Shore v. Brown, No. 1:2007cv01160 - Document 98 (E.D. Cal. 2009)

Court Description: MEMORANDUM DECISION re 52 Defendant United States of America's Motion for Summary Judgment Against Plaintiff and Counterclaim Defendant Wilma Shore, signed by Judge Oliver W. Wanger on 10/9/09. (Verduzco, M)

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1 2 3 UNITED STATES DISTRICT COURT 4 EASTERN DISTRICT OF CALIFORNIA 5 6 7 WILMA SHORE, 8 1:07-CV-01160 OWW SMS Plaintiff, MEMORANDUM DECISION RE DEFENDANT UNITED STATES OF AMERICA S MOTION FOR SUMMARY JUDGMENT AGAINST PLAINTIFF AND COUNTERCLAIM DEFENDANT WILMA SHORE (Doc. 52.) 9 v. 10 11 12 13 KEVIN M. BROWN, ACTING COMMISSIONER OF INTERNAL REVENUE SERVICE OF UNITED STATES OF AMERICA, and DOES 1 through 10 inclusive 14 Defendant. 15 16 UNITED STATES OF AMERICA, Counterclaimant, 17 v. 18 19 WILMA SHORE, Counterclaim Defendant. 20 21 22 AND GREGORY SHORE and BRENDA O. REYNOLDS 23 Additional Counterclaim Defendants. 24 25 26 /// 27 /// 28 /// 1 I. INTRODUCTION. 1 2 Plaintiff Wilma Shore filed suit against the United States 3 seeking a refund and abatement of tax penalties assessed and/or 4 collected 5 Materials, Inc. and Dean R. Shore, Inc. s failure to pay its 6 payroll taxes. 7 against Plaintiff to reduce to judgment certain trust fund recovery 8 penalties assessed against Plaintiff. The government contends that 9 Plaintiff, as an officer, director and largest shareholder of 10 Dean s Materials, Inc. and Dean R. Shore, Inc., is responsible for 11 payment of these taxes and acted with reckless disregard to the 12 payment of the federal taxes. against her as the person responsible for Dean s The government responded with a counterclaim 13 The government now moves, pursuant to Federal Rule of Civil 14 Procedure Rule 56, for summary judgment on its counterclaim against 15 Wilma Shore and for judgment in its favor as to the claims made in 16 Plaintiff s Complaint.1 17 the United States has replied. Plaintiff has filed opposition, to which 18 II. FACTUAL BACKGROUND. 19 20 This case arises out of the government s attempt to recover 21 unpaid payroll taxes that were required to but were not withheld 22 from the wages of Dean s Materials, Inc. and Dean R. Shore, Inc. 23 employees 24 December 31, 1999. for eleven tax periods from April 1, 1997 through The facts are largely undisputed. 25 1 26 27 28 The United States also moved, pursuant to Rule 56, to reduce trust fund recovery penalties to judgment against Gregory Shore and Brenda Reynolds. The motion for summary judgment filed by the United States against Gregory Shore and Brenda Reynolds is resolved by separate Memorandum Decision. 2 1 Dean s Materials, Inc. and Dean R. Shore, Inc. evolved out of 2 a small acoustical tile business started in 1960 by Dean R. Shore, 3 Plaintiff s deceased husband. ((Defendant United States Statement 4 of Disputed Facts ( DSUF ) 1).2). 5 building supplies in Central California under the trade name 6 Construction Materials Suppliers ( CMS ). 7 Shore, Inc. was a large commercial acoustical tile, plaster and 8 commercial drywall subcontractor that did business under the name 9 Interior Contractors ( INCON ). (DSUF 4.) Throughout the relevant 10 tax periods at issue in this case, CMS was the parent company and 11 sole shareholder of INCON. 12 Dean s Materials, Inc. sold (DSUF 3.) Dean R. (DSUF 7.) Following Dean R. Shore s death in 1991, Plaintiff became the 13 largest shareholder of CMS and INCON.3 14 in excess of 40% of the outstanding shares of CMS and served as co- 15 trustee of two trusts that collectively owned another 40% stake in 16 CMS. 17 INCON from 1991 until her resignation in 1999.4 18 During the eleven tax periods at issue, there were two members of 19 the Board of Directors: Plaintiff and her son Gregory Shore. (DSUF 17.) (DSUF 9.) Plaintiff held Plaintiff was also a director of both CMS and (DSUF 11, 20.) 20 2 21 22 23 24 25 26 Plaintiff does not dispute the bulk of Defendant s undisputed facts. To the extent she does, her objections are overruled or immaterial to the ultimate facts of the case. 3 At the time of Dean R. Shore s death, and throughout the tax periods at issue in this case, parent company CMS also owned commercial real estate located in Redding, California. In September 1991, this property had a value of $2.7 million. (DSUF 8.) CMS was also the recipient of a sizeable damages award in 1991 of nearly $5 million, obtained as a result of a lawsuit against a telecommunications company. (Id.) 27 4 28 On September 30, 1996, Jim Shore and Deanna K. Covey resigned as officers and directors of CMS and INCON. (Exh. 4.) 3 1 From 1991 until her resignation in 1999, Plaintiff was the 2 President of CMS and INCON. 3 bylaws, Wilma Shore, as President of each company, had general 4 supervision, direction and control of the business and officers of 5 the corporation. 6 Plaintiff, as President of each company, to call special meetings 7 of the Board of Directors and to inspect all books, records, and 8 documents of every kind. 9 From 1991 the (DSUF 13, 22.) to Under CMS and INCON s The bylaws also authorized (DSUF 15-16, 24-25.) forward, right (DSUF 11, 20.) Plaintiff sign drew and INCON s and 11 accounts.5 12 Shore, ran the daily operations of the business, Wilma Shore 13 reconciled CMS and INCON s bank statements and dealt with outside 14 accounting professionals regarding the preparation of financial 15 statements 16 Plaintiff came into the CMS and INCON offices on a regular basis, 17 up to five times per week. 18 substantial funding to the companies, including the 1993 purchase 19 of a $656,907.00 loan obligation that CMS owed to Bank of America. 20 (DSUF 32-33.) 21 foreclosed on the real estate collateral, consisting of substantial 22 real property in Redding, California.6 corporate CMS salary retained and on regular 10 (DSUF 26, 28.) checks a bank Although Plaintiff s son, Gregory disclosure (DSUF 27.) forms. (DSUF 14, 29.) Plaintiff also provided In 2000, CMS defaulted on the loan and Plaintiff 23 24 25 26 27 28 5 Specifically, on at least four occasions from March 1999 to July 1999, Plaintiff signed large payroll checks issued to employees. (Doc. 59, Exh. 57(a)-(d).) 6 Although the loan was over $150,000 in arrears by 1996, Plaintiff agreed to subordinate her security interest in the collateral property in order to obtain an additional $600,000 in financing to CMS. (DSUF 34.) 4 1 During the second half of her eight-year tenure as president 2 of INCON and CMS, the companies encountered severe financial 3 difficulties and cash shortages. 4 that checks bounced, payments were held back, and CMS and INCON 5 failed to timely remit payroll taxes to the Government.7 6 According to the government, Plaintiff knew, or should have known, 7 that CMS and INCON were not withholding taxes in 1997 and early 8 1998 because four checks payable to the IRS, each in the amount of 9 $25,000, were returned for insufficient funds.8 (DSUF 47-55.) It is undisputed (Id.) (DSUF 103.) In 10 1997 and 1998, there were additional checks, ranging from $10,000 11 to 12 insufficient funds. 13 and INCON ceased all payments, periodic or otherwise, to the IRS 14 for delinquent employee taxes.9 $140,000, made payable to the IRS that (Doc. 59, Exhs. 54 & 55.) bounced for In April 1998, CMS (DSUF 107, 110.) 15 INCON and CMS retained the accounting firm Hills Renault to 16 prepare annual financial reports for the 1993, 1994, 1995, 1996, 17 1997, 1998, and 1999 fiscal years. 