Weder v. Internal Revenue Service

Filing 42

ORDER granting 31 defendant's Motion for Summary Judgment and ordering the parties to submit a proposed final judgment in this action within sixty (60) days consistent with this Order and the Parties' Notice and Stipulation of Partial Settlement (as more fully set out). Signed by Honorable Vicki Miles-LaGrange on 10/16/2017. (ks)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
TOMMY W. WEDER,

)
)
Plaintiff,
)
)
vs.
)
)
UNITED STATES OF AMERICA,
)
ex rel. INTERNAL REVENUE SERVICE, )
)
Defendant.
)

Case No. CIV-15-304-M

ORDER
Before the Court is defendant’s Motion for Summary Judgment, filed March 28, 2017. On
May 5, 2017, plaintiff filed his response, and on May 26, 2017, defendant filed its reply. Based
upon the parties’ submissions, the Court makes its determination.
I.

Introduction
Plaintiff is the former president and owner of Boom Drilling, LLC (“Boom”). Boom

incurred $1,183,644.91 of employment tax liability for the first quarter of 2008 but failed to timely
pay its employment taxes. In or about April 2008, Internal Revenue Service (“IRS”) Officer John
Spangler (“Spangler”) met with plaintiff, Jerry Frech, a CPA for plaintiff and Boom; Don Lyles,
counsel for Boom; and Pam Weder, a CPA employed by Boom, to discuss Boom’s unpaid
employment taxes.
On April 25, 2008, after the above meeting, Boom transferred $300,000 to the IRS to be
applied to Boom’s employment taxes. Boom did not make the April 2008 transfer by check or
other written financial instrument but made it by wire transfer through the IRS’s electronic funds
transfer payment system (“EFTPS”). Boom did not provide written instructions to the IRS on how
to allocate any portion of the April 2008 transfer between the trust fund and non-trust fund portions

of Boom’s employment taxes.

Plaintiff alleges that at the April meeting, Spangler told

representatives at Boom that they had to transfer the $300,000 via wire using the EFTPS system
and that the funds would all be applied to Boom’s trust fund tax liabilities. Instead, the IRS applied
a portion of the April 2008 transfer to Boom’s non-trust fund employment tax liability. On
November 9, 2009, the IRS assessed plaintiff penalties under 26 U.S.C. (“I.R.C.”) § 6672 for
Boom’s unpaid trust fund taxes for the first quarter of 2008, which plaintiff paid in full.
On September 8, 2008, Boom filed a petition for Chapter 11 bankruptcy in the United
States Bankruptcy Court for the Western District of Oklahoma. By orders issued on September
11, 2008, September 16, 2008, and September 24, 2008, the bankruptcy court authorized Boom to
pay pre-petition and post-petition wages of Boom’s employees for the period beginning on August
27, 2008 up to Boom’s pay week ending September 26, 2008, including all resulting employment
taxes Boom owed to the United States. Boom paid wages and made required EFTPS deposits of
employment taxes for four of its pay weeks ending September 26, 2008, a period during which
Boom incurred $269,058.08 of employment tax liability. Defendant alleges that the IRS did not
receive timely employment tax deposits for wages Boom paid from August 27, 2008 to September
3, 2008, which totals $42,727.34. On November 9, 2009, the IRS assessed plaintiff penalties under
§ 6672 for Boom’s unpaid trust fund taxes for the third quarter of 2008, which plaintiff paid in
full.
On March 25, 2015, plaintiff filed the instant action seeking a refund of penalties that the
IRS assessed against him under § 6672. Plaintiff alleges that the IRS misapplied several of Boom’s
employment tax payments to non-trust fund tax liabilities, which, if allocated to the trust fund tax
liabilities, would reduce plaintiff’s § 6672 penalties. The disputed amounts include: (1) portions
of the $300,000 transfer on April 25, 2008, and (2) $42,727.34 of the $269,058.08 of bankruptcy

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payments. Defendant now moves for summary judgment as to plaintiff’s refund claims regarding
the above disputed amounts.
II.

