Schiffman v. United States of America

Filing 40

MEMORANDUM AND ORDER granting 33 Motion for Summary Judgment. So Ordered by Judge Mary M. Lisi on 4/9/2014. (Jackson, Kerrie)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
RICHARD SCHIFFMANN,
Plaintiff,
v.

C.A. No. 12-695 ML

UNITED STATES OF AMERICA,
Defendant.

UNITES STATES OF AMERICA,
Counterclaim Plaintiff,
v.
RICHARD Schiffmann, GEORGE STROUTHOPOULOS,
ERWIN W. VAHLSING, JR., and STEPHEN
CUMMINGS,
Counterclaim Defendants.

MEMORANDUM AND ORDER
Plaintiff, Richard Schiffmann ("Schiffmann"), has filed a complaint against the United States
for the recovery of federal payroll taxes assessed and collected. The United States has answered the
complaint and filed counterclaims, to collect outstanding taxes, against Schiffmann, George
Strouthopoulos ("Strouthopoulos"), Erwin Vahlsing ("Vahlsing"), and Stephen Cummings
("Cummings"). The matter is before the Court on the Governn1ent's motion for summary judgment on
the counterclaims against Schiffmmm, Strouthopoulos, and Cm1m1ings. 1

I. Summary Judgment
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to
any material fact and the movm1t is entitled to judgment as a matter oflaw." Fed. R. Civ. P. 56( a). An

1

Defaultjudgment has entered against Vahlsing in the sum of$923,009.86.

1

issue is "genuine" if the pertinent evidence is such that a rational factfinder could resolve the issue in
favor of either party, and a fact is "material" if it "has the capacity to sway the outcome of the litigation
under the applicable law." National Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 735 (1st Cir.
1995).
The moving party bears the initial burden of showing the Court that no genuine issue of
material fact exists. Id. Once the moving party makes this showing, the non-moving party must point
to specific facts demonstrating a trialworthy issue. Id. The Court views all facts and draws all
reasonable inferences in the light most favorable to the nonmoving party. Continental Casualty Co. v.
Canadian Universal Insurance Co., 924 F.2d 370 (1st Cir. 1995).
To aid the Court in identifying genuine issues of material fact, this District has adopted Local
Rule Cv 56. "Valid local rules are an important vehicle by which courts operate. Such rules carry the
force oflaw ... and they are binding upon the litigants and upon the court itself .... " Air Line Pilots
Association v. Precision Valley Aviation, Inc., 26 F.3d 220,224 (1st Cir. 1994) (citations and footnote
omitted). Local Rule Cv 56 provides that, in addition to a memorandum of law, the moving party in a
motion for summary judgment "shall" also file a separate statement of undisputed facts. D.R.I. LR Cv
56(a)(l). An "objecting party that is contesting the movant's Statement of Undisputed Facts shall file
a Statement of Disputed Facts, which shall be numbered correspondingly to the Statement of
Undisputed Facts, and which shall identify the evidence establishing the dispute .... " Id. at (a)(3).
"[A]ny fact alleged in the movant's Statement ofUndisputed Facts shall be deemed admitted unless
expressly denied or otherwise controve1ied by a party objecting to the motion." Id. Parties who ignore
Local Rule Cv 56 do so at their own peril. See generally Gosselin v. Webb, 242 F.3d 412, 415 n.2 (1st
Cir. 2001); see also Pope v. Potter, No. 03-544,2005 WL 3178179 (D.R.I. November 28, 2005) (under

2

similar prior version of local rule, the comi held that an attempt to dispute facts by merely
incorporating them into a memorandum opposing a motion for summary judgment does not meet the
requirements of the local rule; a separate statement must be filed).
In addition to its motion and memorandum, the Govemment filed a statement of undisputed
facts. See D.R.I. LR Cv 56(a)(l). Schiffmann and Cummings filed a joint memorandum in opposition
to the motion for summary judgment but did not file a statement of disputed facts. Strouthopoulos did
not respond to the motion for summary judgment. Thus, the facts as delineated in the Govemment's
statement of undisputed facts are deemed admitted. See D.R.I. LR Cv 56(a)(3); Indian Harbor
Insmance Co. v. Assmance Co. of America, No. CA 08-146 ML, 2010 WL 2365571 (D.R.I. May 21,
2010), repmi and recmmnendation adopted, No. CA 08-146 ML, 2010 WL 2346654 (D.R.I. June 9,
2010).

