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08/22/97 NORMAN AARDEMA v. JAMES A. FITCH

August 22, 1997

NORMAN AARDEMA, PLAINTIFF-APPELLANT,
v.
JAMES A. FITCH, LYNNE CUNNINGHAM, MUMTAZ CHAMPSI, AND NINA KLARICH, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. Honorable Victoria A. Stewart, Judge Presiding.

Released for Publication October 9, 1997.

Presiding Justice Hartman delivered the opinion of the court. Hourihane and South, JJ., concur.

The opinion of the court was delivered by: Hartman

PRESIDING JUSTICE HARTMAN delivered the opinion of the court:

Plaintiff, Norman Aardema, appeals the circuit court's order dismissing with prejudice his amended complaint, which alleged counts of unjust enrichment and common law contribution based upon an Internal Revenue Service (IRS) assessment against him under 26 U.S.C. § 6672 (section 6672) for failing to remit withheld employee taxes. Plaintiff contends the determination of "responsible person" under section 6672 can be decided by a circuit court and, therefore, his amended complaint should not have been dismissed. For the reasons which follow, we reverse and remand.

Plaintiff and defendants, James A. Fitch, Lynne Cunningham, Mumtaz Champsi, and Nina Klarich, were directors and shareholders of Chicago Recycling Works, Inc. (CRW). As an employer, CRW was required to regularly withhold federal taxes from their employees wages, account for those withholdings, which constitute a trust fund in favor of the government, and pay them over to the government. 26 U.S.C. §§ 3101-02, 7501. If an employer fails to pay the employees' withholdings over to the government, the government does not have a right of recourse against the employee. To prevent revenue losses in the event an employer fails to pay withheld taxes, section 6672 provides that when "any person required to collect, truthfully account for, and pay over any tax" willfully fails to do so, the person is liable for a penalty equal to the total amount of the tax not paid over. 26 U.S.C. § 6672(a). Section 6672, therefore, imposes a "100% penalty." Hartman v. United States, 538 F.2d 1336, 1340 (8th Cir. 1976) (Hartman). Upon default by a corporate employer, a corporate officer or employee may be liable personally for the penalty established by section 6672 if during the period involved, the officer or employee was a responsible person under 26 U.S.C. § 6671(b), and the person acted "willfully" regarding the employer's tax liability. Hartman, 538 F.2d at 1340; 26 U.S.C. §§ 6671-72. Pursuant to section 6672, the IRS determined that plaintiff was responsible for CRW's failure to pay withheld employees' taxes and thereafter levied several of plaintiff's bank accounts, collecting the full amount of taxes, interest and penalties assessed against CRW $34,849.27.

Plaintiff did not contest the IRS's determination that he was a responsible person under section 6672, but thereafter filed a complaint containing counts of unjust enrichment and implied indemnity against defendants. Defendants then moved to dismiss plaintiff's complaint for failure to state a cause of action (735 ILCS 5/2-615 (West 1994) (section 2-615)) and plaintiff was granted leave to file an amended complaint. Plaintiff's amended complaint, which contained counts of unjust enrichment and common law contribution, alleged that defendant Fitch, as CRW's Chairman of the Board, conducted board meetings and votes on CRW's tax liability, including the board's decision not to honor payroll tax obligations to the IRS. Plaintiff's amended complaint averred that each board member "is personally liable as a responsible person for payment to the of CRW's payroll taxes, interest and penalties." In count I, plaintiff claimed that each defendant "is individually liable" for the imposed "taxes, interest and penalties" and, therefore, each defendant was unjustly enriched. Count II sought common law contribution, alleging that since plaintiff "paid more than his pro rata share of Defendants' common IRS obligation," he was "entitled to contribution from Defendants of their proportionate share of the common IRS obligation."

Defendants moved to dismiss plaintiff's amended complaint pursuant to section 2-615 for failure to state a cause of action. 735 ILCS 5/2-615 (West 1994). At argument on defendants' motion, defense counsel maintained that section 6672 permits the IRS to penalize a party for failure to pay taxes and the IRS alone determines who is a "responsible party" under section 6672. Plaintiff's counsel asserted that by virtue of the board's collective decision not to pay CRW's payroll taxes, defendants, as board members, are considered responsible parties under section 6672 and have a common liability. The circuit court granted defendants' motion to dismiss plaintiff's amended complaint with prejudice. Plaintiff appeals.

I

Plaintiff initially contends the "penalty" assessed under section 6672 represents an actual tax debt rather than a punitive measure. Defendants assert the IRS did not determine that they were "responsible persons" for the unpaid taxes and the IRS can still attempt to collect penalties from them, "separate and apart from those amounts paid by" plaintiff.

No action will be dismissed on a motion pursuant to section 2-615 for failure to state a cause of action unless it clearly appears that no set of facts can be proved under the pleadings which will entitle plaintiff to relief. People ex rel. Daley v. Datacom Systems Corp., 146 Ill. 2d 1, 11, 585 N.E.2d 51, 165 Ill. Dec. 655 (1991). When deciding a motion to dismiss, all well pleaded facts in the complaint will be regarded as true and all reasonable inferences from them will be considered correct. Krasinski v. United Parcel Service, Inc., 124 Ill. 2d 483, 485-86, 530 N.E.2d 468, 125 Ill. Dec. 310 (1988). The dismissal of a complaint with prejudice under section 2-615 involves a question of law as to whether the complaint sets forth facts which, if true, would entitle plaintiff to relief. Fulton-Carroll Center, Inc. v. Industrial Council, 256 Ill. App. 3d 821, 824, 628 N.E.2d 1121, 195 Ill. Dec. 657 (1993).

A

Section 6672(a) provides:

"Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total ...


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