[NOT FOR PUBLICATION]
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No. 91-1238
UNITED STATES OF AMERICA,
Plaintiff, Appellee,
v.
CLAIRE M. FAY,
Defendant, Appellant.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
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Before
Campbell, Torruella and Cyr,
Circuit Judges.
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Claire M. Fay on brief pro se.
Shirley D. Peterson, Assistant Attorney General, Gary R.
Allen, Tax Division, Department of Justice, William S. Estabrook,
Tax Division, Department of Justice, and Calvin C. Curtis, Tax
Division, Department of Justice, on brief for appellee.
__________________
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Per Curiam. The Internal Revenue Code requires that an
employer withhold federal income and social security taxes
from its employees' wages, 26 U.S.C. 3102, 3402, and hold
such funds in trust for the United States, id. 7501. If
the employer fails to remit these funds to the United States,
the Code permits the Internal Revenue Service (IRS) to
collect a "penalty" equal to the amount of delinquent taxes
from any officer or agent of the employer who was responsible
for collecting, accounting for, and paying over the withheld
taxes. Id. 6672(a). Although denominated a penalty,
liability under 6672 is a civil rather than penal sanction,
designed simply to ensure that the taxes owed the government
are paid. See, e.g., Turnbull v. United States, 929 F.2d
173, 178 n.6 (5th Cir. 1991). A person is subject to 6672
liability if he or she is a "responsible person" who
"willfully" failed to remit the withheld taxes. See, e.g.,
Slodov v. United States, 436 U.S. 238, 245, 246 n.7 (1978).
The instant appeal involves a 6672 penalty imposed for
taxes that were withheld, yet not paid, by seven
Massachusetts nursing homes in various taxable periods from
1976 to 1978. The IRS subsequently made assessments in the
amount of $200,183.45 against Claire Fay (the appellant here)
and Louis Almeida, citing them as "responsible persons" under
the statute. In 1984, the IRS brought the instant suit under
26 U.S.C. 7401, seeking to reduce the outstanding tax
liabilities to judgment. Following a bench trial, the
district court determined that Fay was subject to liability
under 6672. Judgment in the amount of $699,142.21
(reflecting taxes and accrued interest) entered on December
30, 1990. Fay now appeals pro se, alleging that her sale of
the nursing homes to Almeida in June 1976, and her limited
involvement therein after that date, precluded a finding that
she was a "responsible" person who had "willfully" failed to
remit the taxes in question. We affirm.
I.
The legal standards governing the instant appeal are
well-established. Indeed, this court (along with others) has
had occasion in recent years to enunciate them in
considerable detail. See Thomsen v. United States, 887 F.2d
12 (1st Cir. 1989); In re Energy Resources Co., 871 F.2d 223
(1st Cir. 1989), aff'd, 495 U.S. 545 (1990); Caterino v.
United States, 794 F.2d 1 (1st Cir. 1986), cert. denied, 480
U.S. 905 (1987); Harrington v. United States, 504 F.2d 1306
(1st Cir. 1974). We here offer a brief review.
Whether an individual is a "responsible person" depends
principally on the degree of control he or she exercises over
the employer's finances. Hochstein v. United States, 900
F.2d 543, 546-47 (2d Cir. 1990); Caterino, 794 F.2d at 5.
Courts have construed the term broadly, fashioning an elastic
definition which focuses on the person's function in the
employer's business rather than the level of office held.
Id. The pivotal consideration is whether the person had
effective power--i.e., significant (rather than exclusive)
control--to decide whether taxes should be remitted and which
bills to pay and when. Id. Responsibility is generally a
matter of status, duty and authority, not knowledge.