II. Background
A. ICOA, Inc.
ICOA, Inc. ("ICOA'') is a holding company whose subsidiary companies provide wireless
intemet services in public places such as airpmis, coffee shops, and marinas. WebCenter Teclmology,
Inc. ("WebCenter"), a subsidiary ofiCOA, is the payroll processor for ICOA. After notice and
demand, WebCenter failed to pay federal payroll tax liabilities. Accordingly, the Intemal Revenue
Service ("IRS") made tax assessments against the parties that it deemed "responsible persons" m1der 26
U.S.C. § 6672- Strouthopoulos, Schiffmann, Cummings, and Vahlsing. Strouthopoulos was assessed
for the fourth quatier of 2004 through the fourth quarter of 2007; Schiffmatm was assessed for the
second qumier of 2005 through the second quarter of 2006; Cummings was assessed for the fomih
quatier of2005 through the second quarter of2006. As of March 3, 2014, the Government contends

3

that the outstanding balances on the assessments, including interest, are as follows: Strouthopoulos
$908,995.31, Schiffmann $401,362.31 and Cummings $285,741.71.
B. The Counterclaim Defendants
1. Schiffmann

In 2003, Schiffmann sold a business he co-founded to ICOA. As part of the compensation for
the sale of the business, Schiffmmm received stock in ICOA. Subsequent to the sale of his business,
Schiffmam1 began working for ICOA m1d became its president in October 2004. At that time,
Strouthopoulos was ICOA's chief executive officer ("CEO") m1d Vahlsing was ICOA's chieffinancial
officer ("CFO"). On April 1, 2005, Schiffmmm became CEO ofiCOA. At or about the same time,
Schiffmann also became a member ofiCOA's board of directors.
As CEO, Schiffmmm supervised employees, had the authority to fire employees, and was
involved in the acquisition of numerous subsidim·ies. While CEO, Schiffmann also authorized
payments to creditors, including payroll. During his tenure as CEO, Schiffmmm was a signatory on
ICOA's bank account and exercised check signing authority when Vahlsing was unavailable to sign
checks. Schiffmam1's check signing authority included authorizing payments to vendors and signing
checks payable to employees that were "most likely" payroll checks. Statement of Undisputed Facts at
~

11; Docket# 34.
As CEO, Schiffmmm was aware that ICOA experienced cash flow problems, bounced checks,

and had trouble paying creditors. Employees complained to Schiffmann about not being paid on time?
Schiffmann discussed ICOA's finm1cial problems with Vahlsing and Strouthopoulos but was not
satisfied with their responses. In August 2005, Schiffmmm grew fmstrated with his inability to resolve

2

Employees were scheduled to be paid on a weekly basis.

4

the financial problems ofiCOA and hired Cummings as a financial consultant.
Schiffmann never asked Vahlsing ifiCOA was ctment on its tax liabilities. Schiffmam1 first
became aware ofiCOA's federal tax liability in late October or early November 2005 when Cummings
brought the issue to his attention. 3
2. Cummings
Schiffmann interviewed Cummings for a financial consultant position for ICOA because
Cummings was an "established finance guy with an audit background" and because he was impressed
by the fact that Cummings had worked for the IRS. Statement of Undisputed Facts

at~

20; Docket#

34. On October 25,2005, Cummings became the CFO ofiCOA. As CFO, Cummings was responsible
for the "financial well-being" ofiCOA, interviewed candidates for jobs, hired a financial consultant,
and helped determine financial policy. Id.

at~

22. After becoming CFO, Cununings was granted

signatory authority on ICOA's bank account. Cmmnings used his signatory authority to sign checks,
including the "occasional" payroll check. I d. at ~ 23.
As CFO, Cummings had access to all ofiCOA's financial records including its tax records.
Shortly after becoming CFO, Cummings examined ICOA's tax records and leamed that ICOA had not
paid its payroll taxes for several years. According to ICOA's records, as of September 30,2005, the
accrued payroll tax liability was $386,115.18.4 As CFO, Cummings would "periodically review what
was being paid" and choose what bills to pay in order to keep the business operating. Id.

at~

24.

