USCA1 Opinion

United States Court of Appeals

For the First Circuit
____________________

No. 96-1582

ARNOLD W. VINICK,

Plaintiff - Appellant,

v.

COMMISSIONER OF INTERNAL REVENUE,

Defendant - Appellee.

___________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Mark L. Wolf, U.S. District Judge]

___________________

__________________

Before

Stahl and Lynch, Circuit Judges,

______________
and Woodlock,* District Judge.
______________
____________________

Howard R. Palmer with whom Lawrence F. O'Donnell and O'Donnell,

________________
_____________________
__________
O'Donnell & O'Donnell were on brief for appellant.
_____________________
Theresa E. McLaughlin, Assistant United States Attorney, with
_____________________

whom Loretta C. Argrett, Assistant Attorney General, Donald K. Ster

__________________
______________

United States Attorney, and Sarah K. Knutson, Attorney, Tax Divisio

________________
Department of Justice, were on brief for appellee.
____________________

April 8, 1997
____________________

_____________________
*Of the District of Massachusetts, sitting by designation.
STAHL, Circuit Judge.
STAHL, Circuit Judge.
_____________

Plaintiff-Appellant

Arnold

W. Vinick ("Vinick") appeals the grant of summary judgment in

favor of Defendant-Appellee, Commissioner of Internal Revenue

("IRS") with

respect to

withholding

taxes.

We

the IRS' claim

reverse, in

for unpaid

part,

federal

and remand

for

further proceedings.

Background
Background
__________

A. Statutory Background
________________________

By

discussion

way of

of

26

dispute, drawing

legal context,

U.S.C.

we begin

6672(a),

primarily from

with

which

governs

our decision in

United States, 887 F.2d 12, 14 (1st Cir. 1989).

_____________

Revenue

Code

("the Code")

federal taxes from

requires

this

Thomsen v.
_______

The Internal

employers to

employees' wages, see 26

___

a brief

U.S.C.

withhold

3102,

3402,

and to

hold

such amounts

States. See 26 U.S.C.

___

the

7501.

taxes, the IRS has

in

trust for

United

Once an employer has withheld

no recourse against

the event of nonpayment.

the

the employee in

When an employer fails to remit the

withheld taxes, the IRS is not without recourse, for the Code

allows the IRS

certain

to look

agents and

liable for

beyond the corporate

officers of

the

form and

corporation personally

any taxes withheld but not paid.

See 26 U.S.C.
___

6672(a).

Title 26 U.S.C.

[a]ny

person

truthfully
tax imposed
fails to . .
shall,

in

6672(a) provides that

required

to

collect,

account for, and pay over any

by this title

who willfully

. pay over such

addition

provided by law,

hold

tax . .

to other

be liable to a

penalties
penalty

-33

equal

to

evaded,

the total
or

not

amount

of

collected,

the tax
or

not

accounted for and paid over.

Section

6672(a) thus

amount

of delinquent

person," i.e., one

permits the

IRS to

withholding tax from

recover the

full

any "responsible

required to collect, account

for and pay

over the taxes, if that individual acted willfully within the

meaning of the section.

See Thomsen, 887 F.2d at 14.

___ _______

B. Factual Background
______________________

We state the facts

Vinick, the party opposing

in the light most favorable

to

summary judgment. See Hoeppner v.

___ ________

Crotched Mountain Rehabilitation Ctr., 31

_______________________________________

F.3d 9,

14 (1st

Cir. 1994).

Vinick

currently

partner in

practiced public

became

certified

his own

accounting for

acquainted with Richard

attorney,

Vinick

is a

in the early

about

the

1970's.

Jefferson

public

accountant and

accounting

is

firm.

He has

over thirty years.

Vinick

Letterman, then a practicing

Around

Bronze

1980 Letterman told

Company

("Jefferson

Bronze"), a foundry in

less than

Salem, Massachusetts, and despite its

stellar financial performance, persuaded

him that

it would make a good investment.

In 1981, Vinick, Letterman and Peter Mayer1 agreed

to

purchase

the

assets

of

Jefferson

Bronze.

In

the

transaction, each investor acquired one-third of the company,

____________________

1.

Peter Mayer is Letterman's brother-in-law.

-44

and pledged the equity in his house as part

package.

became

Mayer

of the financing

Although the record is unclear as to how, Letterman

president, Vinick

had

the title

of treasurer,

and

was given responsibility for the day-to-day management

of the foundry.

