed with section
6672(a) penalties are liable for section 6601(e)(2)(A) interest for a period
preceding the pertinent employer’s payment of delinquent trust fund
taxes during which that employer was in bankruptcy. The United States District
Court for the District of Connecticut, T. F. Gilroy Daly, Judge, found such liability, and we affirm. [*709] Background From 1979 to
1981, Maxim Industries, Inc. (“Maxim”) failed to pay over to
the United States $ 353,458.04 in trust fund taxes relating to
employees’ wages. Pursuant to section 6672(a), the Commissioner
assessed separate penalties, equivalent to the amount of unpaid taxes, against
plaintiffs Charles E. Bradley and David P. Agnew. The plaintiffs paid a portion
of the penalties and brought this action in district court, seeking a refund
and an abatement of the balance of the assessment. The United States
counterclaimed, demanding judgment for the balance of the assessment against
each plaintiff. In June 1987,
the parties stipulated to dismissal of the action subject to reinstatement
[**4] (the “1987
Stipulation”). By this time, Maxim had emerged from a period of
Chapter 11 reorganization that ran from the filing of a petition for bankruptcy
on December 29, 1981 to confirmation of a plan of reorganization on July 22,
1985. The 1987 Stipulation provided in pertinent part: 8. Maxim expects to receive funds in the Spring of 1988 and the
Spring of 1989 which will be sufficient to pay the [balance] of trust fund
taxes plus applicable interest. 9. If Maxim makes the payments to the [Internal Revenue] Service
referred to in paragraph 8 hereof, the Defendant will have collected the entire
trust fund liability plus interest, and the Defendant will therefore abate the
unpaid part of the assessments made against the Plaintiffs. NOW, THEREFORE, to avoid a trial of this matter, the parties agree
as follows: 1. This matter shall be dismissed without prejudice, subject to
the right of either party to reinstate the case as follows: … 3. If the amount equal to the total counterclaim, plus interest,
has not been paid by Maxim or the Plaintiffs by June 1, 1989, either party may
reinstate this case. In June 1988,
Maxim paid the balance of the trust fund taxes and interest for all [**5] periods of delinquency except the time during which
Maxim was in bankruptcy. On the government’s motion and over the
plaintiffs’ objection, the district court reinstated the action
pursuant to the 1987 Stipulation. The plaintiffs moved for summary judgment as
to all claims on the ground that there was no valid legal basis for the
assessments against them, and the government cross-moved for summary judgment. The district
court denied these motions, whereupon the parties stipulated to the entry of
judgment against the plaintiffs for $ 210,460.68 plus interest, an amount
representing the unpaid interest on the trust fund taxes for the period of
Maxim’s bankruptcy. In this stipulation, the plaintiffs expressly
reserved the right to appeal from the reinstatement of the suit and the denial
of their summary judgment motion, and the government agreed not to enforce or
execute upon the agreed judgment pending the outcome of this appeal. By this
procedure, plaintiffs have forgone the opportunity for a trial of the factual
issues regarding their status as section 6672(a) responsible persons and
willful failure to pay over the trust fund taxes in exchange for immediate
appeal of the legal issue presented [**6]
by this appeal. Cf. Empire Volkswagen Inc. v. World-Wide Volkswagen Corp., 814 F.2d 90, 94 (2d Cir. 1987)
(plaintiffs allowed to appeal from grant of partial summary judgment to
defendant, but lost opportunity for review of remaining claims voluntarily
dismissed in order to obtain final appealable judgment). This appeal
followed. Discussion Significantly,
the parties have stipulated that Maxim is not required to pay interest on the
overdue trust fund taxes for the period that it was in bankruptcy. n3 With
[*710] this starting point, the
plaintiffs first contend that reinstatement of the suit was improper because
the 1987 Stipulation contemplated the satisfaction only of Maxim’s
liability. They argue that the term “applicable interest” in
paragraph 8 refers to Maxim’s interest debt, which has been paid. - - - - - - -
- - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n3 The parties
have expressed agreement that the bankruptcy code excuses Maxim’s
liability for interest on the unpaid taxes during its bankruptcy proceedings.
For purposes of this appeal, we need not resolve, and express no opinion
regarding, this legal conclusion. We note, however, that the weight of
authority is to the contrary. See, e.g., In re Burns (Burns v. United States), 887 F.2d 1541, 1543 (11th Cir.