Although he knew that ICOA continued to be delinquent on its payroll tax liabilities, Cummings chose

3

Because the Court must view the facts and draw all reasonable inferences in the light most favorable to the
non-moving party, the Court finds that Schiffmann became aware of the outstanding tax liability in early November
2005.
4

This total is made up of taxes accrued from 2001 through September 30,2005. The total includes an
accrued state tax liability of over $46,000.

5

to sign checks payable to creditors, other than the United States, that he deemed crucial.
C. November 2005 Board Meeting
Schiffmann and Cummings decided to convene a meeting of the ICOA board of directors to
discuss, among other things, ICOA's tax liabilities. The meeting was held on November 18,2005. At
the time of the meeting, the ICOA board of directors consisted of Schiffmmm, Strouthopoulos,
Vahlsing and Stephen Harris. Cummings attended the meeting and
introduced a number of tax issues to the Board, including m1 update on the
Corporation's payroll m1d income tax status. [He] reminded the Board that the
Corporation is approximately four years behind in payroll and income taxes. [He] noted
that while the tax exposure is recorded on the balm1ce sheet and expected penalties are
recorded[,]the Corporation must resolve its obligations ....
Id.

at~

44. Dming the meeting, the board of directors adopted a mm1ber of resolutions, including (1)

appointing Cummings and Schiffmann directors of each ofiCOA's subsidiaries; (2) electing
Cmmnings senior vice president, CFO, secretary and treasmer ofiCOA, (3) electing Vahlsing vice
president of finance ofiCOA; and (4) granting ICOA's officers the authority to incur finm1cial and
contractual obligations according to the following schedule: CEO (Schiffmann) - $1 00,000; CFO
(Cummings)- $75,000; and vice president (Vahlsing)- $25,000. Despite Schiffmannn's authority, he
did not consider writing a check to make a payment on the tax liability.
After the November meeting, Schiffmmm m1d Cummings discussed ways to raise funds to pay
the tax liabilities and they spoke to m1 attorney concerning ICOA's tax situation. No payment of tax
liabilities, however, resulted from these effmis. At his deposition, Schiffmmm testified that although
ICOA raised capital after the November board meeting, the capital "that came into the company ...
[was not] targeted to address ... the tax obligation." Exhibit 2, Schiffmmm Deposition at 88; Docket#
33-5.

6

ICOA's board of directors fired Schiffmann and Cummings effective June 23, 2006. After
Schiffmann and Cummings were fired, Strouthopoulos became CEO and Vahlsing became CFO.
D. Infusions of Cash
From March 2004 to February 2006, ICOA received approximately $2,000,000 in funding from
Cornell Capital; including $544,893 received during Cummings' tenure as CFO and $944,880 received
during Schiffmrum's tenure as CEO.
F. Payment to Creditors Other than the United States
ICOA continued to pay creditors other than the United States, including its employees, rather
than satisfy its increasing tax liabilities. ICOA paid its employees as follows:
Qumierly Tax Period Ending

Total Taxable Wages Paid During Qumier
$ 430,308.45
386,937.87
480,181.85
395,001.75
417,967.97

June 30, 2005
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006

E. Balance Due on Assessments
As of March 3, 2014, the Government contends that the outstanding balances due on the
assessments, including interest, are as follows:
Defendant

Quarterly Tax Period Ending

Balance Due5

Schiffmann

June 30, 2005
September 30, 2005
December 31, 2005

$ 54,131.38
61,489.22
106,309.08

5

Several of the balances due on the assessments for a particular quarter listed on the Government's
statement of undisputed facts did not match the balances due for the same quarters listed on the affidavit of revenue
officer Raymond Galas ("Galas"). The Court brought this discrepancy to the attention of the Government during a
conference with the pmties. The Government subsequently filed a supplemental statement of undisputed facts and a
supplemental affidavit from Galas.