18 Plaintiff signed the accountants engagement and representation 19 letters in connection with the preparation of these financial 20 statements, which were given to CMS and INCON s lenders. (DSUF 37.) Each year, (DSUF 21 22 7 As early as 1995, Plaintiff made personal loans to INCON to help cover payroll. (DSUF 36.) 23 8 24 25 26 27 28 The reconciled bank records contain Plaintiff s handwritten notes next to each bounced check. (Doc. 59, Exh. 53.) The records reflect the date the check bounced, the amount ($10,000), the bank code Return Item Enclosure, and Plaintiff s handwritten check number, i.e., #9373" and #9495. (Id.) 9 It appears that CMS and INCON made several payments to the IRS to reduce its federal tax liability, however, these efforts ceased in April 1998. 5 1 37.) In 1996, Hills Renault became concerned about CMS and INCON s 2 financial viability. During an audit in August 1996, Plaintiff was 3 made personally aware of Hills Renault s concerns by Leslie Kos, an 4 accountant at Hills Renault. (DSUF 88.) 5 Plaintiff that Hills Renault was adding a going concern note to 6 the financial statements of CMS and INCON. 7 concern 8 businesses over the ensuing fiscal year. 9 footnote From 1996 questions forward, CMS the and Kos personally warned (Id.) financial A going viability of the (Id.) INCON s financial statements 10 contained express references to unpaid payroll taxes, penalties, 11 and interest. 12 financial statement for CMS states: At March 31, 1997 and 1996, 13 accounts 14 $139,000, respectively, representing delinquent payroll taxes, 15 penalties, and interest. 16 March 31, 1997 financial statement contained a similar statement: 17 At March 31, 1997 and 1996, accounts payable and accrued expenses 18 include 19 delinquent payroll taxes, penalties, and interest. 20 (DSUF 53, 112.) payable and $311,700 For example, the March 31, 1997 accrued and expenses include $122,400 (DSUF 53; Doc. 59, Exh. 29.) $550,400, respectively, and INCON s representing (DSUF 53.) CMS and INCON s financial condition continued to decline in 21 1998. (DSUF 107-114.) 22 prepared 23 delinquent 24 $1,192,241. 25 penalties, and interest totaled $243,971. (Id.) Plaintiff s 26 personal fiscal year, 27 prepared by Hills Renault, reflected large losses, negative working 28 capital, and the elimination of Plaintiff s book equity in CMS and By Hills Renault payroll (DSUF financial According to the financial statements for taxes, 112.) statement the 1998 penalties, CMS s for 6 fiscal and interest delinquent the 1998 year, payroll INCON s totaled taxes, also 1 INCON. (DSUF 113.) 2 In April 1999, Plaintiff received a copy of a letter from 3 Richard Howard to Ms. Audrey Chan of the Department of Labor in San 4 Francisco. 5 profit sharing plan might be at risk, since there appears to be a 6 serious disregard for compliance with basic ERISA laws by the 7 plan s trustee. 8 stated that the trustee does not return my phone calls ... [and] 9 the 1997 benefit statements have not been provided. Mr. Howard alleged that the assets of CMS and INCON s (DSUF 111; Doc. 59, Exh. 56.) Mr. Howard also (Id.) The 10 letter was sent to Mrs. Wilma Shore, Shore Corp. President via 11 certified mail. 12 (Id.) In March, June, and July 1999, Plaintiff signed large numbers 13 of payroll checks issued to employees. (DSUF 114; Doc. 59, Exh. 14 57A, 57B, 57C, 57D.) 15 signed by Wilma Shore, were the last checks drawn on CMS and INCON 16 accounts. 17 115.) The payroll checks drawn on July 26, 2009 and CMS and INCON stopped doing business in 2000.10 (DSUF 18 Following an investigation into the delinquent taxes, the IRS 19 assessed trust fund recovery penalties against Wilma Shore relating 20 to CMS and INCON s outstanding payroll liabilities for eleven tax 21 periods from April 1, 1997 through December 31, 1999.11 (DSUF 117.) 22 23 10 In late 2000, Plaintiff foreclosed her loan and acquired the Redding properties. (DSUF 116.) 24 11 25 26 27 28 On January 26, 2000 the IRS sent Plaintiff notification that it was planning to assess trust fund penalties against her for the second quarter of 1997, third quarter of 1997, fourth quarter of 1997. Shortly thereafter, the IRS sent Plaintiff notification that it was planning to assess trust fund penalties against her for the first quarter of 1998, second quarter of 1998, third quarter of 1998, fourth quarter of 1998, first quarter of 1999, second quarter 7 1 The IRS assessed penalties against Plaintiff concerning CMS 2 unpaid tax liabilities in the amount of $38,867.58 for the second 3 quarter 4 $39,647.46 for the fourth quarter of 1997, $25,287.07 for the first 5 quarter 6 $26,193.58 for the third quarter of 1998, $23,540.84 for the fourth 7 quarter 8 $18,670.89 for the second quarter of 1999, $18,519.88 for the third 9 quarter of 1999, and $19,336.95 for the fourth quarter of 1999. 10 of of of 1997, 1998, 1998, $36,346.66 $25,665.25 $17,642.23 for for for the the the third second first quarter quarter quarter of of of 1997, 1998, 1999, (DSUF 120.) 11 Concerning INCON, the IRS assessed penalties against Plaintiff 12 in the amount of $106,345.58 for the second quarter of 1997, 13 $155,671.18 for the third quarter of 1997, $124,821.18 for the 14 fourth quarter of 1997, $218,437.67 for the first quarter of 1998, 15 $144,667.76 for the second quarter of 1998, $91,513.87 for the 16 third quarter of 1998, $183,554.25 for the fourth quarter of 1998, 17 $171,853.43 for the first quarter of 1999, $217,007.41 for the 18 second quarter of 1999, $143,344.31 for the third quarter of 1999, 19 and $122,304.55 for the fourth quarter of 1999.12 (DSUF 120.) 20 As of July 19, 2009, the total outstanding balance of the 21 federal tax liabilities due from Wilma Shore with respect to CMS 22 and INCON for all tax periods at issue, including interest, is 23 $2,983,797.66. (DSUF 120.) 24 25 of 1999, third quarter of 1999, fourth quarter of 1999. 12 26 27 28 On January 26, 2000, the IRS sent Wilma Shore formal notification that it was planning to assess a trust fund penalty against her for the quarters ending June 30, 1997, September 30, 1997, and December 31, 1997 for the delinquent employment taxes of CMS and INCON. A short time later, 8 1 III. PROCEDURAL BACKGROUND. 2 3 On August 8, 2008, Wilma Shore brought suit against the United 4 States pursuant to 28 U.S.C. § 1346, seeking a refund or abatement 5 of trust fund liabilities assessed personally against her by the 6 IRS. 7 or abate the alleged erroneously withheld sums, stating that she is 8 neither a responsible party nor acted willfully as described in 9 26 U.S.C. § 6672. 10 (Doc. 1.) Plaintiff s first cause of action seeks to recover Plaintiff s second cause of action is brought pursuant to an estoppel theory. 11 On December 17, 2007, the United States filed its Answer to 12 Plaintiff s Complaint and also asserted a counterclaim against 13 Shore. 14 reduce to judgment the contested trust fund liabilities assessed 15 against Shore pursuant to 26 U.S.C. § 6672. 