Knoch, Senior Circuit Judge, Cummings, Circuit Judge, and Steckler, District Judge.*fn1
This case involves the question whether Robert and John Monday are personally liable for the P.C. Monday Tea Company's (the "Company") failure to pay to the Government social security and income taxes withheld from its employees.
The Company was organized in 1918 and sold groceries to housewives through door-to-door truck route salesmen. During the latter half of 1958 and thereafter, Robert Monday was president and John Monday was vice president and secretary of the Company, which had 55 employees. John Monday signed and participated in the preparation of the Company's tax returns.
In 1956, the financial condition of the Company began to deteriorate. By 1960, its annual gross income was half the average of the previous five years. It could acquire merchandise for resale from its suppliers only on a C.O.D. basis. During the third and fourth quarters of 1960, the Company paid wages to its officers and employees and deducted federal income and social security taxes from the wages. It failed, however, to pay the Government the withheld taxes of $6,619.53 on October 31, 1960, and $5,764.48 on January 31, 1961, the respective due dates for the quarterly payments. In November or December 1960, it belatedly filed its return for withheld taxes for the third quarter of 1960, and it also failed to file its return for the fourth quarter of 1960 until March 1961. Nevertheless, during those quarters, the Company continued to pay business creditors for antecedent debts and for merchandise purchased C.O.D.
In March 1961, Robert Monday borrowed $4,500 from his sister in response to the Internal Revenue Service's March 1961 demand for payment of withheld social security and income tax moneys of the Company's employees. John Monday testified that this sum was to cover the withheld taxes for the first quarter of 1961, but Robert Monday testified he thought the payment of $4,500 satisfied all withholding arrearages and made the Company current. In fact, after the $4,500 payment the Company was still delinquent as to the last two quarters of 1960.
In May 1961, the Company went into receivership, and it was adjudicated bankrupt in July 1961. In the bankruptcy proceedings, the Government filed claims for various classes of taxes for 1960 and 1961, including the amounts here in issue. These claims were allowed in the sum of $22,494.53, and in September 1963, the Government realized $10,978.25 on them. Although the bankruptcy referee directed that this amount be applied to the most recent claims of the Government, the Government applied $3,167.57 to the Company's withholding liability for the second quarter of 1960 and only applied $435.84 to the third quarter of 1960, thus leaving unsatisfied most of the Government's claim for the third and fourth quarters 1960 withholding taxes. The bankruptcy referee also assigned to the Government $7,400 of the Company's accounts receivable, but the trial did not disclose whether any of these were collected by the Government.
In March 1964, the Internal Revenue Service assessed a 100% penalty in the amount of $12,384.01*fn2 against Robert Monday pursuant to Section 6672 of the Internal Revenue Code of 1954.*fn3 This assessment was based on the Company's failure to pay to the Government the federal income and social security taxes withheld from the wages of its employees during the third and fourth quarters of 1960. In March 1966, Robert Monday paid $1,112 of this assessment under protest. In May 1966, he filed this suit in the district court seeking to recover that amount plus interest and seeking a declaration that the penalty assessment against him was null and void. The Government counterclaimed for $10,836.17, the balance of the assessment, plus interest. The Government also filed a third-party complaint against John Monday seeking to recover $11,948.17, plus interest, pursuant to a November 1964 assessment against him under Section 6672 of the Internal Revenue Code.
At the close of the trial, the jury found that Robert and John Monday were under a duty to collect and pay the withheld taxes to the Government for the two quarters in question, pursuant to Sections 6671(b) and 6672 of the Internal Revenue Code of 1954, but that they did not willfully fail to pay the taxes. Therefore, judgment was entered for the Mondays. The district court subsequently denied the Government's motion for judgment notwithstanding the verdict or for a new trial (294 F. Supp. 1384) and this appeal followed.
Sufficiency of Evidence to Support Jury's Finding that Robert Monday Had a Duty to Collect and Pay These Taxes to the Government
Under Section 7501 of the Internal Revenue Code, the amount of the withheld income and social security taxes deducted from the Company's employees' wages in the third and fourth quarters of 1960 was "to be a special fund in trust for the United States." See In the Matter of Halo Metal Products, Inc. [United States v. Randall], 419 F.2d 1068 (7th Cir. 1969). The "person" liable for withheld taxes under Section 6672 of the Code includes an "officer or employee of a corporation, * * * who as such officer, * * * is under a duty" to see that the funds are remitted to the Government. 26 U.S.C. § 6671(b). The jury specially found that both Robert and John Monday had a duty to collect and pay the Government taxes deducted in the third and fourth quarters of 1960. Robert Monday contends that as to him, this finding cannot be sustained. Our examination of the record reveals sufficient support for the special verdict.
Corporate office does not, per se, impose the duty to collect, account for and pay over the withheld taxes. On the other hand, an officer may have such a duty even though he is not the disbursing officer. Cf. Bloom v. United States, 272 F.2d 215 (9th Cir. 1959), certiorari denied, 363 U.S. 803, 80 S. Ct. 1236, 4 L. Ed. 2d 1146. The existence of the same duty and concomitant liability in another official likewise has no effect on the taxpayer's responsibility. Datlof v. United States, 252 F. Supp. 11, 33 (E.D. Pa. 1966), affirmed, 370 F.2d 655 (3d Cir. 1966), certiorari denied, 387 U.S. 906, 87 S. Ct. 1688, 18 L. Ed. 2d 624. Liability attaches to those with power and responsibility within the corporate structure for seeing that the taxes withheld from various sources are remitted to the Government. Scott v. United States, 354 F.2d 292, 296, 173 Ct. Cl. 650 (1965); see also Gefen v. United States, 400 F.2d 476, 482 (5th Cir. 1968), certiorari denied, 393 U.S. 1119, 89 S. Ct. 990, 22 L. Ed. 2d 123. This duty is generally found in high corporate officials charged with general control over corporate business affairs who participate in decisions concerning payment of creditors and disbursal of funds. Cf., e. g., Bloom v. United States, 272 F.2d 215 (9th Cir. 1959), certiorari denied, 363 U.S. 803, 80 S. Ct. 1236, 4 L. Ed. 2d 1146; Hewitt v. United States, 377 F.2d 921, 924 (5th Cir. 1967); Scott v. United States, 354 F.2d 292, 173 Ct. Cl. 650 (1965); Newsome v. United States, 301 F. Supp. 757 (S.D. Texas 1968); see generally, 8A Mertens, Law of Federal Income Taxation, § 47A.25a, pp. 126-128 (1964).
Under the corporate by-laws, Robert Monday's duties as president included "general supervision of the affairs of the corporation." Through his own stock ownership and through a voting trust, he controlled the Company. He and his brother signed most of the corporate checks, and both of them conferred from time to time as to what creditors should be paid. They sought payment from Robert, not John. Robert Monday had signed corporate checks payable to the Government with respect to prior withholding taxes. In John's absence, Robert performed John's duties. Robert also admitted having read a report prepared by the Company's certified public accountant informing him of the then overdue taxes. Regardless of ...