7

March 31, 2006
Jtme 30, 2006

88,548.19
90,884.44
$401,362.31

Cmmnings

December 31, 2005
March 31, 2006
June 30, 2006

106,309.08
88,548.19
90,884.44
$ 285,741.71

Strouthopoulos

December 31, 2004
March 31, 2005
Jtme 30, 2005
September 30, 2005
December 31, 2005
March 31, 2006
Jtme 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
June 30, 2007
September 30, 2007
December 31, 2007

31.91
62,045.15
57,844.08
64,667.80
110,310.48
91,885.00
94,326.68
113,503.29
82,827.99
60,416.17
53,111.69
69,276.67
48,748.40
$ 908,995.31 6

III. Law
Employers are required to withhold federal social security taxes and income taxes from
employee wages and to forward the withholdings to the United States. Moulton v. United States, 429
F.3d 352 (1st Cir. 2005). Amounts withheld are held in trust for the United States. Id.; see also Sotir
v. United States, 978 F.2d 29,30 (1st Cir. 1992) ("[e]mployers are required to hold these withheld
funds in trust for the United States ... and thus the taxes are sometimes referred to as trust-fund
taxes") (internal quotation marks and citations omitted). An employer must report the amounts
quatierly. Moulton, 429 F.3d 355. Once funds are withheld from an employee's wages, the IRS does

6

Assessments were made against Strouthopoulos in June 2009 and against Schiffmann and Cummings in
May 2010. Thus, because interest runs from the date of assessment, the balance due on the same underlying liability
(M., June 30, 2005 - June 30, 2006) is greater for Strouthopoulos.

8

not have recomse against the employee for the withheld taxes - even if the employer does not forward
the funds to the IRS. United States v. Hulick, No. 08-cv-499-SM, 2011 WL 6100910 (D.N.H. Dec. 7,
2011). The Internal Revenue Code, however, "imposes personal liability not only upon employers but
upon their officers and agents who are responsible for collecting, accmmting for, and paying over to the
government the taxes withheld." Thomsen v. United States, 887 F.2d 12, 14 (1st Cir. 1989).
26 U.S.C. § 6672 imposes upon "responsible persons" what is known as the Trust Fund
Recovery Penalty. Hulick 2011 WL 6100910 at *5. 26 U.S.C. § 6672 provides, in part, that 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, or willfully attempts in any manner to evade or defeat any such tax or the payment
thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal
to the total amount of the tax evaded, or not collected, or not accounted for and paid
over.
26 U.S.C. § 6672(a). An individual is liable under§ 6672(a) if he or she (1) is a person who is
"required to collect, truthfully account for, [or] pay over the taxes(' a responsible person'), and (2)
willfully fails to do so." Jean v. United States, 396 F.3d 449, 454 (1st Cir. 2005) (internal quotation
marks and citation omitted).
A. Responsible Person
To determine if an individual is a responsible person under 26 U.S.C. § 6672 courts look to the
totality of the circumstances. Vinick v. United States, 205 F.3d 1 (1st Cir. 2000) (Vinick II); Keohan v.
United States, 138 F. Supp. 2d 62 (D. Mass. 2001).
In determining who falls within the category of responsible person, the courts have
identified seven typically used, but nonexclusive, indicia. The inquiry focuses on
whether the individual (1) is an officer or member of the board of directors, (2) owns
shares or possesses an entrepreneurial stake in the company, (3) is active in the
management of day-to-day affairs of the company, (4) has the ability to hire and fire
employees, (5) makes decisions regarding which, when and in what order outstanding
debts or taxes will be paid, (6) exercises control over daily bank accounts and
9

disbursement records, and (7) has check-signing authority.
Vinick II, 205 F.3d at 7 (internal quotation marks and citation omitted). Although emphasis is placed
on the last three factors, no single factor controls the analysis. Id. at 8, 9; K.eohan, 138 F. Supp. 2d at
73. More than one person may be held responsible for the tax liability. Lubetzky v. United States, 393
F.3d 76 (1st Cir. 2004). Liability under§ 6672 is joint and several among responsible persons. Gray v.
United States, No. 11-0680 SC, 2012 WL 525512 (N.D. Cal. Feb. 16, 2012).
In determining whether an individual is a responsible party, an "essential factor ... is any
decision-making authority over which creditor ... [the business] paid." K.eohan, 138 F. Supp. 2d at 74
(internal quotation marks and citation omitted). "The weight of the seven factors ... and other relevant
circumstance .. needs to lean towards such decision-making authority in order to hold a person
responsible .... " Id.