16 raised counterclaims against Gregory Shore and Brenda Reynolds, 17 seeking to recover certain trust fund recovery penalties assessed 18 against them. (Doc. 8.) In its counterclaim, the United States sought to The United States also 19 On July 20, 2009, the United States filed a Motion For Summary 20 Judgment to reduce to judgment the outstanding federal income tax 21 liabilities assessed against Plaintiff and Counterclaim-Defendant 22 Wilma Shore and Additional Counterclaim-Defendants Gregory Shore 23 and Brenda Reynolds. (Doc. 52.) As to Plaintiff and Counterclaim- 24 Defendant Wilma Shore, the United States seeks to reduce trust fund 25 recovery penalties to judgment and for judgment in its favor as to 26 the claims made in Ms. Shore s Complaint. 27 The Government seeks to recover $2,983,797.66 from Wilma Shore 28 in unpaid FICA and income taxes for her involvement in the non9 1 payment of payroll tax liabilities for Dean s Materials, Inc. and 2 Dean R. Shore, Inc. 3 officer, director and largest shareholder of CMS and INCON, is 4 responsible for payment of these taxes and acted with reckless 5 disregard in failing to pay federal taxes. 6 The Government contends that Plaintiff, as an Wilma Shore filed her opposition to the United States summary 7 judgment motion on August 14, 2009. (Doc. 74.) In support of her 8 opposition, Plaintiff submitted: (1) a Memorandum opposing the 9 motion ( Memorandum ); (2) the declaration of Art Myatt; (3) the 10 declaration of Dennis Bean, PhD; (4) the declaration of Deanna 11 Covey; and (5) a single Statement of Disputed Facts ( PSDF ). 12 (Docs. 72-74.) 13 Wilma Shore opposes summary judgment on grounds that there 14 remains a genuine issue of material fact concerning whether she is 15 a responsible party or acted willfully under 26 U.S.C. § 6672. 16 Plaintiff contends that a genuine issue of material fact exists 17 because she was President of CMS and INCON in name only, and was 18 not involved in the day-to-day operations of either company. 19 IV. LEGAL STANDARD. 20 21 Summary judgment is appropriate when "the pleadings, the 22 discovery and disclosure materials on file, and any affidavits show 23 that there is no genuine issue as to any material fact and that the 24 movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 25 56(c). 26 informing the district court of the basis for its motion, and 27 identifying those portions of the pleadings, depositions, answers 28 to interrogatories, and admissions on file, together with the The movant "always bears the initial responsibility of 10 1 affidavits, if any, which it believes demonstrate the absence of a 2 genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 3 317, 323 (1986) (internal quotation marks omitted). 4 Where the movant will have the burden of proof on an issue at 5 trial, it must "affirmatively demonstrate that no reasonable trier 6 of fact could find other than for the moving party." 7 Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir.2007). 8 respect to an issue as to which the non-moving party will have the 9 burden of proof, the movant "can prevail merely by pointing out 10 that there is an absence of evidence to support the nonmoving 11 party's case." Soremekun v. With Soremekun, 509 F.3d at 984. 12 When a motion for summary judgment is properly made and 13 supported, the non-movant cannot defeat the motion by resting upon 14 the 15 non-moving party must set forth, by affidavit or as otherwise 16 provided in Rule 56, specific facts showing that there is a 17 genuine issue for trial. 18 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986)). A 19 non-movant's bald assertions or a mere scintilla of evidence in his 20 favor are both insufficient to withstand summary judgment. FTC v. 21 Stefanchik, 559 F.3d 924, 929 (9th Cir. 2009). 22 must 23 affirmative evidence from which a jury could find in his favor. 24 Id. (emphasis in original). "[S]ummary judgment will not lie if [a] 25 dispute about a material fact is genuine, that is, if the 26 evidence is such that a reasonable jury could return a verdict for 27 the nonmoving party." 28 whether a genuine dispute exists, a district court does not make allegations show a or denials genuine of its own pleading, rather the Soremekun, 509 F.3d at 984. (quoting issue of material fact Anderson, 477 U.S. at 248. 11 [A] non-movant by presenting In determining 1 credibility determinations; rather, the "evidence of the non-movant 2 is to be believed, and all justifiable inferences are to be drawn 3 in his favor." Id. at 255. 4 V. DISCUSSION. 5 6 A. Trust Fund Recovery Penalties Under 26 U.S.C. § 6672 7 The Internal Revenue Code requires employers to withhold 8 federal social security and individual income taxes from the wages 9 of their employees. See 26 U.S.C. §§ 3102(a), 3402(a). Although 10 an employer collects this money each salary period, payment to the 11 federal 12 interim, the employer holds the collected taxes in a special fund 13 in trust for the United States. 26 U.S.C. § 7501(a). 14 are known as trust fund taxes. See Slodov v. United States, 436 15 U.S. 238, 243 (1978). 16 government takes place on a quarterly basis. In the These taxes If an employer fails to pay over collected trust fund taxes, 17 the 18 effectuating the collection and payment of trust fund taxes who 19 willfully fail to do so are made personally liable for a penalty 20 equal to the amount of the delinquent taxes under 26 U.S.C. § 21 6672. 22 relevant part: 23 24 25 26 officers or employees of the Slodov, 436 U.S. at 244-45. employer responsible Section 6672 provides, in 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 ... shall ... be liable to a penalty equal to the total amount of the tax ... not collected, or not accounted for and paid over. 27 26 U.S.C. § 6672. 28 12 for 1 For the purposes of Section 6672, a person includes an 2 officer or employee of a corporation ... who ... is under a duty to 3 perform the act in respect of which the violation occurs. 26 4 U.S.C. § 6671(b). 5 under Section 6672 if (1) he is a "responsible person"; and (2) if 6 he acts willfully in failing to collect or pay over the withheld 7 taxes. 8 1992). Thus, an individual is liable for a penalty Davis v. United States, 961 F.2d 867, 869-70 (9th Cir. 9 Plaintiff argues that the § 6672 penalty cannot be assessed 10 against her because she was not a responsible person and because 11 she did not willfully fail to pay the delinquent trust fund taxes. 12 (Doc. 74, 2:6-2:23.) 13 Assessment (Forms 4340) for the § 6672 penalty for each quarter. 14 (Doc. 56, Exhs. 1-28.13) 15 for the United States. 16 (9th 17 demonstrate by a preponderance of the evidence that either the 18 element of responsibility or the element of willfulness is not met. 19 See id. Cir. 1994). The United States submitted Certificates of These forms establish a prima facie case United States v. Jones, 33 F.3d 1137, 1139 Plaintiff cannot prevail unless she can 20 21 1. Responsible Person 22 The Ninth Circuit has consistently identified persons who have 23 "the final word as to what bills should or should not be paid, and 24 when" as "responsible" persons under § 6672. 25 States, 1 F.3d 932, 936 (9th Cir. 1993). 26 word if that person had "the authority Purcell v. United A person has the final required to exercise 27 28 13 (Doc. 56, Exhs. 6, 9, 12, 15, 18, 21, 24, and 28.) 13 1 significant control over the corporation's financial affairs, 2 regardless of whether he exercised such control in fact." Purcell, 3 1 F.3d at 937. 4 status, duty, and authority, not knowledge. Davis, 961 F.2d at 873 5 (upholding the trial court's finding of "responsible person" based 6 on the plaintiff's position as the president, member of the board, 7 and major shareholder, even though the plaintiff had no knowledge 8 of the tax default). 