Monday, November 11, 2013

Fourth Circuit Affirmance of Summary Judgment in TFRP case (11/11/13)

In Johnson v. United States, ___ F.3d ___, 2013 U.S. App. LEXIS 22444 (4th Cir. 2013), here, the Fourth Circuit affirmed summary judgment for the Government in a trust fund recovery (also called responsible person) penalty case.  That penalty is imposed by Section 6672, here.  Johnson is a good case to illustrate the potential sweep of this penalty, which is frequently encountered by tax controversy practitioners.

I call readers attention to an excellent blog discussion of Johnson.  See Matt Lee, Fourth Circuit Affirms Responsible Officer Penalty Against Wife for Husband’s Unpaid Employment Taxes (Blank Rome Tax Controversy Watch 11/8/13), here.  I want try to recreate the blog, so to speak.  Mr. Lee's blog entry is very good and detailed.  I do offer his conclusion:
The Johnson case illustrates that personal liability may be assessed against corporate officers where a company fails to pay over employment taxes, even if the corporate officer was unaware of the failure to pay in prior periods.  Once the corporate officer learns of the tax delinquency, he or she has a duty to ensure that corporate funds are used to pay off those liabilities.  If the corporate officer fails to do so, personal liability for those taxes may be asserted. 
One interesting feature is the following from the opinion (footnote omitted):
Subsequently, the IRS assessed trust fund recovery penalties (the "100% penalty") against Mr. and Mrs. Johnson individually, pursuant to 26 U.S.C. § 6672.8 Mrs. Johnson later paid $351.00 toward her assessed penalty. 
On March 30, 2009, Mrs. Johnson filed suit in the United States District Court for the District of Maryland seeking a refund of the penalty she had paid, asserting that the § 6672 assessment against her was erroneous. The Government filed a counterclaim against both of the Johnsons in order to reduce its assessments to judgment, seeking to recover the balance of assessments due, including penalties, interest, and costs. Based upon transcripts of account showing the balances due as of August 22, 2011, the Government ultimately sought to recover $304,355.90 from Mrs. Johnson and $240,071.12 from Mr. Johnson.
I have previously posted on the issue of how much needs to be paid to insure that Flora's requirements are met. See  Flora v. United States, 362 U.S. 145 (1960).  Readers desiring to read the blogs on that issue can do so by clicking the subject labels below for Flora Full Payment Rule and Divisible Tax.

Thanks to the bloggers at Procedurally Taxing, here, for the lead to Mr. Lee's blog entry.  And thanks to Mr. Lee for the entry itself.

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