(il~ternal

quotation marks and citation omitted). Courts concentrate on "whether

the person had the effective power to pay the taxes -that is, whether he had the actual authority or
ability, in view ofhis status within the corporation, to pay the taxes owed .... " Moulton, 429 F.3d 356
(internal quotation marks and citation omitted). Check signing authority is a significant factor; the
authority to sign checks, however, without more, is a "weak pillar on which to rest a liability
determination.... " Vinick II, 205 F.3d at 10. "Possession of the authority without its exercise is not
enough." Id. Comis analyze check signing authority in the context of financial control. Id. The
ability to issue "smaller checks without the approval of a superior may demonstrate one's authority to
pay the employer's withholding taxes to the IRS." K.eohan, 138 F. Supp. 2d at 74.
"Responsibility is a matter of status, duty and authority, not lmowledge." Thomsen, 887 F.2d at
16 (internal quotation marks, footnote, and citation omitted). Courts have "explicitly given the word
'responsible' a broad interpretation." Moulton, 429 F.3d at 356 (internal quotation marks and citation

10

omitted). Courts have
fashioned an elastic definition [of a responsible person] predicated upon the function of
an individual in the employer's business, not the level of the office held: whether the
person had the power to determine whether the taxes should be remitted or paid or had
the final word as to what bills should or should not be paid and when. [T]he word final
means significant rather than exclusive control over the disbursement of funds.
Keohan, 138 F. Supp. 2d at 74 (intemal quotation marks and citation omitted). An individual cam1ot
avoid responsibility by claiming that he or she failed to pay the taxes at the direction of a supervisor.
Keohan, 138 F. Supp. 2d at 75.
Responsibility is determined on a quarter-to-quarter basis. Vinick v. Commissioner of Internal
Revenue, 110 F.3d 168, 170-172 (1st Cir. 1997) ("Vinick I"); Vinick II, 205 F.3d at 10-11; Moulton,
429 F.3d at 357. Responsibility during one qmuier does not make the individual automatically a
responsible person for all periods. Vinick II, 205 F.3d at 10-11. Evidence outside a qumier, however,
may be used to establish liability for the qumier. Moulton, 429 F.3d at 357.
For example, behavior in one quarter, depending on the circumstances, could cast light
on one's status as a responsible person in other quarters. Because one's function and
status ca11 change between quarters, however, it would be erroneous based solely on
evidence from one quarter automatically to conclude that a person is responsible in
another quarter.
Id. (internal quotation marks and citation omitted).
B. Willfulness
To act willfully under § 6672 an individual "must have some knowledge of failure or risk of
failure to remit the employment taxes." Jean, 396 F.3d at 454 (internal quotation marks and citation
omitted). Willfulness does not depend on the presence of criminal motive or specific intent to defraud.
Vinick I, 110 F.3d at 173. It is "enough if a defendant knows that the taxes are due from the company
and yet disburses funds for other purposes or knowingly fails to pay the required sum to the

11

government." Lubetzky, 393 F.3d at 80. Willfulness under§ 6672 is a "voluntary, conscious and
intentional decision to prefer other creditors to the United States .... " HalTington v. United States,
504 F.2d 1306, 1311 (1st Cir. 1974). "Any responsible person who knows the taxes are not paid and
allows the business to pay other creditors acts willfully." Caterino v. United States, 794 F.2d 1, 6 (1st
Cir. 1986).
C. Presumption
A presumption of correctness attaches to a tax assessment made by the IRS. Iantosca Benistar
Admin Services, Inc., 826 F. Supp. 2d 344 (D. Mass. 2011). "The presumption arises when the IRS
submits a certification of the Commissioner's assessment ... or an affidavit signed by an IRS officer
detailing the tax liability." Greco v. United States, 380 F. Supp. 2d 598, 611 (M.D. Pa. 2005) (citations
omitted). In order to overcome this presumption, a defendant must demonstrate, by a preponderance of
the evidence, that the assessment is elToneous. Iantosea, 826 F. Supp. 2d 344. Thus, the individual
challenging the § 6672 assessment has the burden of proving, by a preponderance of the evidence, that
he is not a responsible person or that he did not act willfully. Jean, 396 F.3d at 454; Keohan, 138 F.
Supp. 2d at 73. At the summary judgment stage, however, the Government, as the moving party, has
the initial burden of demonstrating the absence of a genuine issue of material fact and that it deserves
judgment as a matter of law. Vinick I, 110 F .3d 171. A defendant must demonstrate that disputed
facts preclude summary judgment. Id.