9 an individual's power to determine how the corporation conducts its 10 financial affairs; the duty to ensure that withheld employment 11 taxes are paid over flows from the authority that enables one to do 12 so." In other words, responsibility is a matter of "Authority turns on the scope and nature of Purcell, 1 F.3d at 936. 13 In the absence of an admission of responsibility, there are 14 various factors which are indicative of significant control. These 15 factors 16 corporate bylaws, his ability to sign checks, his status as an 17 officer or director, and whether he could hire and fire employees. 18 Hochstein v. United States, 900 F.2d 543, 547 (2nd Cir. 1990); see 19 Jones, 33 F.3d at 1140 (approving use of the Hochstein factors). 20 Other courts have identified additional factors, such as whether 21 the individual held stock in the corporation and whether the 22 individual s signature is on the employer s federal quarterly and 23 other tax returns. 24 (3rd Cir. 1994). include the individual's duties as outlined in the Greenberg v. United States, 46 F.3d 239, 243 25 The United States has submitted evidence that Plaintiff was 26 the president of the corporations, the corporate bylaws charged 27 Plaintiff with general supervision, direction and control of the 28 corporations, Plaintiff reconciled bank accounts, had check signing 14 1 authority, and was a director and majority shareholder of CMS and 2 INCON. 3 significant control over the corporation's finances. There is also 4 evidence 5 preparation of financial statements for CMS and INCON, as her 6 signature appears on the representation letters to Hills Renault 7 concerning the financial statements for the 1993 to 1999 fiscal 8 years. All in of the this evidence record that indicates Plaintiff that was Plaintiff involved in had the 9 Plaintiff acknowledges that she was president of CMS and INCON 10 and the bylaws gave her general supervision and control of the 11 companies. 12 shareholder, signed checks on behalf of the companies, reconciled 13 bank accounts, or received a salary. 14 any characterization of herself as a "responsible person" during 15 the relevant time frame, and rather casts herself as a passive 16 owner who allowed her son to manage the companies.14 17 4:22-4:27.) 18 authority and a titular designation and that Greg Shore rebuffed 19 her inquiries, screened her telephone calls, and instructed other 20 employees to not answer her questions regarding certain checks and 21 payments. 22 She also does not dispute that she was the majority However, Plaintiff contests (Doc. 74, Plaintiff contends that she had only technical (Doc. 74, 7:2-7:10.) Significantly, Plaintiff does not offer any evidence that she 23 lacked the authority to pay CMS or INCON s taxes. See Alsheskie v. 24 United States, 31 F.3d 837, 839 (9th Cir. 1994) (distinguishing the 25 district court's finding that the plaintiff was not a responsible 26 27 28 14 Plaintiff also contends that a family culture of allowing men to control the business undercuts any explicit finding of responsibility under § 6672. 15 1 party from a case where "the record contained no evidence that ... 2 the responsible party was without authority to pay the taxes."). 3 Plaintiff s arguments regarding her responsibility focus almost 4 entirely on her inability to exercise her authority because her son 5 controlled the daily operations of both CMS and INCON. 6 argument 7 liability analysis addresses only the existence of authority; the 8 "willfulness" prong considers the ability of the individual to act 9 upon his or her authority. 10 is unavailing. The "responsibility" prong This of the See e.g., Phillips v. IRS, 73 F.3d 939, 943 (9th Cir. 1995). 11 Plaintiff spends much of her opposition brief arguing that she 12 delegated the day-to-day operations to her son beginning in 1991, 13 and 14 resignation in October 1999. 15 Shore s 16 precludes her from any liability under § 6672. Although it appears 17 that Greg Shore conducted CMS and INCON s daily operations, it is 18 well-established that the duty to ensure that withholding taxes are 19 collected 20 possessed, 21 (responsibility to pay taxes cannot be delegated); Keller v. United 22 States, 46 F.3d 851, 854 (8th Cir. 1995)( an otherwise responsible 23 person does not avoid liability under section 6672 by delegating 24 his authority to another. ); 25 12, 17 (1st Cir. 1989) ( delegation will not relieve one of 26 responsibility; liability attaches to all those under the duty set 27 forth in the statute. ). 28 that this designation control and is over paid the over continued through her Plaintiff contends that Gregory daily to unimpeded operations the nondelegable. of government, See Purcell, CMS and which 1 F.3d INCON Plaintiff at 936 Thomsen v. United States, 887 F.2d In Purcell, the Ninth Circuit held that the delegation of 16 1 responsibility for all financial matters from the "responsible 2 person" to a third person does not shelter the "responsible person" 3 from liability for failing to pay the taxes. 4 does not control the daily operations of the company and does not 5 participate in many decisions affecting the companies, she is still 6 liable for the unpaid taxes. 7 what the responsible person does, rather, the inquiry centers on 8 what she could have done, i.e., the extent of her authority. 9 Despite Greg Shore s control over CMS and INCON s daily operations, Id. at 937. Even where a party It is not a question of 10 Plaintiff retained the ostensible authority to pay the taxes. 11 was the President, a Director, the largest shareholder, and, via 12 her 13 company s 14 "responsible person" under the law. 15 F.2d 1449, 1454 (5th Cir. 1993) ("The crucial inquiry is whether a 16 party ... by virtue of his position in ... the company, could have 17 had substantial input into such decisions, had he wished to exert 18 his authority."). 19 loans and financial finances. Plaintiff also involvement, This argues authority that largely supports controlled finding She the her a See Barnett v. I.R.S., 988 because Greg Shore admitted 20 responsibility for the tax deficiency, she cannot be held liable. 21 Plaintiff fails to recognize that under § 6672 liability may extend 22 to more than one corporate officer. 23 7 F. App x 804, 807 (9th Cir. 2001) ( Section 6672 applies to all 24 responsible persons, not just the most responsible. ); USLIFE Title 25 Ins. Co. of Dallas v. Harbison, 784 F.2d 1238, 1243 (5th Cir. 1986) 26 ("The 27 particular delinquency does not relieve another responsible person 28 of his or her personal liability, nor can a responsible person fact that more than one 17 See United States v. Chapman, person is responsible for a 1 avoid collection against himself on the ground that the Government 2 should first collect the tax from someone else."). 3 determination that Gregory Shore and Brenda Reynolds are also 4 responsible for CMS and INCON s failure to pay its withholding 5 taxes for eleven tax periods at issue in this case does not 6 foreclose whether Wilma Shore is also liable under § 6672. The IRS's Plaintiff contends that the IRS has offered no evidence 7 8 establishing Wilma Shore has the responsibility to pay the 9 withholding taxes ... the evidence will show that Wilma Shore has 10 only technical authority and a titular designation. (Doc. 74, 11 7:1-7:3.) Plaintiff cites Vinick v. United States, 205 F.3d 1 (5th 12 Cir. 2000), in support of her arguments. 