Thomsen, 887 F.2d at 16. Among the indicia of responsibility
are the holding of corporate office, control over financial
affairs, the authority to disburse funds, stock ownership,
and the ability to hire and fire employees. Id. The statute
encompasses all responsible persons, not just the most
responsible person, Harrington, 504 F.2d at 1312, and applies
to those who delegate substantial responsibility, Thomsen,
887 F.2d at 17. And it can include those who are neither
officers nor employees of the company; responsibility has
been imposed, for example, on sureties, creditors,
individuals providing funds, institutional lenders, and even
employees of lenders. See Caterino, 794 F.2d at 5, 6 n.1
(citing cases).
"Willfulness," in turn, denotes conduct that is
intentional, knowing and voluntary, as well as that taken in
reckless disregard of obvious and known risks. Thomsen, 887
F.2d at 17-18. Unlike in the criminal context, willfulness
here does not require bad motive or the absence of
justifiable excuse, much less a specific intent to defraud
the government. Id. at 17. Rather, it means no more than
knowledge that taxes are due and withheld and conscious
disregard of the obligation to remit them. Caterino, 794
F.2d at 6. And behavior falling short of an intentional
failure to remit taxes can still be deemed willful.
Liability under 6672 can be established, for example, upon
a showing that a responsible person voluntarily preferred
other creditors over the United States--i.e., paid other
creditors with knowledge that withholding taxes were owing to
the government. Thomsen, 887 F.2d at 17. Even if done in
good faith, or in the mistaken belief that such payments were
required to be made in preference to payments to the
government, the conduct is nonetheless willful. Id. at 17-
18.
Once the government has established a prima facie case
by introducing into evidence its assessment of taxes due, the
taxpayer bears the burden of demonstrating (by a
preponderance of the evidence) both lack of responsibility
and lack of willfulness. See, e.g., Morgan v. United States,
937 F.2d 281, 285, 286 (5th Cir. 1991) (per curiam); Oliver
v. United States, 921 F.2d 916, 919 (9th Cir. 1990);
Hochstein, 900 F.2d at 546. As in Caterino, the issue here
on appeal is "whether the factual findings that support the
district court's conclusions of responsibility and
willfulness are clearly erroneous." 794 F.2d at 3.
II.
With these standards in mind, we turn to the facts at
hand. It was undisputed at trial that: (1) Fay began
operating nursing homes in Massachusetts in the mid-1950's;
(2) by 1976, she was operating the seven nursing homes at
issue here, which were owned by certain trusts under her
control; (3) on June 21, 1976, Fay sold the homes to Almeida
(as trustee of various trusts); and (4) Fay thereafter
continued to participate in the homes' management, including
serving as administrator for three of them until October
1976. Fay sought to establish below that her managerial role
after October 1976 was minimal, and entailed none of the
powers or duties that would render her a "responsible person"
under the statute. The district court justifiably found
otherwise.
The court first determined that the sale of the homes to
Almeida, while not "totally ... a sham," was less than
entirely bona fide. The court did find a legitimate reason
for the transfer: due to an impending change in state law,
nursing homes sold before July 1, 1976 (unlike those sold
thereafter) would receive an "adjustment of basis for fixed
assets" that would increase their value. Yet other
circumstances surrounding the transfer were suspicious. At
the time of the sale, Almeida was the owner and operator of a
lawn ornament business; he had no prior experience in
operating nursing homes, and the district court found him
"wholly incompetent" to do so. The cumulative purchase price
for the seven homes was $3,088,855.50. Under the sales
agreement, Almeida was to pay $70,000 (less than three per
cent) of this in cash; as to the balance, he executed large
promissory notes to Fay secured by mortgages on the homes,
and also assumed mortgages already in existence. In the
years following the transfer, Almeida made none of the cash
payments called for under the agreement, and made only a few
of the mortgage payments. Yet Fay took no action to recover
the homes.
