Corporate officer was responsible person
despite not having check-signing authority
U.S. v. Steven Lindsey, (CA 10, 10/7/2002) 90 AFTR2d
2002-5468
The Tenth Circuit has upheld a determination of the Utah district court
that an individual was a responsible person for purposes of liability
for unpaid employment taxes despite the fact that he had no authority
to sign checks for the employer corporation.
Background.
If an employer fails to properly deposit its employment
taxes, IRS can seek to collect a 100% penalty tax from a "responsible
person." A responsible person is any person responsible to collect,
account for, and pay over any tax who willfully fails to perform his
responsibility. (Code Sec. 6672)
Facts.
Steven Lindsey was a founder and 50%
shareholder of TFS, which leased truck drivers solely to Clearwater,
another company with the same owners. Lindsey was president of Clearwater
and vice president of TFS. TFS operated rent-free out of Clearwater's
facilities and had no financial obligations other than for payroll and
employment taxes. Because Lindsey authorized all employee lease payments
from Clearwater to TFS, he had substantial financial control over TFS.
Lindsey could sign Clearwater checks, but had no authority to sign checks
on the TFS account. Because of financial problems, Clearwater favored
other creditors and stopped paying TFS the amounts necessary to cover
the truck drivers' wages and the employment taxes. As a result, TFS
failed to pay its employment taxes. When IRS asserted the 100% penalty
tax against him, Lindsey contended that because he lacked authority
to write checks on TFS's bank account he could not be responsible for
paying the employment taxes and for willfully failing to do so.
Analysis.
The Tenth Circuit framed the question here as-is check-signing authority
on a corporate account a necessary predicate for demonstrating both
personal responsibility and willfulness?
In finding that the lack of check-signing authority
wasn't conclusive, the Tenth Circuit said that the authority to sign
checks is only one of several factors that need to be considered in
determining a person's responsibility. The crucial inquiry is whether
the person had the effective power to pay the taxes, i.e., whether he
had the actual authority or ability, in view of his status within the
corporation, to pay the taxes owed. It is not necessary for the officer
himself to write the check, so long as the individual has significant
authority and control over the corporation's finances.
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