Vinick,

passive investor

a busy

accountant, desired

in Jefferson

position as treasurer, Vinick

nor

participated

in

any

management of Jefferson

oversaw

the day to

Bronze.

only to

Despite

be a

his nominal

neither saw the company bylaws

way

Bronze.

in

the

fiscal

From 1981

day operations of

or

to 1983,

general

Mayer

Jefferson Bronze, and

Vinick

did

nothing other

than

prepare

the quarterly

tax

returns.

By

was

1983, the

performing

poorly

performance led

structure.

to

the

Mayer "was

money.

in

Jefferson

Bronze employee, to

of the

asked Ronald

Vinick and

release of Mayer's

interest in Jefferson Bronze and each became a fifty

percent

secured new

arrangement,

Bronze's

Mayer's

As part of

financing

poor

assume oversight

foundry.

exchange for obtaining the

the

That

acquired

owner.

from

losing

Mayer's stewardship,

dismissed," and Vinick

day-to-day operations

Letterman, in

house

and

several changes

Ouellette, a Jefferson

of

company, under

the restructuring, Vinick

financing in the

amount of

and Letterman

$300,000 which

was

-55

used

to pay off the

original loan and

for working capital,

once again pledging each of their houses as collateral.

Between 1983

Jefferson

Bronze

and

and 1987, Ouellette

Vinick's

continued to run

involvement

continued

to

consist, with

tax

a few

returns.

Jefferson

taxes.

During 1985,

Bronze had

Vinick

Letterman

to resolve

become delinquent

Vinick that

in its

of the

withholding

problem and

agent and

all

agreed to attend a meeting with a revenue

the situation.

Upon

arrival, however,

and Ouellette refused to attend the meeting.

waited outside in

revenue

the quarterly

Ouellette informed

informed Letterman

three shareholders

officer

exceptions, of preparing

the car

while Vinick alone

negotiated

occasion" during this period,

payment

met with

plan.

"On

They

the

rare

Vinick also reported Jefferson

Bronze's poor performance to Letterman and sought suggestions

for

ways to improve the company's operations.

between 1983

and 1987,

apparently because of

At some point

the continued

poor

performance

borrowed

$35,000

of

from

the

company,

the former

Letterman

owner.

and

Vinick

That debt

was

secured with personal guarantees.

In 1987,

the

Letterman decided to assume

daily operations

of the foundry.

prepare the quarterly tax returns.

an additional

the

$300,000 of

Vinick

oversight of

continued to

He and Letterman secured

financing, this time

by pledging

assets of the company and their personal guarantees.

-66

As

a condition of the loan, the

Bronze to

transfer

lending bank required Jefferson

its checking

account

to the

bank

and

insisted that both Letterman and Vinick become signatories on

the

account.

Vinick,

signing authority

checkbook.

however, never

nor did

His involvement

he have

exercised his

access to

check

the corporate

in the management

of Jefferson

Bronze remained minimal.

After Letterman took over active

company, Vinick

served

spoke with either Letterman or his wife (who

as bookkeeper)

occasion he would

management of the

once every

four to

five weeks.

discuss "the problem of unpaid

On

taxes" and

would

urge

the

Lettermans

to

remit

these

taxes.

Specifically, each time he prepared a quarterly tax return he

discussed the withholding taxes

whether

urged

raised

or not

the Lettermans

the issue with

the taxes,

in

the taxes

April

with the Lettermans, learned

had been

to make

deposited, and

the deposits.

the Lettermans, they

Each

Bronze again

time he

promised to pay

and Vinick relied on their assurances.

1989, Jefferson

if not,

Beginning

fell behind

in its

withholding tax obligations.

In

against Vinick

December

and the

the

IRS

made

and Letterman, each in the

for unpaid withholding

1989

1990,

taxes for the last

first two quarters

of 1990.

an

assessment

amount of $49,129

three quarters of

Vinick paid one

quarter's worth

of

the

assessment, filed

claim

for

-77

refund,

district

and

upon

court.

the assessment

Letterman and

IRS

The

denial,

refund

IRS counterclaimed for

and moved

Vinick.

brought a

in

the balance of

for summary judgment

The district court,

suit

against both

concluding that

both Vinick and Letterman

willfully under

IRS.

were responsible persons who acted

6672(a), granted summary

judgment for the

Vinick alone now appeals.2

Standard of Review
Standard of Review
__________________

We review

See Ortiz-Pinero v.
___ ____________

1996).

genuine

the award

Rivera-Arroyo, 84 F.3d
_____________

Summary judgment

issue of

of summary judgment

7, 11 (1st

Cir.

is appropriate in the absence

of a

material fact,

when the

entitled to judgment as a matter of law.