13 factually distinguishable. However, Vinick is 14 In Vinick, a corporation s treasurer filed a claim for a 15 refund of taxes paid pursuant to a penalty assessed for the failure 16 to pay payroll taxes.15 17 there. 18 which he was an investor; but unlike Wilma Shore he was neither 19 paid by the company nor engaged in financing its business affairs, 20 had no office at the company, and did not sign checks in the 21 relevant time frame. Throughout the period in question, Vinick was 22 a 23 engagement and relationship with CMS and INCON bears little, if 24 any, resemblance to the Plaintiff in Vinick. 25 evidence that Plaintiff signed payroll checks for CMS and INCON, CPA However, the similarities to this case end Vinick was formally the treasurer of a small company in with his own private practice elsewhere. Plaintiff s There is undisputed 26 15 27 28 Following a bench trial, the District Court entered judgment for government. On appeal, the First Circuit held that a treasurer was not a responsible person who was liable for failure to pay taxes. Vinick, 205 F.3d at 14. 18 1 maintained an office at the business, received a salary, reconciled 2 corporate bank accounts, and participated in corporate meetings. 3 The facts and ruling in Vinick are not helpful or persuasive in 4 this case. 5 Despite her arguments to the contrary, Plaintiff s authority 6 was more than nominal. The undisputed facts are that Plaintiff was 7 president 8 management 9 corporations; had check signing authority; visited her office at of the of corporations; the headquarters charged corporations; few a was the sharholder. 12 responsible person under § 6672 for all eleven quarters. 13 Schlicht v. United States, No. 03-1606, 2005 WL 2083103, at *3 (D. 14 Ariz. Aug. 25, 2005) (holding that a corporation's president, who 15 was charged with general active management ..., had check 16 signing authority, hired and fired employees, and on at least one 17 occasion ... paid trust fund taxes was a responsible party even 18 though he did not exercise his authority over finances on a regular 19 basis.). that and of 11 establish week; Director active company facts days a general 10 These a was with Plaintiff majority was a See No reasonable jury could conclude otherwise. 20 United States v. Chapman, 7 F. App x 804, 806, is instructive. 21 In Chapman, the Ninth Circuit held that the district court applied 22 an incorrect legal standard to conclude that the taxpayer was not 23 a responsible person within the meaning of § 6672: 24 25 26 27 28 After careful examination of the district court's oral decision, we conclude that the district court's finding that [the taxpayer] was not a "responsible person" derives from the use of improper legal standards. First, the district court focused its inquiry on whether [the taxpayer] had knowledge that the taxes went unpaid. This was error under Davis, where we stated that "[r]esponsibility is a matter of status, duty, and authority, not knowledge." Second, 19 1 the district court erred by basing its conclusion, in part, on the fact that paying taxes was not part of [the taxpayer's] "functional responsibility." The court specifically emphasized that [the taxpayer] had "nothing to do with taxes, ever, nothing." Our case law teaches the contrary. An individual may be held responsible if he had the authority required to exercise significant control over the corporation's financial affairs, regardless of whether he exercised such control in fact. 2 3 4 5 6 7 Id. (citations omitted). 8 Even if Gregory Shore controlled the daily operations of CMS 9 and INCON, Plaintiff was still responsible, as President, for 10 ensuring that the corporation paid its trust fund taxes. 11 Purcell, 1 F.3d at 937 ( That an individual's day-to-day function 12 in a given enterprise is unconnected to financial decision making 13 or 14 authority to pay or to order the payment of delinquent taxes. ); 15 Chapman, 7 F. App x at 806. 16 possessed 17 corporation's financial affairs throughout the periods at issue in 18 this case, even if she delegated this responsibility to another 19 financial officer. 20 6672 for CMS and INCON for all eleven quarters. 21 tax matters the is irrelevant legal where that individual has See the Plaintiff, under corporate law, authority to exercise control over the Plaintiff was a responsible person under § As a matter of law, Plaintiff is a responsible person under 22 26 U.S.C. 6672. The United States motion for summary judgment on 23 this issue is GRANTED. 24 25 2. Willfulness 26 That Plaintiff is a "responsible person" for the relevant tax 27 assessment periods at issue does not resolve whether Plaintiff 28 willfully refused to pay CMS and INCON s taxes for those periods. 20 1 In the Ninth Circuit, willfulness under section 6672 is defined as 2 a 3 creditors over the United States." 4 F.3d 939, 942 (9th Cir. 1996) (quoting Klotz v. United States, 602 5 F.2d 920, 923 (9th Cir. 1979)). 6 a responsible person knows that withholding taxes are delinquent, 7 and uses corporate funds to pay other expenses..., our precedents 8 require 9 'willful.'" Buffalow v. United States, 109 F.3d 570, 573 (9th Cir. "voluntary, that conscious the (quoting failure to act to prefer other Phillips v. United States, 73 The Ninth Circuit holds that "[i]f pay 942). deemed 12 would 13 liability." 14 1976). summary The be willfulness is a factual one and if sufficiently controverted, of at taxes 11 granting F.3d withholding 1997) the 73 intentional 10 preclude Phillips, and judgment question on of penalty Teel v. United States, 529 F.2d 903, 905 (9th Cir. 15 The Ninth Circuit recognizes two ways by which the government 16 can establish willfulness. First, the government may show that the 17 responsible person had actual knowledge that payroll taxes were not 18 being collected or paid over, and thereafter made payment to a 19 non-IRS creditor. 20 "willful" if he or she acted in "reckless disregard of whether the 21 taxes [were] being paid over." 22 that a responsible person is liable under the reckless disregard 23 standard if he (1) clearly ought to have known that (2) there was 24 a grave risk that withholding taxes were not being paid and if (3) 25 he was in a position to find out for certain very easily. ) 26 (citation and quotation omitted). Second, a responsible person may be deemed Phillips, 73 F.3d at 942 (stating 27 A review of the record evidence reveals a genuine dispute on 28 the ultimate issue of whether Plaintiff clearly ought to have known 21 1 that there was a grave risk that withholding taxes were not being 2 paid and if she was in a position to find out for certain very 3 easily. 4 reckless disregard by failing to ensure that CMS and INCON s 5 taxes were paid after learning about CMS and INCON s poor financial 6 condition and that past payroll taxes were not paid. 7 its latter contention, the government relies on the fact that 8 several checks payable to the IRS were returned for insufficient 9 funds in early 1997, prior to the periods at issue in this case.16 10 This, the government argues, created a risk that IRS and INCON were 11 delinquent and made it incumbent upon Plaintiff to ensure that the 12 government 13 creditors.17 The was government being paid contends before that making Plaintiff payments acted with To support to non-IRS 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 A review of the checks, one of which was returned twice, show Plaintiff s handwritten notations on each check. However, the record reveals that a substantial number of these checks eventually cleared CMS and/or INCON s accounts. 