Westerman v. United States of America, The

Filing 33

MEMORANDUM OPINION AND ORDER Signed by Honorable Robert T. Dawson on February 3, 2012. (sh)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF ARKANSAS
HOT SPRINGS DIVISION
GARY WESTERMAN
V.

PLAINTIFF
Civil No. 10-6055

THE UNITED STATES OF AMERICA

DEFENDANT

MEMORANDUM OPINION AND ORDER
Currently before the Court are Defendant’s Motion to Dismiss
(doc.14), statement of facts (doc. 15), supporting brief (doc. 16),
Plaintiff’s response in opposition1 (doc. 19), supporting brief
(doc. 20) and statement of facts (doc. 21).

Also before the Court

are Plaintiff’s Motion to Remove Plaintiff’s Summary Judgment
Motion from Docket as Untimely and to Strike Plaintiff’s Statement
of Facts (doc. 24), supporting brief (doc. 24) and Plaintiff’s
reply (doc. 30). For the reasons stated herein, Defendant’s Motion
for Summary Judgment is GRANTED and Plaintiff’s Complaint (doc.
1)is DISMISSED WITH PREJUDICE.

Defendant’s Motion to Remove

Plaintiff’s Summary Judgment Motion from the Docket as Untimely and
1

Mr. Westerman’s memorandum brief in opposition to
defendant’s motion for summary judgment also purports to be in
support of his own cross-motion for summary judgment (doc. 20,
22). The cross-motion was filed on December 20, 2011, well after
the court’s November 28, 2011, deadline for dispositive motions.
(doc. 13). Even though Plaintiff’s cross-motion was filed late,
the Court has fully considered the motion and ruled on the motion
based on the merits.
1

to strike Plaintiff’s Statement of Facts(doc. 24) is DENIED.
I.

BACKGROUND
Westerman filed this case asking for a refund of money paid to

the Internal Revenue Service, pursuant to 26 U.S.C. § 6672.

The

refund request stems from a business known as WestCorp, Inc.
(“WestCorp”), of which Westerman was the sole shareholder and
executive officer.

WestCorp owned and operated an office supply

store, S&S Business World, in Hot Springs from 1999 to 2002.

S&S

Office World’s financial situation began deteriorating in 2000 due
to the opening of a competitor. WestCorp experienced cash flow
problems during 2000 and 2001 that led to it becoming delinquent in
remitting its Federal Employment Taxes (“FET”) to the Internal
Revenue Service (“IRS”).

S&S Office World ceased operating in

early 2002 due to its continued losses. (doc. 20 at 1).

Westerman

attempted to fully pay or almost fully pay for certain months, but
made no deposits or payments for other months. Many of his monthly
deposits were late.
Recovery

Penalty

The United States then assessed a Trust Fund
(“TFRP”)

of

$35,824.45

against

Westerman

individually for willful failure to pay over Trust Funds (“TF”)
pursuant to 26 U.S. C. § 6672.

(doc. 20 at 2).

Westerman contends that he is only liable for $28,955.15 as
the penalty because he did not “willfully” fail to pay over the TF
portions of each of the Federal Tax Deposits in which he made no
payment or less than the required amount.
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II.

STANDARD OF REVIEW
Summary judgment is appropriate when, viewing the facts and

inferences in the light most favorable to the nonmoving party, “the
pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material
fact and that the movant is entitled to judgment as a matter of
law.”

Fed.R.Civ.P. 56(c). The plain language of Rule 56(c)

mandates the entry of summary judgment, after adequate time for
discovery and upon motion, against a party who fails to make a
showing

sufficient

to

establish

the

existence

of

an

element

essential to that party’s case, and on which that party will bear
the burden of proof at trial.

Celotex Corp. v. Catrett, 477 U.S.

317, 322(1986). “A party seeking summary judgment always bears the
initial responsibility of informing the district court of the basis
for its motion, and identifying those portions of the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, which it believes demonstrate
the absence of a genuine issue of material fact.”

Id. at 323.

If

the moving party meets the initial burden, the burden then shifts
to the opposing party to produce evidence of the existence of a
genuine issue for trial.

Id. at 324.

The evidence must be viewed in the light most favorable to the
nonmoving party, giving the nonmoving party the benefit of all
reasonable inferences.

Kenney v. Swift Transport, Inc., 347 F.3d
3

1041, 1044 (8th Cir. 2003).

“In ruling on a motion for summary

judgment, a court must not weigh evidence or make credibility
determinations.”
legal

rather

Id.

than

“Where the unresolved issues are primarily

factual,

summary

judgment

is

particularly

appropriate.” Koehn v. Indian Hills Cmty. Coll., 371 F.3d 394, 396
(8th Cir. 2004).
III.

DISCUSSION
Title 26 U.S.C. §§ 3102(a) and 3402(a) of the Internal Revenue

Code (“IRC”) require the employer to withhold income and Social
Security taxes from wages and to pay them to the government.

An

employer acts willfully when it pays employees and creditors
instead

of

the

IRS,

because

the

employer

cannot

prefer

the

creditors instead of paying the employment tax liability. Honey v.
United States, 963 F.2d 1083, 1092 (8th Cir. 1992).

To be

personally liable under § 6672, one must be (1) a responsible
person and (2) act willfully in not paying the taxes.

Ferguson v.

United States, 484 F.3d 1068, 1072 (8th Cir. 2007).

The Eighth

Circuit has held that an individual is a responsible person even if
he or she did not become aware of the delinquency until a later
date.

Kizzier v. United States, 598 F.2d 1128, 1132 (8th Cir.

1979).
A.

