MOORE v. UNITED STATES

Rehearing Denied and Rehearing En Banc Denied September 5, 1972.

RIVES, Circuit Judge:

Moore and Tomlin brought separate actions against the United States for the recovery of their partial payments of a penalty assessed against each of them under section 6672 of the Internal Revenue Code of 1954, 26 U.S.C. § 6672.1 The assessments were made against Moore and Tomlin, as responsible officers of Jetco Contracting Company, Inc., for willfully failing to collect, truthfully account for and pay over social security and withholding taxes in the total amount of $96,113.67 during the second and third quarters of 1966. The United States counterclaimed for the balance due.

The cases were consolidated for trial. The district court denied the Government's motion for a directed verdict against each defendant, and the jury returned verdicts for Moore and Tomlin and against the Government upon which the district court entered judgment. The sole issue is whether the judgment is erroneous as a matter of law; that is, whether the district court erred in refusing to grant the Government's motions for a directed verdict and for judgment notwithstanding the verdict separately against Moore and against Tomlin.

The issue may be further narrowed because the district court charged the jury:

(App. 240.) There is, and can be, no contention that the district court was incorrect in charging that, as a matter of law, Moore's and Tomlin's conduct was willful. Thus the narrow issue is whether Moore or Tomlin or both of them were responsible persons within the meaning of the Act.2

We find that the uncontradicted evidence establishes that both Moore and Tomlin were such responsible persons and, therefore, reverse with directions to enter judgment against them.

I.

The word "Jetco" was derived from the initials of Judson E. Tomlin Company, the name under which Tomlin began in June, 1963, to conduct his solely-owned unincorporated business. Branch and Moore joined the business as partners. In January of 1966 Branch, Moore and Tomlin filed in the office of the Judge of Probate of Mobile County, Alabama, a certificate of incorporation of Jetco Contracting Company, Inc. (hereafter Jetco). The certificate authorized 1000 shares to be issued as follows: Branch, 550; Moore, 250; and Tomlin, 200. The certificate also shows that for the first year the three were chosen to be directors and to fill the following respective offices: Moore, President; Tomlin, Vice President; and Branch, Secretary-Treasurer. Thereafter, the business was conducted under the corporate name but there was practically no corporate formality — no issuance of certificates of stock, no corporate by-laws or minutes, and no written transfer of title to the partnership assets.

Such lack of formality does not seem material to the issues of this case because, under Alabama law,3 the body corporate became complete upon the filing of the certificate of incorporation, and the corporation filed quarterly federal tax returns (Form 941) for the second and third quarters of 1966 (April 1, 1966, through September 30, 1966) but without any remittance of the taxes. Based on these returns Jetco's tax liabilities were assessed. Jetco made no payments with respect to the unpaid taxes. Branch died in December, 1967. In 1968 the assessments were made against Moore and Tomlin.4

Jetco maintained bank accounts with the American National Bank of Mobile and the First National Bank of Mobile. Moore, Tomlin and Branch were each singly empowered to sign checks on the First National Bank, while Moore and Branch were so empowered at the American National Bank. Jetco and Blount Brothers Contracting Company, Inc. (Blount) opened a joint "no balance" account at the Hancock Bank of Bay St. Louis, Mississippi, for the purpose of paying the wages of Jetco employees working on a subcontract for Blount and for certain materials and supplies. Checks on this joint account required two signatures, that of Tomlin and that of Fred Plaga, Project Manager for Blount at the National Aeronautics and Space Administration test site in Hancock County. No funds were deposited in the "no balance" account until a check was presented for payment. Upon such payment the Hancock Bank would transfer sufficient funds from another Blount account to cover the presented check.

The district court charged the jury as to further undisputed evidence as follows:

(App. 237.)

Moore and Tomlin each continued to sign checks on Jetco's accounts for payroll and for creditors in amounts substantially in excess of the taxes required to be withheld and paid to the Government. The quarterly Form 941, that was submitted for the second quarter of 1966 without payment, bore the signature of Moore as President of Jetco. A mortgage on Jetco property, that was given to secure advances from Blount for payroll and other expenses, was signed by Moore as President of Jetco "with full authority." Both Moore and Tomlin had authority to hire and fire employees. Both testified that there was never any formal delineation of duties at Jetco between the officers. Moore testified, however, that Branch made all of the decisions with respect to which bills should be paid and that he merely followed orders and instructions from Branch in signing his name to corporate checks. Prior to Jetco's incorporation, both Moore and Tomlin were familiar with withholding requirements and had made such payments for other taxpayers.

II.

An employer is required to withhold federal income and social security taxes from the wages of his employees.5 The amount of the taxes so collected or withheld constitutes a special fund in trust for the United States.6 Each employee is credited by the Government with the taxes withheld from his salary.7 When a corporation fails to pay the taxes which it is required to withhold, section 66728 makes it possible for the Government to collect its tax moneys from the responsible officers of the corporation. The penalty imposed by section 6672 is distinct from and not in substitution of the liability for taxes owed by the employer. Nonetheless, as stated in Newsome, supra,

431 F.2d at 745.

Section 6672 has not been strictly construed as is the usual rule with penalty statutes, but has been broadly and liberally construed to fulfill the purposes for which it was intended, particularly in determining who are "responsible persons" within the coverage of the statute.9 Indeed the definition of "person" in section 6671(b)10 expressly covers any officer who "is under a duty to perform the act in respect of which the violation occurs."

In this case, violations occurred at every stage of Moore's and Tomlin's continuing duty "to collect, truthfully account for, and pay over any tax." Sec. 6672. Tomlin willfully failed to collect the tax from employees working on the subcontract for Blount. Moore and Tomlin willfully failed to truthfully account for the taxes.11 Finally, both Moore and Tomlin willfully failed to pay over the taxes.12

The judgment is reversed and the case is remanded with directions to grant the Government's motion for judgment notwithstanding the verdict.13

Reversed and remanded with directions.

ON PETITION FOR REHEARING AND PETITION FOR REHEARING EN BANC

PER CURIAM:

The Petition for Rehearing is Denied and no member of this panel nor Judge in regular active service on the Court having requested that the Court be polled on rehearing en banc, (Rule 35 Federal Rules of Appellate Procedure; Local Fifth Circuit Rule 12) the Petition for Rehearing En Banc is Denied.