17 At oral argument, Plaintiff argued that only Plaintiff s conduct in the relevant quarters in which liability was assessed can be used to determine § 6672 liability. Plaintiff averred that Plaintiff s conduct outside of the eleven tax periods at issue i.e., prior to 1997 - is irrelevant and inadmissible. Here, evidence of Plaintiff s loans in 2003 (which remained outstanding until 2000), as well as the warnings by Mr. Howard in 2004 and Ms. Koz in 2006 are relevant to demonstrate Plaintiff s awareness of CMS and/or INCON s dire financial condition in early 1997 and whether her reliance on Greg Shore was reasonable. See Purcell, 1 F.3d at 938 (liability under Section 6672 for person who paid out corporate funds to other creditors after the period in question rather than remitting taxes to the government); Turner v. United States, No. C04-2080Z, 2005 WL 3747959 at *8 (W.D. Wash. Dec. 30, 2005) (outside tax period evidence was relevant because it showed taxpayer s authority to influence who got paid from corporate funds); Jefferson v. United States, 546 F.3d 477, 481 n.1 (7th Cir. 2008) (reviewing outside tax period evidence made sense because Jefferson was involved with the day care for over twenty years 22 1 Plaintiff s primary argument in rebuttal is that a material 2 issue of fact exists because Greg Shore, who she trusted, misled 3 her by asserting that he had taken care of the matter or would take 4 care of the matter. 5 clearly ought to have known about CMS and INCON s tax deficiencies 6 because, Greg Shore controlled the check book and decisions as to 7 what 8 [Plaintiff] that finances of the corporation were being taken care 9 of. creditor was Specifically, Plaintiff argues that she never being paid ... Greg repeatedly assured Drawing factual inferences in her favor, Plaintiff maintains 10 it was reasonable for her to trust her son despite her fiduciary 11 obligations, as a responsible party, to care properly for the funds 12 temporarily entrusted to the corporation for the ultimate use of 13 the United States.18 14 The critical inquiry in this case is whether Plaintiff showed 15 such reckless disregard for a known or obvious risk by failing to 16 ascertain 17 remitted to the government after CMS and INCON began to flounder. 18 The United States argues that applying Phillips to the facts of 19 this case, there is no genuine dispute of material fact that whether monies withheld from employees wages were 20 21 22 23 [and] there is no evidence that Jefferson s involvement with managing the day care s finances ceased at any time before or during the relevant fiscal period. ). 18 24 25 26 27 28 Plaintiff also attempts to defeat any notion that she recklessly disregarded a risk by pointing out that a number of the bounced IRS checks eventually cleared CMS and/or INCON accounts, and she only signed a few checks to creditors and did not sign or prepare tax returns. As to the financial statements, there is deposition testimony by Plaintiff that CMS and INCON s financial statements were given to, and maintained by, Greg Shore. Plaintiff testified that she never reviewed CMS and INCON s financial statements. 23 1 Plaintiff met the Ninth Circuit s standard for reckless disregard. 2 However, in Phillips, the taxpayer was aware that the employee he 3 entrusted with the responsibility to remit the withholding taxes 4 had previously failed to pay them. 5 previously paid an IRS assessment for failure to pay federal 6 withholding taxes and told the employee to not let it happen 7 again. 8 withholding taxes and the IRS assessed the penalty against the 9 taxpayer.19 Specifically, the taxpayer Subsequently, the same employee neglected to pay federal The facts supporting a finding of willfulness, in 10 Phillips, i.e., the taxpayer s actual knowledge of the previous 11 failure to remit withholding taxes, are not present in this case. 12 The United States cites other authority to support its 13 argument that there is no genuine dispute of fact as to Plaintiff s 14 reckless disregard of a grave risk. 15 F.2d 425, 427 (7th Cir. 1987); 16 12, 18 (1st Cir. 1989). 17 was liable for the penalty because he had actual knowledge of the 18 prior delinquency. 19 for 20 principal of the company, and the company s financial picture 21 worsened, leading to a second delinquency. 22 426-27. Similarly in Thomsen, the taxpayer had actual notice of an 23 employee s failure to remit taxes, yet continued to delegate that 24 responsibility to the failing party without taking steps to insure the prior Wright v. United States, 809 Thomsen v. United States, 887 F.2d However, in Wright, the court held Wright Like Phillips, the same individual responsible delinquency of the company continued to be a Wright, 809 F.2d at 25 26 27 28 19 The Ninth Circuit found the taxpayer to be willful under 26 U.S.C. 6672 because he was aware that the employee he entrusted with the responsibility to remit the withholding taxes had failed once before to pay them, yet he never inquired whether taxes were being paid. Phillips, 73 F.3d at 943-44. 24 1 payment. Thomsen, 887 F.2d at 17-18. The key difference between 2 Wright and Thomsen and this case, and the reason summary judgment 3 is precluded, is that a factual dispute exists whether and to what 4 extent Plaintiff was on notice that Greg Shore had mismanaged the 5 corporation and whether he could be trusted to pay either CMS or 6 INCON s payroll taxes. 7 factual dispute remains. Even applying Wright and Thomsen, the 8 In this case, in addition to not having day-to-day control 9 over the finances, Plaintiff signed only a few checks to creditors 10 and did not sign or prepare tax returns. These differences are 11 important because the greater control and responsibility one has 12 over the taxes and finances of a company, and over the payment of 13 creditors, the sooner one clearly ought to have known of the risk 14 that withholding taxes were not paid. In some situations where the 15 taxpayer had greater immediate control over and responsibility for 16 a company's finances or check writing, such as Phillips,20 knowledge 17 that the company has financial difficulties could be sufficient to 18 establish recklessness with respect to nonpayment of taxes, but 19 that is not true in this case.21 20 21 22 23 24 25 26 27 28 20 In Phillips, the taxpayer maintained check writing authority and conceded that he made the final decision on what creditors to pay. Phillips, 73 F.3d at 943. 21 Plaintiff s lack of immediate responsibility for finances and taxes and her lack of knowledge of past or present tax deficiencies- if believed, distinguish this case from those in which responsible parties without knowledge that withholding taxes were not paid, are nonetheless found willful under § 6672. In Jefferson v. United States, 546 F.3d 477 (7th Cir. 2008), for example, the evidence suggested that Jefferson, the President of the board of directors, was not only aware of the company s history of tax payment problems--he sent two checks on company s behalf to the IRS for past taxes--, but he was also aware of its continued 25 1 Viewing the evidence in a light most favorable to Plaintiff, 2 drawing all inferences in her favor, there remains a genuine issue 3 of material fact as to whether she acted with reckless disregard. 