Summary Judgment Standard
“Summary judgment is appropriate if the record shows that there is no genuine issue as to

any material fact and that the moving party is entitled to judgment as a matter of law. The moving
party is entitled to summary judgment where the record taken as a whole could not lead a rational
trier of fact to find for the non-moving party. When applying this standard, [the Court] examines
the record and reasonable inferences drawn therefrom in the light most favorable to the nonmoving party.” 19 Solid Waste Dep’t Mechs. v. City of Albuquerque, 156 F.3d 1068, 1071-72
(10th Cir. 1998) (internal citations and quotations omitted).
“Only disputes over facts that might affect the outcome of the suit under the governing law
will properly preclude the entry of summary judgment. Furthermore, the non-movant has a burden
of doing more than simply showing there is some metaphysical doubt as to the material facts.
Rather, the relevant inquiry is whether the evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.”
Neustrom v. Union Pac. R.R. Co., 156 F.3d 1057, 1066 (10th Cir. 1998) (internal citations and
quotations omitted).
III.

Discussion
A.

Employment taxes
Under 26 U.S.C. §§ 3102(a) and 3402(a), employers are required to
withhold federal social security and income taxes from wages paid
to employees, and to remit those withheld amounts to the IRS on a
regular basis. If an employer withholds these payroll taxes (also
known as “trust-fund taxes”), but fails to pay them over to the
government, the employee is nevertheless credited with having paid
the taxes, and the government may not require any additional

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payment from the employee. Slodov v. United States, 436 U.S. 238,
243, 98 S.Ct. 1778, 56 L.Ed.2d 251 (1978).
Smith v. United States, 555 F.3d 1158, 1162-63 (10th Cir. 2009).
By contrast, employment excise taxes – Social Security and
Medicare matching contributions – constitute the “non-trust
fund” portion of federal employment taxes because the
employer pays them directly, never holding them in “trust.”
Under I.R.C. § 6672, the individual responsible for
collect[ing] such tax, or truthful account[ing] for and
pay[ing] over the trust fund portion of federal employment
taxes may be personally liable to the IRS for a willful under
payment of the trust fund portion. Personal liability does not
attach to an employer’s underpayment of the non-trust fund
portion.
Westerman v. United States, 718 F.3d 743, 747 (8th Cir. 2013) (internal quotations and citations
omitted). Further,
[w]hen employers make payments toward their quarterly
employment tax liabilities, the IRS’s longstanding practice – absent
directions from the employer – is to apply the payment first toward
the employer’s non-trust fund liabilities for the quarter and, only
once that obligation is fully satisfied, toward the quarter’s trust fund
liabilities.
Id. at 749.
B.

April 25, 2008 wire transfer of $300,000

Defendant asserts that plaintiff is not entitled to a refund of any portion of the $300,000.
First, defendant contends that plaintiff’s claim for a refund of any portion of the $300,000 fails as
a matter of law because it was a “deposit”, opposed to a voluntary payment, of employment taxes
under I.R.C. § 6302, and a deposit cannot be designated toward trust fund liabilities by an
employer. Second, defendant contends that even if Boom could have designated the $300,000 to
trust fund liabilities as a voluntary payment, Boom both failed to make a written designation and
made the payment electronically, a method that does not allow for designation. Defendant further

