Byrne v. United States, No. 15-2396 (6th Cir. 2017)
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Owners, having relied on an external audit, did not “willfully” fail to pay trust fund taxes.
Four investors bought Eagle Trim, which produced automobile interior-trim parts. Byrne (president) and Kus (CEO) were responsible for Eagle’s income tax returns, but Fuller, as controller, had wide discretion over financial activities. Eventually, Byrne signed Eagle's bankruptcy petition. Eagle liquidated. The IRS assessed against Byrne and Kus $855,668.35 in penalties under 26 U.S.C. 6672 for Eagle’s outstanding trust-fund tax (taxes withheld from employees’ wages) liability. Byrne paid $1,000 and then unsuccessfully sought a refund and an abatement of the penalty and of the entire assessment. Byrne filed suit. On remand, the district court found that Byrne and Kus willfully failed to pay and were liable under section 6672. The Sixth Circuit vacated. Byrne and Kus did not have actual knowledge that the taxes were not being paid until after a Forbearance Agreement was executed with a creditor. The issue of recklessness was a “close call,” but the men directed their independent accounting firm to instruct Fuller on how to timely deposit trust-fund taxes, added an assistant controller to help Fuller in his duties, created a new management spot to review Fuller’s financial management, and relied on a professional clean audit report.
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