56(c).

fact is

material when

affect the outcome of the suit.

Benefit Plan v.
____________

de novo.
_______

it has

See
___

moving party

is

See Fed. R. Civ. P.

___

the potential

to

J. Geils Band Employee

______________________

Smith Barney Shearson, Inc., 76 F.3d

____________________________

1245,

1250-51 (1st

Neither

Cir.),

party

may

unsubstantiated

derived

from

cert. denied,
_____ ______

rely

denials,

the

interrogatories,

on

admissions

and

S. Ct.

conclusory

but must

pleadings,

117

81

(1996).

allegations

identify

or

specific facts

depositions,

answers

affidavits to

to

demonstrate

____________________

2.

The record reflects that in 1992, Letterman was disbarred

after he pled guilty to four counts of larceny and

of

embezzlement by

Jefferson Bronze.

fiduciary, charges

one count

all unrelated

He received a two-year prison sentence.

-88

to

either the

existence or absence

of an issue

of fact.

See
___

Fed. R. Civ. P. 56(c) and (e).

As in other tax litigation, the person

an

assessment under

that he is

6672(a) bears

the burden

not a responsible person.

liability on him

of proving

that

for Jefferson

of proving

See Caterino v. United

___ ________
______

States, 794 F.2d 1, 5 (1st Cir. 1986).

______

ultimate burden

challenging

Vinick thus bears the

6672(a) does not

Bronze's unpaid

impose

withholding

taxes.

See id.
___ ___

At the summary

judgment stage, however, the

IRS, as the moving party, has the burden of demonstrating the

absence of a

6672(a)

law.

to whether

applies and that it deserves judgment as a matter of

Vinick's

judgment,

burden,

as

remains the same as

demonstrate

See
___

genuine issue of material fact as

that disputed

O'Connor v.
________

the

party

summary

any opposing party:

facts preclude

United States,
_____________

opposing

956 F.2d

he must

summary judgment.

48, 50

(4th Cir.

1992).

Discussion
Discussion
__________

In granting

the

district

court

summary judgment in favor

determined

both

that

of the IRS,

Vinick

was

responsible person and that he acted willfully as a matter of

law.

We consider each of these issues in turn.

A. Responsible under
6672(a)
_______________________________

As we

the

have noted, "[c]ourts

word 'responsible'

have explicitly given

a broad interpretation."

-99

Caterino,
________

794

F.2d at 5.

status,

Specifically, responsibility "is a matter of

duty,

(internal

and authority,"

quotations and

ultimate determination

to

Thomsen,
_______

citations

887

F.2d at

omitted), aimed

of "whether the person

16

at the

had the power

determine whether the taxes should be remitted or paid or

had 'the final word as to

paid and when,'"

what bills should or should not be

Caterino, 794 F.2d at

________

5 (quoting Adams v.
_____

United States, 504 F.2d 73, 75 (5th Cir. 1974)).

_____________

We

impose

responsibility

Harrington
__________

and

responsibility

authority

v. United States,
_____________

1974), but predicate

to

on

avoid

504 F.2d 1306,

our definition of who

"all

the

with

the

default,"

1312 (1st Cir.

is a responsible

person on the function

not the level

5;

see
___

of the employee in the

of the office held, see Caterino,

___ ________

also O'Connor,
____ ________

6672(a) liability must

956 F.2d

at

ensnare

titular

those who

designation,"

51 (indicating

have

merely

but instead

6672(a) "is not

encompasses

v. Rem, 38 F.3d 634, 642 (2d Cir. 1994).

___

control

responsible, an

over the

that

affairs of

or

those close

United States
_____________

At bottom, in order

individual must have

financial

As

meant

technical authority

enough to the business to prevent the default.

to be

794 F.2d at

derive from substance, not form).

the Second Circuit recently stated,

to

business, and

the

had significant

company.

See
___

Caterino, 794 F.2d at 5; see also Rem, 38 F.3d at 642; United

________
___ ____ ___
______

States v.
______

Carrigan, 31 F.3d 130,

________

133 (3rd Cir. 1994).

The

-1010

individual assessed either must have

over financial

affairs or

had a duty to do so.

exercised his authority

general management, or

See O'Connor, 956 F.2d at 51.