4 On 5 asserting that he had taken care of the matter or would take care 6 of the matter. 7 once 8 discharged her duty to ensure that the taxes were paid before any 9 payments were made to other creditors. her account, aware of Greg Shore, who she trusted, misled her by If believed, a dispute exists whether Plaintiff, the liability to the government, reasonably The extent and nature of 10 her knowledge after the first 1997 check to the IRS was returned, 11 raises 12 reasonably rely on Greg s statements that everything was taken 13 care of. 14 Plaintiff was on notice and knew that Greg Shore had mismanaged the 15 corporation and whether he could be trusted to pay either CMS or 16 INCON s payroll taxes. 17 continuing to rely on the assurances of a person she may have known 18 failed to file federal withholdings in 1997, must be weighed and 19 given effect by the trier of fact. the question of whether Plaintiff could continue to A factual dispute exists whether and to what extent Whether Plaintiff acted recklessly by 20 Ninth Circuit cases suggest that once a responsible party 21 knows a delegatee failed to pay over withheld taxes, continuing to 22 rely blindly on that delegatee can amount to reckless disregard 23 under the totality of the circumstances. See Phillips, 73 F.3d at 24 25 26 27 28 poor financial state. Although Jefferson reviewed monthly reports showing a steadily increasing tax liability, he did not investigate whether subsequent tax obligations were met. The Seventh Circuit affirmed summary judgment against Jefferson, holding he acted willfully because he ignored signs that the taxes were unpaid and was aware of the center s financial difficulties. 26 1 943; Purcell, 1 F.3d at 937-38. 2 disregarded a known, palpable risk that withholdings would not be 3 paid by continuing to rely on Greg Shore s mismanagement of CMS and 4 INCON is in dispute. 5 Plaintiff 6 immediate involvement in the company s finances and taxes, and 7 reasonably relied on Gregory Shore to manage CMS and INCON. 8 Teel, 529 F.2d at 905 ("The question of willfulness is a factual 9 one and if sufficiently controverted, would preclude the granting 10 did not Whether Plaintiff recklessly A rational trier of fact could infer that know of any tax deficiencies, had little See of a summary judgment on penalty liability."). 11 At oral argument, Plaintiff reiterated that she did not act 12 with reckless disregard because Greg Shore controlled the financial 13 affairs of CMS and INCON, and she trusted his word that they were 14 financially viable and was in effect misled. The government 15 pointed of 16 employment taxes when four checks payable to the IRS, each for 17 $25,000, bounced in early 1997.22 18 number of these checks that we re talking about in those prior 19 quarters, went through a second time and cleared. 20 bears directly on Plaintiff knowledge of a past delinquency - and 21 Greg Shore s management of CMS and INCON - and must be weighed by 22 the trier of fact. out that Plaintiff had to be aware the unpaid Plaintiff responded that a This evidence 23 There is a genuine dispute whether Plaintiff clearly ought to 24 have known that there was a grave risk that withholding taxes were 25 26 27 28 22 Plaintiff does not identify the checks or their time periods, but Plaintiff is likely referring to the checks made out to the IRS in early 1997 for $140,519.50 (January 1997), $30,000 (January 1997), $10,000 (February 1997), and three checks for $10,000 in March 1997. (Doc. 59, Exhs. 54 & 55.) 27 1 not being paid from 1997 onward, which would cover the eleven tax 2 periods 3 Plaintiff s willfulness continues to be genuine through the second, 4 third, and fourth quarters of 1999. 5 deposition, Plaintiff admitted that she signed payroll checks on 6 March 5, March 26, June 11, and July 30, 1999 without checking to 7 see if payroll taxes had been paid. 8 sent Plaintiff a letter concerning CMS and INCON s profit sharing 9 plan. at issue. Although a close call, the dispute over In her April 14, 2009 On April 9, 1999, Mr. Howard However, Plaintiff testified that the checks were rushed, 10 she signed only because Greg and Brenda were not in the office, 11 and she does not recall receiving the letter or whether Ms. Kos 12 discussed the companies financial status prior to this time. 13 (Shore Dep. 14 testimony, Plaintiff continued to be misled concerning CMS and 15 INCON s payroll deficiencies. 16 circumstances bear on whether Plaintiff willfully, voluntarily, or 17 intentionally ignored her duty to pay CMS and/or INCON s taxes. 18 factual 19 throughout the eleven relevant quarters, including the last three 20 quarters of 1999. 21 186:23-187:25.) dispute remains At this time, according to her Although less persuasive, these whether Plaintiff acted A willfully The evidence introduced by the parties on the question of 22 willfulness is conflicting and susceptible of at least two 23 reasonable interpretations for the eleven tax periods at issue. 24 jury must decide whether Plaintiff acted recklessly by relying on 25 the assurances of a person she may have known failed to file 26 federal withholdings in 1997. 27 question would, of course, arise if there were a genuinely disputed 28 issue of fact as to whether [the taxpayer] was actually on notice A See Thomsen, 887 F.2d at 19 ( A jury 28 1 that the person to whom he delegated responsibility for collecting, 2 accounting for, and paying over the taxes had failed to fulfill 3 that responsibility in the past. ). 4 Plaintiff created a disputed issue of material fact as to the 5 issue of willfulness. The government s motion for summary judgment 6 is DENIED on this issue. 7 8 3. 9 After viewing the entirety of the evidence in Plaintiff s 10 favor, drawing all inferences in her favor, Plaintiff s evidence 11 does not raise a genuine issue of fact as to her responsibility 12 under § 6672. 13 States as to Plaintiff s status as a responsible person. 14 Conclusion However, Summary judgment is GRANTED in favor of the United Plaintiff has created a genuine dispute as to 15 willfulness. Whether Plaintiff acted willfully under § 6672 must 16 be determined by the trier of fact. 17 DENIED as to whether Plaintiff acted willfully as that term is 18 defined by § 6672. The United States motion is 19 20 21 B. Plaintiff s Estoppel Claim The United States moves for summary judgment on Plaintiff s 22 equitable estoppel claim. 23 actions, 24 representations - reasonably led her to believe that her 2006 25 settlement offer was accepted. Plaintiff also alleges that the IRS 26 did not properly inform her of collection efforts against her. 27 Plaintiff maintains that these two grounds support the doctrine of 28 equitable estoppel, preventing the IRS from enforcing trust fund specifically, Plaintiff argues that the government s IRS Advisor 29 Carol Johnson s purported 1 penalties against her. 2 A party seeking to raise estoppel against the government must 3 establish affirmative misconduct going beyond mere negligence; even 4 then, estoppel will only apply where the government's wrongful act 5 will cause a serious injustice, and the public's interest will not 6 suffer undue damage by imposition of the liability. 7 U.S. Army, 875 F.2d 699, 707 (9th Cir. 1989). 