IV. Analysis
A. Strouthopoulos

Strouthopoulos did not respond to the Government's motion for summary judgment. Whether
or not opposed, summary judgment can only be granted if "the movant shows that there is no genuine

12

dispute as to any material fact and the movant is entitled to judgment as a matter oflaw." Fed. R. Civ.
P. 56(a); see generally Cannona v. Toledo, 215 F.3d 124, 134n.9 (1st Cir. 2000). In suppmi of its
motion, the Government submitted an affidavit from Galas, an Internal Revenue Officer. The affidavit
states that Defendants were assessed for unpaid tax liabilities and lists the assessment and outstanding
liability, for each quarter assessed, as of March 3, 2014. 7
As noted, the burden of proof is on the taxpayer to disprove his responsible person status or his
willfulness under§ 6672. Jean, 396 F.3d at 454; see generally United States v. Star-Tel, Inc., No. Civ.
A. H-03-3904, 2005 WL 2810701 at *3 (S.D. Tex. Oct. 26, 2005) ("[o]nce the Goverrunent offers an
assessment into evidence, the burden of proof is on the taxpayer to disprove his responsible-person
status or willfulness"). "If the non-moving pmiy fails to make a showing sufficient to establish the
existence of an element essential to the pmiy's case, and on which that pmiy will bem· the burden of
proof at trial, then the moving pmiy is entitled to judgment as a matter oflaw." Niarchos v. City of
Beverly, 831 F. Supp. 2d 423,426 (D. Mass. 2011) (internal quotation marks and citation omitted);
see also Star-Tel, Inc., 2005 WL 2810701 at *3 (summary judgment granted where the goverrunent
submitted evidence of assessments and defendant did not file a response to the motion for summary
judgment or "otherwise attempt to raise a genuine issue of material fact as to his responsible person
status, the validity of the assessments, or the amount of the§ 6672 penalties clue and owing"); United
States v. Van Horn, Civil Action No. 3:09-cv-2088, 2010 WL 4853887 (M.D. Pa. Nov. 22, 2010)
(where govenm1ent introduced certified transcript of assessment and defendant failed to present
evidence to rebut liability, summary judgment was proper).

7

In its reply memorandum to Schiffmann's and Cummings' objection to the supplemental statement of
undisputed facts, the Government provided the Court with the certified transcripts of the assessments against
Defendants.

13

The Government has presented evidence of valid tax assessments and Strouthopoulos'
outstanding tax liabilities. Strouthopoulos has not filed a response to the motion for summary
judgment or otherwise attempted to raise a genuine issue of material fact as to his responsible person
status, willfulness, the validity of the assessments, or the outstanding tax liability. Thus, there is no
remaining genuine issue of material fact. See generally Star-Tel, Inc., 2005 WL 2810701. The
Government is entitled to summary judgment with respect to its claim against Strouthopoulos.
B. Are Schiffmmm and Cummings Responsible Persons Pursuant to 26 U.S. C. § 6672?

1. Schiffmann
Schiffmmm was assessed tax liabilities for the quarterly periods beginning April 1, 2005,
through June 30, 2006. Schiffmmm was CEO from April1, 2005 to June 23, 2006. As CEO,
Schiffmann:
•was an officer ofiCOA;
•was involved in the acquisition of numerous ICOA subsidiaries;
•at some point in the summer of2005 was aware that ICOA was experiencing financial
problems and hired Cummings as a consultant;
•supervised employees and had the ability to fire employees;
•authorized payments to creditors, including authorizing payroll payments;
•was a signatory on ICOA's banlc account and exercised his check signing authority;
•was a member of the board of directors and held stock in ICOA; and
•as of November 18, 2005, was a director of each ofiCOA subsidiaries and had the authority
to obligate ICOA funds up to $100,000.
The Court gives the term "responsible" a broad interpretation. Moulton, 429 F.3d at 356.