___ ________

must have

In

the

absence

of

uncontroverted

evidence

establishing an individual's "precise responsibility"

to pay

withholding taxes, see Barnett v. Internal Revenue Serv., 988

___ _______
______________________

F.2d

1449,

management

the

1455 (5th

or

or financial decision-making

level of control

indicia may

indicia

Cir. 1993),

necessary for

of specific

that would manifest

responsibility, various

establish responsibility under

include

the

holding

authority to disburse corporate

the ability to

hire and

of

acts of

6672(a).

corporate

Such

office,

the

funds, stock ownership,

and

fire employees.

See Thomsen,
___ _______

887

F.2d at 16.

The

Vinick had

IRS

has offered

no evidence

the actual responsibility to

suggesting that

pay the withholding

taxes.

IRS

Indeed, that was Letterman's duty.

established

responsibility.

some

of

During the

the

As to Vinick, the

recognized

indicia

quarters in controversy,

of

Vinick

held the office of treasurer, prepared the quarterly returns,

spoke

occasionally with

(including the

the Lettermans

problem of

authority, and had pledged

about the

unpaid taxes), had

business

check signing

his personal assets and guarantee

in order to secure company financing.

See Caterino, 794 F.2d

___ ________

at

responsibility

5-6

(evaluating

individual's

-1111

during

delinquent

(same).

quarters); see
___

From

also
____

these indicia

Barnett, 988
_______

alone,

F.2d at

1455

infer

that

one might

Vinick was a responsible person.

The

record

competing inference.

in

this

case,

however,

Vinick testified that

permits

from the outset

of their venture he made it clear to Letterman and Mayer that

his

role was to be no more

During the relevant quarters,

anyone, nor

inserted

than that of a passive investor.

Vinick neither hired nor fired

himself into

the

company

structure,

initiated change

technically

possessed

Vinick did

possessed

for

incidents

strategic decisions.

check

writing

Although he

he

never

the checkbook, nor did he write any checks.

While

authority,

approach Ouellette to run the

was dismissed

1985

or made

and negotiated

delinquent

occurred

a settlement

withholding

during

company when Mayer

the

with the

taxes, neither

quarters

of

in

in management.

that Vinick had more

Letterman

those

question.

Letterman, in his deposition, claimed that previous

had indicated

IRS in

managers

than minimal involvement

admitted, however, that

after he

took over Vinick's involvement was minimal.3

____________________

3.

Vinick's situation resembles that of the plaintiff in the

Fourth

Circuit case O'Connor

v. United States,

956 F.2d 48

________
(4th Cir. 1991).

_____________

In O'Connor,
________

the Fourth Circuit

reversed

the award of summary judgment for the IRS against a corporate

vice president who, like Vinick,

averred that the record did

not establish his responsibility as a matter of law.

at

52.

The district

basis that

court granted summary

O'Connor demonstrated

responsible

person:

he was

many of the

See id.
___ ___

judgment on the
indicia of

a founder, fifty percent owner,

-1212

In short, while the record in this case may contain

sufficient

evidence

from

which

one

could infer

Vinick's

responsibility as a matter of fact, "[t]he sufficiency of the

government's evidence was not the proper test on a motion for

summary judgment."

Rem, 38 F.3d at
___

645.

In

reversing the

district court on this issue we by no means absolve Vinick or

in any way pass on whether he is or is

6672(a).4

We

evidence before

simply conclude

not responsible under

that on

the basis of

the

us, a reasonable jury could find that Vinick

was not a responsible person.

C. Willfulness under
6672(a)
_______________________________

Assuming a jury finds

under

Vinick a responsible

6672(a), a predicate to the question of

person

willfulness,

we affirm the district court's conclusion that the undisputed

____________________

officer

and director of the company; he had the authority to

sign checks; he
affairs
WL

had a general familiarity with the financial

of the company.

See O'Connor v. United States, 1991

___ ________
_____________

64479, at *4 (D. Md.).

concluded

that

O'Connor

either

the

In reversing, the Fourth Circuit

absence

exercised

of

evidence

any

authority

suggesting
over

financial

affairs or general management, or was under a duty to

precluded the entry
the issue

of O'Connor's actual

company.

4.

of summary judgment

that

and left for

level of involvement

do so,
trial
in the

Id. at 50-52.
___

Unlike Thomsen,
_______

where we

affirmed the

district court's

grant of a judgment as a matter of law for the IRS, this case

presents a very different
addition to
"concrete
F.2d at
close

factual scenario.

in

various indicia of responsibility, we identified

indications of Thomsen's

16-17.
the

In Thomsen,
_______

Thomsen

business and

actual authority."

affirmatively made the

took

possession

books, records and remaining inventory.

of the

887

decision to
corporate

See id. at 17.

