return (Form 941) which must be filed every quarter. The withholding taxes are due when the wages are paid, not on the actual due date of the quarterly tax return.
Section 6672 of the Code, provides that "any person required to collect, truthfully account for, and pay over any tax . . . who willfully fails to collect such tax, or truthfully account for and pay over such tax . . ." shall be personally liable to the United States for the full amount of taxes not collected or not paid to the United States. "Person," as used in Code § 6672 includes an officer or employee of a corporation who is under a duty to collect and remit the taxes to the United States. Code § 6671(b).
Section 6671(a) of the Code provides that the "100-percent penalty" liability shall be assessed and collected in the same manner as taxes. A federal tax assessment is deemed to be correct unless and until the person against whom the assessment was made proves by a preponderance of the evidence that he is not liable for the taxes sought to be collected. Ruth v. United States, 823 F.2d 1091, 1092-93 (7th Cir. 1987).
For liability to exist under Section 6672, two factors must exist: the person must be required to collect, truthfully account for and pay over the employment taxes, and he must have willfully failed to pay over the trust fund taxes. Monday v. United States, 421 F.2d 1210, 1216 (7th Cir.), cert. denied, 400 U.S. 821, 27 L. Ed. 2d 48, 91 S. Ct. 38 (1970). The issue in this case is whether the plaintiff proved that he was not a "responsible person."
The facts which courts have relied upon in determining whether individuals are persons responsible for the payment of taxes withheld from the wages of the employees are whether the individual owns stock in the corporation, holds a corporate office, has authority to sign checks, hires and fires employees, exercises control over the corporation's finances, pays other creditors instead of the United States, and signs tax returns. Wright v. United States, 809 F.2d 425, 427 (7th Cir. 1987); Purdy Co. of Illinois v. United States, 814 F.2d 1183, 1187-88 (7th Cir. 1987).
The issue presented is whether Graunke, in order to escape liability, had an obligation to pay withholding taxes contrary to the instructions of his employer, because he had checkwriting authority. The United States argues, based on Howard v. United States, 711 F.2d 729 (5th Cir. 1983), Roth v. United States, 779 F.2d 1567 (11th Cir. 1986), and Gephart v. United States, 818 F.2d 469 (6th Cir. 1987), that only if Graunke wrote checks contrary to his employer's instructions, or refused to sign any checks, would he be insulated from liability.
Recently, the United States Court of Appeals for the Tenth Circuit decided a case similar to this one. Jay v. United States, 865 F.2d 1175 (10th Cir. 1989). The court reversed a summary judgment under Section 6672 in favor of the United States. Like the plaintiff, Jay was a controller of a corporation with checkwriting authority. He was not an owner or director of the corporation. As in this case the corporation's president gave specific instructions on which bills to pay and acknowledged his own withholding tax liability. In remanding the case to the district court for a trial on the issue of the plaintiff's corporate decisionmaking authority, the court discussed Howard, Roth, and Gephart, stating as follows:
In the seminal case, Howard v. United States, 711 F.2d 729 (5th Cir. 1983), the court sustained a grant of summary judgment in favor of the Government and against taxpayer Howard, who it regarded as a responsible person under section 6672(a). There, Howard served as director, minority shareholder and executive vice president of a corporation and managed the corporation's day-to-day operations. The president and majority stockholder at the corporation, Paul Jennings, instructed Howard not to pay to the Government federal withholding taxes.