Nakano v. United States, No. 11-18013 (9th Cir. 2014)
Annotate this CasePlaintiff, former vice president and CFO of National Airlines, filed suit under 26 U.S.C. 7422 against the United States for a refund of taxes erroneously assessed. The United States counterclaimed for the unpaid balance of the tax assessments. The district court granted summary judgment in favor of the government on both the claim and counterclaim. The court held that assets are "encumbered" for purposes of 26 U.S.C. 6672 only if "the taxpayer is legally obligated to use the funds for a purpose other than satisfying the preexisting employment tax liability and if that legal obligation is superior to the interest of the IRS in the funds," a test that is not met here. Therefore, the district court properly held that plaintiff willfully failed to pay over excise taxes that he was obligated to pay as a responsible person. The court also held that the Air Transportation Safety and System Stabilization Act, Pub. L. No. 107-42, section 301(a)(1), did not "allow the airlines to use the excise taxes as working capital" and does not defeat trust status for unpaid excise taxes for purposes of personal liability under section 6672. Accordingly, the court affirmed the judgment of the district court.
Court Description: Tax. The panel affirmed the district court’s summary judgment in favor of the government in a tax refund action after the Internal Revenue Service assessed unpaid excise taxes against plaintiff pursuant to 26 U.S.C. § 6672. Plaintiff, a former vice president and chief financial officer of National Airlines, Inc., contended that his failure to pay the excise tax was not “willful” under § 6672(a)—which provides for personal liability for those required to collect such excise taxes who willfully fail to transfer them to the federal government—because of the airline’s bankruptcy. The panel was unpersuaded by plaintiff’s contention that the airline’s funds were encumbered by its bankruptcy obligations, such that the failure to pay excise taxes was not willful. The panel also was unpersuaded by plaintiff’s contention that § 6672 liability does not apply to excise tax payments deferred under the Air Transportation Safety and System Stabilization Act, which gave airlines an opportunity to defer transfer of the third-quarter 2001 excise taxes for a few weeks in response to the terrorist attacks on September 11, 2001, but did not amend plaintiff’s obligation to hold excise taxes in trust for the federal government under § 6672.
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