RESPONSIBLE PERSON

The first issue is whether Westerman is a responsible person
who was required to collect payroll taxes for WestCorp for 2000 and
4

2001 within the meaning of §§ 6671 and 6672 of the IRC.

The person

who fails to collect and pay theses taxes may be made personally
liable to a penalty that equals the amount of the delinquent taxes.
Slodov v. United States, 436 U.S. 238, 244-45(1978).

To be a

responsible person, that person must have significant control over
the funds. The court looks at several factors, including: position
and

role in the company, involvement in management, compensation,

ability to hire and fire employees and the perception of being the
person in charge.

Ferguson, 484 F.3d 1068 (8th Cir. 2007).

In his

complaint, Westerman admits that he was a responsible officer of
WestCorp: “Plaintiff was the sole shareholder and executive officer
of WestCorp, Inc. The Defendant properly determined that plaintiff
was the only ‘willful and responsible’ person causing WestCorp,
Inc. to accrue unpaid employment taxes, as required by 26 U.S.C.
§ 6672.”

(doc. 1).

The Court finds that Westerman is a responsible person within
the meaning of IRC § 6672.
B.

WILLFUL FAILURE TO COLLECT AND PAY

The second issue is whether Westerman willfully failed to
collect and pay the payroll taxes pursuant to §§ 6671 and 6672 of
the IRC.

It is Westerman’s contention that the payments he made

during the applicable quarters were misapplied by the IRS.
20 at 5).

(doc.

He claims that his payments consisted of identifiable

portions of Trust Fund and Non Trust Fund (employer matching

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contributions) (“NTF”) liability based on his payroll records2.
The IRS, however, applied the monthly FTD payments to WestCorp’s
aggregate NTF liability for each quarter before reducing the
aggregate

TF

portion

of

the

quarter’s

liability.

Plaintiff

contends that he did not willfully fail to pay over the TF portion
of

the

FTD

because

he

“intended

and

believed”

that

each

of

WestCorp’s FTDs was paid toward the component TFs for the specific
payroll periods to which each FTD related. (doc. 20 at 6).
Viewing the evidence in the light most favorable to Westerman
and taking as true his affidavit expressing that his intention was
that his payments were to be applied first to the TF portion, the
undisputed fact is that he failed to designate such payments to the
IRS at the time he made them. (doc. 20, ex.1)(doc. 14, ex. 3). In
the absence of a specific designation, the IRS is entitled to apply
deposits and payments as it determines them to be in the best
interest of the IRS, in order to collect the taxes that will be
hardest

to

liability.

recover,

even

if

it

results

in

an

increased

tax

See Davis v. United States, 961 F.2d 867, 871, 879-880

(9th Cir. 1991)(holding that the IRS could reallocate payments from
trust fund portion of tax debt to non-trust fund portion, where the

2

Westerman identified his “payroll records” as a spreadsheet
he sent to the IRS in 2003 for the purpose of setting up an
installment plan to pay the delinquent taxes; he testified in his
deposition that he did not include the spreadsheet with any of
his monthly payments during the applicable quarters. (doc. 14,
ex. 3).
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reallocation increased the taxpayer’s penalty from $2,888.98 to
$18,848.19.)
An individual willfully fails to pay over employment taxes if
he or she “acts or fails to act consciously and voluntarily and
with knowledge or intent that as a result of his action or inaction
trust funds belonging to the government will not be paid over but
will be used for other purposes, or by proceeding with a reckless
disregard of a known or obvious risk that trust funds may not be
remitted to the government.”
889, 894 (8th Cir. 2011).

Oppliger v. United States, 637 F.3d

In Oppliger, the business owners argued

that their bookkeeper embezzled money from the company and changed
and withheld accounting information that kept them from knowing the
employment taxes had not been paid. The court found that once the
Oppligers became aware of their tax liability after an IRS officer
visited the business, they were obligated to pay the taxes before
satisfying their creditors.

Id.

“The term willfully does not

connote a bad or evil motive, but rather means a voluntary,
conscious and intentional act, such as the payment of other
creditors in preference to the United States.”

Elmore v. United

States, 843 F.2d 1128, 1132 (8th Cir. 1988).
Westerman testified that he missed some payments and was late
in making some payments because he “didn’t have the cash to make
the deposits.”

(doc. 14, ex.3 at 45 - 46).

Additionally, he

testified that he paid several past due bills during the time when

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his tax liabilities were accruing.

Westerman knew of his tax

liability in 2000 and 2001 when he failed to make full payment of
employment taxes for the quarters at issue and continued to pay
employees and third-party creditors rather than the IRS.

Such

knowledge and subsequent payments to employees and third-party
creditors connote willfulness. Honey, 963 F.2d at 1087. The Court
finds Westerman’s “good faith” defense and argument that the rule
of equity should apply to be without merit.
The

Court

finds

Westerman

acted

willfully

when

he

made

payments to creditors without first fulfilling his liability for
payroll taxes due and owing to the United States.
IV.

CONCLUSION
Accordingly, the Motion for Summary Judgment (doc. 14) by the

United States is GRANTED and the Motion for Summary Judgment by
Westerman (doc. 19)is DENIED.

In light of the Court’s ruling, the

United States’ Motion to Remove Plaintiff’s Summary Judgment Motion
from the Docket as Untimely and to Strike Plaintiff’s Statement of
Facts (doc. 24) is DENIED.

Plaintiff’s Complaint (doc. 1) is

DENIED WITH PREJUDICE.
IT IS SO ORDERED this 3rd day of February, 2012.

/s/ Robert T. Dawson
Honorable Robert T. Dawson
United States District Judge

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