Also calling the legitimacy of the sale into question
was evidence that, at the time thereof, Fay was experiencing
difficulties with various state authorities. She was then
under investigation by the Attorney General's Office for
alleged welfare fraud, misuse of patients' trust funds and
other offenses in connection with her operation of the homes
in question. (She later was indicted for, and pled guilty
to, various such offenses, and was imprisoned from October 3,
1977 to December 22, 1977.) There was also evidence that
the Commonwealth was attempting during this period to remove
Fay from the nursing home business. Three of the nursing
homes (Forest Manor, Chester Manor, and Exeter House) were
undergoing a decertification process at the time of the sale,
and were in fact decertified between July 1976 and January
1977. And as part of the recertification process, the
Commonwealth insisted to Almeida that, within three months
after the sale, Fay was to have no further involvement with
the homes. At trial, Marie Boose, who worked as a bookkeeper
for these three homes from January 1976 to August 1978,
stated: "Prior to June 21, 1976, Claire Fay told me that she
was transferring title to all of her nursing homes to Louis
Almeida because of problems she was having with the
Commonwealth of Massachusetts but that she would continue to
be the real owner of the nursing homes." The district
court accorded this testimony full credit.
The court further found that, notwithstanding Fay's
protestations to the contrary, she continued to occupy a
dominant managerial role in each of the seven nursing homes
following the sale. Far from being clearly erroneous, this
finding is strongly supported by the record. The evidence
showed that Fay regularly visited the homes' central office
in Somerset, Massachusetts, interviewed prospective
employees, made hiring recommendations to Almeida, issued
instructions to employees, told the bookkeepers which bills
to pay, and paid many bills herself with the use of a rubber
stamp bearing Almeida's signature. And in particular, the
evidence showed, and the district court found, that Fay
possessed the power to decide, and did in fact decide, not to
remit the withholding taxes at issue here.
Boose's testimony concerning the Forest, Chester and
Exeter homes was unequivocal: Fay "ran the nursing homes."
Boose (who worked out of an office in Cambridge) stated that
Fay would call her on a daily basis with instructions as to
which bills to pay. Almeida, Boose explained,
occasionally would issue directions, but Fay was her primary
source of instructions. Fay continued to do so even while in
prison, calling Boose at home during the evenings. Boose
further stated that she handled the homes' payroll tax
returns for approximately one year (the task was later
shifted to the central office). During that time, Fay's
"consistent" instructions to her were to file the returns
without payment of the taxes shown as due.
With respect to the other four homes, the testimony of
Gertrude St. Denis was to similar effect. St. Denis
performed bookkeeping chores in the Somerset office between
April and August 1978. She testified that, when she was
hired, Almeida told her that Fay would instruct her as to her
duties. Thereafter, Fay regularly instructed her concerning
which bills to pay; Almeida, she said, never did so. (In
fact, she never saw Almeida again after being hired; he would
arrive at the office early and be gone by the time she
arrived at 9:30.) St. Denis also indicated that, of the 100
or more checks that were issued to creditors each month, Fay
would use the signature stamp herself to endorse at least
half.
Additional evidence consisted of a settlement agreement
reached on June 5, 1978 between Almeida and the Department of
Public Health. In return for the continued certification of
the homes, Almeida there made various admissions and
promises. Among them were his acknowledgement that Fay had
continued to participate in the management of the homes, and
his assurance that she would thereafter not do so. The
government also introduced an excerpt from Fay's 1978
probation revocation hearing, in which the state court found
that she had continued to manage the homes and had possessed
"almost unlimited access" to their financial accounts. The
court, while declining to give preclusive effect to these
findings, deemed them relevant to establish a motive for Fay
"to seek to conceal from various authorities her active
involvement."
The district court was obviously justified in concluding
from this evidence that Fay was a "responsible person." The
further conclusion that she "willfully" failed to remit the
withholding taxes in question was equally supportable;
indeed, her own acknowledgement that she had been aware other
bills were paid while the taxes were owing was sufficient to
establish this element. We therefore reject her contention
that the underlying findings of fact are clearly erroneous.
And her additional assertion that insufficient funds existed
to make the tax payments is equally unpersuasive. This
assertion was unsupported by any evidence below, and would in
any event pose no bar to 6672 liability. See note 4 supra.
Affirmed.