8 available, the court then considers its traditional elements, which 9 include that (1) the party to be estopped must know the facts; (2) 10 he must intend that his conduct shall be acted on or must so act 11 that the party asserting the estoppel has a right to believe it is 12 so intended; (3) the latter must be ignorant of the true facts; and 13 (4) he must rely on the former's conduct to his injury. 14 875 F.2d at 709. 15 Watkins v. When estoppel is Watkins, To establish estoppel, Plaintiff s primary argument is that 16 she reasonably 17 representations that the IRS accepted the 2006 settlement offer. 18 According to Plaintiff, Agent Johnson notified Mr. Satterburg, 19 Plaintiff s representative, that Plaintiff s Offer and Compromise 20 was accepted by all the necessary people and based upon this 21 communication, Plaintiff felt relieved and did not pursue any other 22 actions to resolve this problem. 23 invoke 24 affirmative misconduct going beyond mere negligence. 25 Circuit has explained that this type of conduct does not rise to 26 the level of affirmative misconduct necessary to invoke estoppel 27 against the government. 28 570 (9th Cir. 1997). estoppel relied against on the IRS Advisor Carol Johnson s (Doc. 74, 11:15-11:19.) government, Plaintiff must To show The Ninth See Buffalow v. United States, 109 F.3d 30 1 In Buffalow, the President and sole shareholder of a 2 corporation sought a refund of corporation s trust fund taxes which 3 Buffalow paid as person responsible for taxes. 4 counterclaimed for unpaid trust fund taxes. 5 summary judgment, arguing that the government was estopped from 6 collecting the penalties because an IRS officer encouraged Buffalow 7 to keep the business going and behaved in a manner that led 8 Buffalow to believe that the IRS would not seek to hold him 9 personally responsible for the taxes. 10 The government Plaintiff moved for The Ninth Circuit held that Plaintiff did not establish affirmative misconduct : 11 [i]t takes much more than that to bind the government. Buffalow's letter to the revenue officer could not have been a true settlement with the government because it was not accepted in writing. If Buffalow made a mistake in that regard, his mistake cannot save him. Beyond that, what we said in Purcell applies here: We are sympathetic to [his] plight. However, at most the revenue officer encouraged him to keep the business going, and behaved in a manner that led him to believe that the IRS would not seek to hold him personally responsible for the ... taxes. This testimony at best established a mere omission or negligent failure on [the revenue officer s] part. That will not suffice to estop the government. 12 13 14 15 16 17 18 19 Buffalow, 109 F.3d at 573-574 (citations omitted). 20 Whether or not Agent Johnson orally approved of Plaintiff s 21 settlement offer, it is clear that Agent Johnson s conduct did not 22 rise to the level of affirmative misconduct as defined by the 23 Ninth Circuit. Like Buffalo and Landel Corp. v. United States, No. 24 C04-0452RSM, 2005 WL 1155709 (W.D.Wash. Feb.16, 2005),23 neither the 25 26 27 28 23 Under facts similar to Buffalow and this case, Plaintiff in Landel argued that the government was estopped from assessing federal withholding penalties against it because Plaintiff understood that it reached settlement agreement, and the IRS did not repudiate that understanding by responding to Plaintiff s 31 1 Revenue Agent nor the IRS explicitly approved, in writing, of 2 Plaintiff s 3 affirmations.24 This is not a settlement or affirmative misconduct. 4 Under Buffalow and its progeny, such conduct is a mere omission or 5 negligent failure on the revenue officer s part ... [t]hat will not 6 suffice to estop the government. 7 settlement proposal. At best, there were oral Id. at 573-574. In this case, Plaintiff suffered no prejudice. 8 with the government must be reduced to writing. 9 no detrimental reliance or prejudice that resulted. A settlement Plaintiff alleges Plaintiff s 10 contentions of being kept out of the loop are not relevant to the 11 key elements of estoppel. 12 collection efforts against her does not rise to the level of 13 affirmative misconduct necessary to invoke estoppel against the 14 government.25 15 Failing to inform Plaintiff of the Also fatal to Plaintiff s estoppel claim is that she does not 16 17 18 19 20 21 22 23 24 25 26 27 28 letter. Landel determined that Plaintiff's argument was meritless, noting that there was no written settlement agreement and the Ninth Circuit Court of Appeals has held that testimony such as [Plaintiff s representative s] will not suffice to estop the government. Landel, 2005 WL 1155709 at *5. 24 During oral argument, Plaintiff argued that there was written evidence of the settlement agreement, but [w]e ve never been able to obtain it through freedom of information, but we were told that it existed. To date, neither Plaintiff nor Defendant has produced a copy of the purported written settlement agreement. It is not part of the record. 25 According to the United States, Plaintiff confuses IRS collection efforts with its penalty investigation. As part of its collection efforts, the IRS contacted Gregory Shore, who attempted to settle the outstanding obligations. There was no need to contact Plaintiff at that time. Subsequently, the IRS initiated an investigation into possible TFRP assessment. Based on the record, the IRS attempted to contact Plaintiff as part of this penalty investigation. 32 1 establish that Revenue Agent Johnson had authority to bind the 2 government. 3 with United States is not binding unless the party can show that 4 official with whom agreement was made had authority to bind United 5 States. 6 1991); see D & N Bank v. United States, 331 F.3d 1374, 1378 (Fed 7 Ct. 1997) ( [a] contract with the United States also requires that 8 the Government representative who entered or ratified the agreement 9 had It is well-established that a purported agreement Grosinsky v. United States, 947 F.2d 417, 419 (9th Cir. actual authority to bind the United States. )(citation 10 omitted). There is no evidence, and Plaintiff points to none, that 11 Agent Johnson had actual authority to bind the United States. 12 After viewing the entirety of the evidence in Plaintiff s 13 favor, drawing all inferences in her favor, Plaintiff has failed to 14 offer any evidence or allege specific facts that would create a 15 genuine issue of material fact concerning equitable estoppel. 16 Summary judgment is GRANTED in favor of the United States regarding 17 Wilma Shore s second cause of action for estoppel. 18 /// 19 /// 20 /// 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 33 1 IV. CONCLUSION. 2 For the reasons discussed above: 3 1. Summary judgment is GRANTED in favor of the United States 4 as to Plaintiff s status as a responsible person as that term is 5 defined under § 6672. 6 Plaintiff acted willfully under § 6672. Summary Judgment is DENIED as to whether 7 2. Summary judgment is GRANTED in favor of the United States 8 as to the estoppel cause of action contained in Wilma Shore s 9 complaint, filed August 8, 2008. 10 11 12 The United States shall submit an order consistent with this decision within five (5) days of electronic service. 13 14 IT IS SO ORDERED. 15 Dated: aa70i8 October 9, 2009 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 16 17 18 19 20 21 22 23 24 25 26 27 28 34

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