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contends that even presuming an IRS revenue officer made oral assurances to plaintiff, the officer’s
statements cannot bind the United States given contradictory published IRS Revenue Procedures
requiring voluntary employment tax payment designations be made in writing. Plaintiff asserts
that the $300,000 should have been credited only to Boom’s trust fund liabilities because an oral
agreement had been reached between plaintiff/Boom and Spangler at the April meeting. Plaintiff,
therefore, contends that defendant is not entitled to summary judgment as to this claim.
The Court has carefully reviewed the parties’ briefs and evidentiary submissions. Viewing
the evidence in the light most favorable to plaintiff and viewing all reasonable inferences in
plaintiff’s favor, the Court finds that defendant is entitled to summary judgment as to plaintiff’s
claim regarding the April 25, 2008 wire transfer of $300,000. Specifically, the Court finds that
even assuming the $300,000 transfer was a voluntary payment that Boom had the right to designate
to trust fund liability, Boom did not properly designate it to trust fund liabilities.
“IRS policy permits taxpayers who ‘voluntarily’ submit
payments to the IRS to designate the tax liability to which the
payment will apply.” United States v. Energy Resources Co., Inc.,
495 U.S. 545, 548, 110 S.Ct. 2139, 109 L.Ed.2d 580 (1990) (citation
omitted). Over time, the IRS has modified the scope of this right.
At one time, the IRS required only “directions” from taxpayers in
order to effectuate a directed payment. See Rev. Rul. 73-305, 19732 C.B. 43. However, the IRS subsequently curtailed the scope of
the right that it had initially authorized, requiring that taxpayers
provide “specific written direction as to the applications of the
payment.” Rev. Proc. 2002-26 § 3.01 (emphasis added). Absent
written directions, the “Service will apply the payment to periods in
the order of priority that the Service determines will serve [the
Service’s] best interest.” Id. at § 3.02.
Thus, to the extent that at one time the IRS permitted oral
directions to effectuate a directed payment, under revenue procedure
2002-26 (applicable here), a taxpayer must specify in writing the
payment’s designation. See Martin v. Commissioner, 38 Fed.Appx.
980, 984 (4th Cir. 2002) (“[U]nless a taxpayer provides specific
written instructions for the application of a voluntary payment, the
IRS may apply the payment as it wishes.”).
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Gessert v. United States, 703 F.3d 1028, 1037-38 (7th Cir. 2013).
In the case at bar, it is undisputed that Boom did not provide any specific written direction
to the IRS regarding the designation of the $300,000 transfer. Thus, the IRS was entitled to apply
the $300,000 transfer in the best interest of the IRS. The Court further finds that any alleged oral
agreement or oral statements regarding the designation of the $300,000 transfer made at the April
2008 meeting between Boom and Spangler are not a proper designation under IRS procedures.
See id. (oral agreement between company and IRS agent regarding allocation of voluntary
payments not sufficient designation); Williams v. United States, No. CV87-PT-2207-S, 1992 WL
94786 (N.D. Ala. Feb. 5, 1992) (same). Additionally, “the rule that a designation of a partial
voluntary payment of employment taxes can be effective only if it is in writing is supported by
public policy. It would be almost impossible for either party to confirm or deny any alleged oral
designations.” Kinnie v. United States, 771 F. Supp. 842, 854 (E.D. Mich. 1991). Further, the
Court finds the written designation requirement places no heavy burden on a taxpayer, for such a
designation could be easily included in written correspondence accompanying the payment.
Finally,
[t]he statutory scheme Congress created in §§ 6672 and 7501 plainly
– and reasonably – permits the IRS to maximize the treasury’s
collection of unpaid liabilities by applying undesignated
employment tax payments first toward non-trust fund taxes and then
by recovering unpaid trust fund underpayment. Because the IRS’s
rights in this case are clearly defined and established by law, equity
has no power to change or unsettle those rights.
Westerman, 718 F.3d at 752 (internal quotations and citations omitted).
Accordingly, the Court finds that defendant’s motion for summary judgment should be
granted as to the April 25, 2008 wire transfer of $300,000.

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C.

Bankruptcy payments

Defendant contends that plaintiff’s remaining claim for $42,727.34 of the bankruptcy
payments must also fail. Specifically, defendant asserts that the IRS is entitled to allocate that sum
to Boom’s unpaid non-trust fund liabilities because Boom failed to pay all of its non-trust fund
taxes for wage payments authorized during the company’s bankruptcy. Plaintiff contends that the
evidence shows there is a legitimate question of fact concerning whether these taxes were paid
and, thus, whether plaintiff is entitled to the refund he seeks.
The Court has carefully reviewed the parties’ briefs and evidentiary submissions. Viewing
the evidence in the light most favorable to plaintiff and viewing all reasonable inferences in
plaintiff’s favor, the Court finds that plaintiff has not submitted sufficient evidence to create a
genuine issue of material fact as to whether Boom paid the taxes at issue. The only evidence
plaintiff relies upon to show that the taxes were paid is a paragraph in Boom’s Second Emergency
Motion to Approve Payment of Prepetition Wages and Benefits in the Ordinary Course of
Business, and Brief in Support filed in the bankruptcy case and the bankruptcy court’s orders
permitting Boom to pay wages and taxes for this period. The paragraph in Boom’s motion to
approve payment, however, makes no mention of payment of employment taxes and simply
confirms payment and anticipated payment of payroll or wages.

Further, an attorney’s

representation in a motion, without more, is not proper evidence to support finding a disputed issue
of material fact. Additionally, the Court finds the bankruptcy court’s orders do not support any
finding that Boom paid the taxes at issue.
Accordingly, the Court finds that defendant’s motion for summary judgment should be
granted as to the bankruptcy payments.

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IV.

Conclusion
For the reasons set forth above, the Court GRANTS defendant’s Motion for Summary

Judgment [docket no. 31]. The Court hereby ORDERS the parties to submit a proposed final
judgment in this action within sixty (60) days consistent with this Order and the Parties’ Notice
and Stipulation of Partial Settlement [docket no. 30].
IT IS SO ORDERED this 16th day of October, 2017.

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