1989); In re Hanna (Hanna v. United States), 872 F.2d 829, 831 (8th Cir. 1989); In re King (King
v. Tennessee Dep’t of Revenue), 117 Bankr. 339, 342 (Bankr. W.D. Tenn. 1990); In re Woodward
(Woodward v. United States), 113 Bankr. 680, 684 (Bankr. D. Or. 1990); In re Cline (Cline
v. Internal Revenue Serv.), 100 Bankr. 660, 662-63 (Bankr. W.D.N.Y. 1989). - - - - - - -
- - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [**7] We agree,
however, with the district court, which reasoned as follows: The purpose of the stipulation was obviously to resolve the then
pending dispute over plaintiffs’ potential liability, not
Maxim’s liability. Absent a specific statement by the parties in the
stipulation to the contrary, the most reasonable interpretation of the
adjective “applicable” as it is used in the stipulation is as
a reference to the interest that plaintiffs themselves would be liable for if
they were found to be responsible parties. This
construction is buttressed by subsequent language in the stipulation that
allows reinstatement “if the amount equal to the total counterclaim,
plus interest, has not been paid by Maxim or the Plaintiffs. ” The
”total counterclaim“ sought the full balance of the section
6672(a) assessments against the plaintiffs, and was pled in a lawsuit to which
Maxim was not a party. Thus, the parties agreed that the government could
reinstate the suit if the plaintiffs (or Maxim in their behalf) failed to
satisfy their liability for interest on the section 6672(a) penalties. We
consider next the nature and extent of that liability. Essentially,
plaintiffs contend that since Maxim has [**8]
paid its tax
liability and related interest, the Internal Revenue Code provides no authority
for charging plaintiffs with interest for the period during which Maxim was in
bankruptcy. This argument mischaracterizes the legal basis for the assessments
against plaintiffs. Strictly speaking, liability under section 6672(a) is not
derived from, or dependent upon, an employer’s outstanding tax
obligation. Rather, the section imposes a penalty upon persons who fail to
perform a specified statutory task. We have
consistently held, therefore, that liability for such a penalty is separate and
distinct from the employer’s liability for trust fund taxes. See,
e.g., Hochstein v. United States, 900 F.2d 543, 549 (2d Cir. 1990) (”even if [the
employer] had sought protection under the bankruptcy laws, the IRS still could
have assessed against Hochstein himself a penalty equivalent to any unpaid
taxes“); Spivak v. United States, 370 F.2d 612, 616 (2d Cir.) (”compromise of the
claim against the bankrupt estate of the corporation cannot serve to release
the responsible persons from their direct liability under the
statute“), cert. denied, 387 U.S. 908, 18 L. Ed. 2d 625, 87 S. Ct. 1690 (1967); [**9] Rosenberg v. United States, 327 F.2d 362, 364-65 (2d Cir. 1964)
(upholding liability of corporate officer under predecessor of section 6672(a)
despite expiration of statute of limitations for assessing deficiency against
corporate employer); see also Turchon v. United States, 77 Bankr. 398, 401 (E.D.N.Y. 1987)
(“the separate nature of tax liabilities imposed on responsible
persons precludes their assertion of a satisfaction of employer liability as a
satisfaction of their individual liability”), aff’d mem., 841 F.2d 1116 (2d Cir. 1988). We hold that
liability for interest that has accrued on a section 6672(a) penalty is
similarly independent of an employer’s liability for interest. As the
Ninth Circuit has explained: There is no indication that Congress intended to waive the
interest that accrues on a [section 6672(a)] penalty assessment when a payment
is made against the corporate tax liability that gave rise to the assessment. … [*711] Were
it otherwise a responsible party could evade corporate taxes with the knowledge
that his potential liability could never exceed the initial tax liability, and
that any lapse of time [**10]
between assessment and collection would work to his advantage because interest
could not accrue on the penalty. The tax code does not contemplate the
interest-free use of government funds. Holland v.
United States, 873
F.2d 1321, 1322 (9th Cir. 1989); see also Turchon, 77 Bankr. at 401 (“the
bankruptcy court erred in holding that absent a liability running from the
employer for taxes, Turchon was not liable for unpaid interest on the tax
assessment against him”). Finally, we
note that as a matter of policy, the Internal Revenue Service
“collects the amount of the unpaid trust fund taxes only once, whether
collected in part or in whole from each responsible person and/or the corporate
employer. ” In re Technical Knockout Graphics, Inc. (United States
v. Technical Knockout Graphics, Inc.),
833
F.2d 797, 799
(9th Cir. 1987). That policy is not implicated here, since the judgment entered
against the plaintiffs represents the interest accruing during Maxim’s
bankruptcy period, a period for which Maxim never paid any interest. Conclusion The judgment
of the district court is affirmed. |