___ ___

-1313

facts establish that

Vinick acted willfully

as a matter

of

law.

Section

purpose

Thomsen,
_______

of which

887

6672(a) contemplates

is to protect

F.2d at

17.

a civil

penalty the

governmental revenue.

Willfulness under

See
___

6672(a),

therefore, does not depend on the presence of either criminal

motive or the specific intent to defraud the government.

id.
___

Instead,

disregard" of

willfully.

meet this

that

without

trouble

and

"reckless

of nonpayment

(1)

acts

reliance upon

control of the

continuing

to

inquiry as

the

finances when the

person

knew

to investigate

having notice

(3) knowing that

making reasonable

We have recognized three factual

(2) failure

correct mismanagement after

financial

risk

the responsible

be unreliable;

withholding taxes; and

acts with

standard:

of a person in

show

who

or obvious

See id. at 18.

___ ___

circumstances

person to

individual

a known

scenarios that

statements

an

See
___

the

or to

of nonpayment

of

the business is

in

pay

other creditors

to the status

of the

withholding taxes.

See id. at 18-19 (internal quotations and

___ ___

citations omitted).

With respect to the

responsible person

"had knowledge

failed

that the

to perform

affairs

quotation

of

the

acts with

other

reckless disregard

individual had

adequately with

taxpayer

and

first scenario,

entity."

citation

regard to

Id.
___

in the

past

the financial

at 18

(internal

omitted).

Once a 'responsible person' has had clear

-1414

when he

notice

that

delegated
taxes
in

responsibility for

past, he

continues

responsibility

Should the
to

to whom

has wrongfully failed

the

that

the person

at

paying the
to pay them
to delegate

his own

peril.

"responsible person" continue

delegate, without

measures

he has

to

assure

taking appropriate
that the

delegated

person will not repeat the dereliction in

the future, the subsequent willfulness of
the delegatee in once more failing to pay
the

taxes

will

be

imputed

to

the

"responsible person."

Id. at 19.
___

The undisputed

facts

establish that

as early

as

1985 Vinick knew of Letterman's unreliability with respect to

the

withholding

taxes.

Vinick

admitted

that

Letterman

refused

to accompany him to

a meeting with

after the first delinquency.

a revenue agent

Letterman and Ouellette waited

in the car while Vinick negotiated a payment plan.

Vinick also admitted that after Letterman took over

day-to-day management of Jefferson Bronze, he had discussions

with

either

prepared

urged

would.

unpaid

Letterman

a quarterly

or

Letterman's

return.

On

wife

whenever

those occasions,

he

Vinick

the Lettermans to pay the taxes and they promised they

Vinick asserted that

taxes, his

absolute

while he had

lack of

any

knowledge of the

control over

the

disbursement of funds rendered that knowledge meaningless.

While

such knowledge

6672(a) responsibility,

may not

should a jury

bear on

Vinick's

find him responsible,

it

relates directly

to a

proper evaluation

of

whether he

-1515

acted willfully.

delinquency.

future payment

realized that

Vinick concedes that he knew of Letterman's

Yet Vinick

relied on Letterman's

without further investigation

the

delinquency

continued.5

promises of

even though he

Thus,

should

Vinick be

found to be

a responsible party,

the willfulness

prong has been met.

Conclusion
Conclusion
__________

We reverse the district court's

Vinick

was

affirm the

a responsible

person as

court's conclusion that

We remand

this

proceedings

case

on the

to

the

issue of

determination that

matter of

Vinick acted

district

court

law, but

willfully.

for

responsibility, and

further

note that

should a jury find Vinick responsible, he acted willfully

a matter of law.

Affirmed in part, reversed in part and remanded.

Affirmed in part, reversed in part and remanded.
________________________________________________

as

____________________

5.

Although Vinick made no arguments, either in his brief or

at

oral

argument,

specific to

willfulness

responsibility, he could argue that

at least during the first
The

1985

meet with

to

previous events, such

a

from

he did not act willfully

quarter in which Jefferson

went delinquent.
refusal

separate

revenue

Bronze

as Letterman's

agent

and Vinick's

knowledge that Letterman, on occasion, subsequently failed to

pay, necessarily gave Vinick the "knowledge
had in the past
the

that [Letterman]

failed to perform adequately with

financial affairs"

of Jefferson

F.2d at 18.

-1616

Bronze.

regard to

Thomsen, 887
_______