14

During the quatiers assessed, as to Schiffmann's role with ICOA, at least 5 of the 7 Vinick II factors
are present. See Vinick II, 205 F .3d at 7 (indicia of a finding of responsibility includes, the holding of
corporate office or membership on the board of directors, active in the day to day affairs, control over
banlc accounts, stock ownership, and check signing authority); see also United States v. Tena Realty
Trust, Civil Action No. 05-40017-FDS, 2008 WL 4787592 (D. Mass. Oct. 16, 2008) (court found
defendant a responsible person where at least four of the seven Vinick II factors were present). The
undisputed facts show that Schiffmann "possessed sufficient control over corporate affairs to avoid the
default" during the quruiers assessed. Moulton, 429 F.3d at 356 (internal quotation marks and citation
omitted). Taking all these factors together, the Court concludes that Schiffmatm was a responsible
person from April1, 2005 until June 23, 2006.
2. Cummings
Cummings was assessed tax liabilities for the quarterly periods beginning October 1, 2005,
through June 30, 2006. Cummings was CFO ofiCOA from October 25, 2005 to June 23, 2006.
During his tenure as CFO:
•was atl officer ofiCOA;
• interviewed cat1didates for jobs at ICOA and hired a financial consultant;
•was responsible for the financial well-being ofiCOA;
•helped determine the financial policy for ICOA;
•was a signatory on ICOA's bank account and exercised his check signing authority;
•chose what bills to pay to keep ICOA operating; and
•as ofNovember 18,2005, was a director of each ofiCOA subsidiaries, was appointed ICOA's
secretru·y and treasurer and had the authority to obligate ICOA funds up to $75,000.

15

During the quarters assessed, as to Cumming's role with ICOA, at least 4 of the 7 Vinick
factors are present. See generally Vinick II, 205 F .3d at 7 (indicia of a finding of responsibility
includes, the holding of corporate office, control over banlc accOtmts, check signing authority; and
makes decisions regai·ding which, when, and in what order outstanding debts are paid); see also Jenkins
v. United States, 484 F. App'x 511 (Fed. Cir. 2012) (in finding defendant was a responsible person,
court considered fact that defendant detmmined the financial policy of the company). Furthermore,
Cummings had access to all ofiCOA's financial records and chose what bills to pay in order to keep
ICOA operating. See generally Keohan, 138 F. Supp. 2d at 74 ("essential factor" in determining
whether an individual is a responsible pmiy "is a11y decision-making authority over which creditor [the
business] paid") (internal quotation mm·ks and citation omitted). Taking all these factors together, the
Court concludes that Cummings was a responsible person from October 25, 2005 to June 23, 2006.
C. Did Schiffmam1 a11d Cummings Act Willfully?
1. Schiffmam1
a. Before Early November 2005
Schiffmann contends that there are genuine issues of material fact concerning whether he
willfully failed to pay the taxes in the second a11d third quarters of2005. Schiffmam1 argues that he
could not have acted willfully during this period because he only beca111e aware ofiCOA's unpaid
taxes in the fomih qumier- in early November 2005.
The Court has dete1mined that Schiffmmm was a responsible party from April 1, 2005 tlu-ough
June 23, 2006. "[I]t is settled law that a responsible person who becomes awm·e that taxes have gone
unpaid in past quarters in which he was also a responsible person... is under a duty to use all
'unencumbered funds' available to the corporation to pay those back taxes." United States v. Kim, 111

16

F.3d 1351, 1358 (7th Cir. 1997) (emphasis added).
This duty extends not only to funds available to the corporation at the time the
responsible person becomes aware, but also to any unencumbered funds acquired
thereafter. If the responsible person fails to use such unencumbered funds to satisfy the
past unpaid liability, he is deemed personally liable for the taxes that went unpaid in the
past while he was responsible. The responsible person deemed liable for the unpaid
liability of past tax quarters is considered to have 'willfully' failed to pay over the taxes
for those past qumiers, even though he was unaware at that time that the taxes were
going tmpaid. The one limitation on this is that the person is only liable to the extent
that 'unencumbered funds' are available or acquired after the time in which the person
becomes aware.
Id. at 1357-58 (citation omitted). Funds are "encumbered only when the taxpayer is legally obligated
to use the funds for a purpose other thm1 satisfying the preexisting employment tax liability and if that
legal obligation is superior to the interest of the IRS in the funds." Honey v. United States, 963 F.2d
1083, 1090 (8th Cir. 1992); see generally Lack v. United States, Civ. A. No. 91-11520, 1993 WL
565986 (D. Mass. Oct. 4, 1993) (a security interest in funds does not preclude a finding that funds m-e
unencumbered for purposes of§ 6672).
Schiffmann first learned of the tax delinquency during the fomih quarter of2005- in early
November. ICOA received $301,500 from Cornell Capital on November 2, 2005, $145,893 on
December 16, 2005, and $97,500 on February 2, 2006. The record does not reflect that those funds
were encumbered. Fmihermore, during the fourth qumier of2005 m1d the first qumier of2006, ICOA
paid its employees in excess of $875,000. The record reflects that ICOA had more than sufficient
unencumbered funds available to pay the taxes assessed for the period from the second quarter of2005
through early November 2005. Because Schiffmann failed to use available unencumbered funds to
satisfy the tax liability, he is "considered to have 'willfully' failed to pay over the taxes .... " Kim, 111
F.3d at 1358.

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b. After Early November 2005
With respect to the remaining quarters that Schiffmann was assessed, Schiffmann also acted
willfully. As noted, Schiffmam1 was aware of the outstanding tax liability at some point in early
November 2005. ICOA, however, continued to pay its employees and ignored the accrued tax liability
and the tax liability on the wages ICOA continued to pay its employees. "Any responsible person who
knows the taxes are not paid and allows the business to pay other creditors acts willfully." Caterino,
794 F.2d at 6; see also Harrington, 504 F.2d at 1311 (willfulness is a voluntary decision to prefer other
creditors to the United States).
2. Cummings
a. After Early November 2005
In late October 2005, Cummings became CFO. In early November 2005, he learned that ICOA
had not paid its payroll taxes for several years. As CFO, Cummings chose what bills to pay in order to
keep ICOA operating. Although Cummings knew ICOA continued to be delinquent on its payroll tax
liabilities, he chose to authorize payment to creditors other than the United States. "Any responsible
person who knows the taxes are not paid and allows the business to pay other creditors acts willfully."
Caterino, 794 F.2d at 6; see also Harrington, 504 F.2d at 1311 (willfulness is a voluntary decision to
prefer other creditors to the United States). 8

8

To the extent that Cummings argues that he is not liable for the assessment for the period between when he
became CFO (October 25, 2005) and when he first learned of the tax delinquency (early November 2005) that
argument is rejected for the same reasons the Court rejected the similar argument made by Schiffmann- after
Cummings became aware of the tax liability there were adequate unencumbered funds available to pay the taxes for
this period.

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D. Liability
1. The Second Quarter of 2006
A responsible person's liability for taxes attaches at the time of withholding. Jones v. United
States, 60 F.3d 584 (9th Cir. 1995). Although Schiffmann and Cummings were terminated effective
June 23, 2006, they were responsible persons prior to their terminations. ICOA paid its employees on a
weekly basis. Because ICOA terminated Schiffmann and Cummings before the last pay period in the
qua1ier, Schiffmann and Cummings are liable for 12 ofthe 13 weekly pay periods during the fourth
qumier of2006. Thus, Schiffmann and Cummings' liability for the second quarter of2006 is
$83,856.41.
2. The Fomih Quarter of2005
During the fourth quarter of2005, Cummings was a responsible pmiy from October 25 to
December 31, 2005. Because he became a responsible party only as of October 25, Cummings is
responsible for 10 of the 13 weekly pay periods during the fom1:h quarter of 2005. Thus, Cummings'
liability for the fom1:h qum1:er of2005 is $81,776.22.
3. Summary of Defendm1ts' Outstanding Liability
Defendant

Quarterly Tax Period Ending

Balance Due

Schiffmam1

June 30, 2005
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006

$ 54,131.38
61,489.22
106,309.08
88,548.19
83,856.41
$ 394,334.28

Cummings

December 31, 2005
March 31, 2006
Jtme 30, 2006

81,776.22
88,548.19
83,856.41
$254,180.82

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Strouthopoulos

December 31, 2004
March 31, 2005
June 30, 2005
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
June 30, 2007
September 30, 2007
December 31, 2007

31.91
62,045.15
57,844.08
64,667.80
110,310.48
91,885.00
94,326.68
113,503.29
82,827.99
60,416.17
53,111.69
69,276.67
48,748.40
$ 908,995.31 9

V. Conclusion
The Government's motion for smmnary judgment is granted.
SO ORDERED

Is/ Mary M. Lisi
Mary M. Lisi
United States District Judge
April 9, 2014

9

Liability for the foUlth quatter of 2005, the first quarter of 2006, and the second quarter of 2006 is joint
and several between Schiffmann, Cummings and Strouthopoulos. Liability for the second and third quarter of2005
is joint and several between Schiffmann and Strouthopoulos.

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