Petitioner assumed control of three corporations at a time when
a delinquency existed for unpaid federal taxes withheld from
employees' wages, while the specific funds withheld but not paid
had been dissipated by predecessor officers and when the
corporations had no liquid assets with which to pay the overdue
taxes. During the six-month period of petitioner's control, the
corporations acquired funds sufficient to pay the taxes, but
petitioner used the funds to pay employees' wages, rent, suppliers
and other creditors, and to meet current business expenses. On
petitioner's withdrawal from the corporations' business, he
instituted a bankruptcy proceeding, in which the Internal Revenue
Service filed a claim, including the delinquent back taxes, under
§ 6672 of the Internal Revenue Code of 1954, which imposes
personal liability for taxes on
"[a]ny 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. . . ."
The Court of Appeals held that petitioner was personally liable
for the unpaid taxes under § 6672. While petitioner concedes
liability for the collection, accounting, and payment of taxes
required to be withheld during the period of his control, he
disclaims responsibility with respect to taxes withheld prior
thereto, arguing that its conjunctive phrasing made § 6672
inapplicable to him, since he was clearly under no duty to collect
and account for taxes incurred before that period. The Government
maintains that the statutory language could be construed as
describing in terms of their general responsibilities the persons
potentially liable under the statute without regard to the
fulfillment of all the duties with respect to specific tax dollars,
and that § 6672 imposed liability on petitioner as a
"responsible person" because sums received during the period of his
control were impressed with a trust in favor of the Government for
the satisfaction of the overdue taxes and petitioner's willful use
of such sums to pay other creditors violated the statute's "pay
over" obligation. Though relying primarily on § 6672 for its
trust theory of liability, the Government suggests as also
applicable § 7501, which
Page 436 U. S. 239
provides that,
"[w]henever a person is required to collect or withhold any
internal revenue tax from any other person and to pay over such tax
to the United States, the amount of the tax . . . shall be held to
be a special fund in trust for the United States [which] shall be
assessed, collected, and paid in the same manner and subject to the
same provisions and limitations (including penalties) as are
applicable with respect to the taxes from which such fund
arose."
Held:
1. The phrase "[a]ny person required to collect, truthfully
account for, and pay over any tax imposed by this title" was meant
to limit § 6672 to persons responsible for paying over taxes
that require collection (third-party taxes), and not to limit it to
persons in a position to perform all three functions with respect
to the specific taxes as to which the employer is delinquent.
Petitioner's construction could lead to ready evasion of
responsibility under § 6672, and is thus at odds with the
statute's purpose of assuring payment by third parties of withheld
taxes. Pp.
436 U. S.
246-250.
2. Neither § 6672 nor § 7501 impresses a trust on the
after-acquired funds of an employer for payment of overdue
withholding taxes absent tracing of those funds to taxes collected,
and petitioner therefore was not liable under § 6672 for using
those funds for purposes other than payment of the overdue
withholding taxes. Pp.
436 U. S.
253-259.
(a) Section 6672 was not intended to impose an absolute
liability without personal fault for failure to "pay over" amounts
that should have been collected and paid over so that petitioner
could not be liable unless he failed to pay funds held in trust for
the United States. Pp.
436 U. S.
253-254.
(b) Nothing in the language or legislative history of §
6672 suggests that the effect of the "pay over" requirement was to
impress a trust on the corporations' after-acquired cash, and the
history of § 7501 makes clear that it was not. Since the very
reason for adding § 7501 to the Code was that, under existing
law, the liability of the person collecting and withholding the
taxes was merely a debt, § 6672, whose predecessor was enacted
while the debt concept of liability prevailed, hardly could have
been intended to impose a trust on after-acquired cash. Although
the trust concept of § 7501 may inform the scope of the duty
imposed by § 6672, the language of § 7501 makes clear
that there must be a nexus between the funds collected and the
trust created. Pp.
436 U. S.
254-256.
(c) A construction of §§ 7501 and 6672 as imposing a
trust on all after-acquired property without regard to the
interests of others in those funds would conflict with the priority
rules applicable to the collection
Page 436 U. S. 240
of back taxes, which give secured parties interests in certain
proceeds superior to tax liens. Pp.
436 U. S.
256-259.
552 F.2d 159, reversed.
BRENNAN, J., delivered the opinion of the Court, in which
STEWART, MARSHALL, POWELL, REHNQUIST, and STEVENS, JJ., joined.
REHNQUIST, J., filed a concurring opinion,
post, p.
436 U. S. 260.
WHITE, J., filed an opinion dissenting in part, in which BURGER,
C.J., and BLACKMUN, J., joined,
post, p.
436 U. S.
261.
MR. JUSTICE BRENNAN delivered the opinion of the Court.
Petitioner, an orthodontist by profession, on January 31, 1969,
purchased the stock and assumed the management of three
corporations engaged in the food vending business. The corporations
were indebted at the time of the purchase for approximately
$250,000 of taxes, including federal wage and Federal Insurance
Contribution Act (FICA) taxes withheld from employees' wages prior
to January 31. The sums withheld had not been paid over when due,
however, but had been dissipated by the previous management before
petitioner acquired the businesses. After petitioner assumed
control, the corporations acquired funds sufficient to pay the
taxes, but petitioner used the funds to pay employees' wages, rent,
suppliers, and other creditors, and to meet other day-to-day
expenses incurred in operating the businesses. The question to be
decided is whether, in these circumstances, petitioner is
personally liable under § 6672 of the Internal Revenue Code of
1954, 26 U.S.C. § 6672 -- which imposes personal liability for
taxes on
"[a]ny person required to collect, truthfully account
Page 436 U. S. 241
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 . . ."
-- for the corporations' unpaid taxes withheld from wages prior
to his assumption of control. The Court of Appeals for the Sixth
Circuit held that petitioner was personally liable under §
6672 for the unpaid taxes. 552 F.2d 159 (1977). We granted
certiorari. [
Footnote 1] 434
U.S. 817 (1977). We reverse.
I
The case arose from the filing by the Internal Revenue Service
(IRS) of a claim for the taxes in a proceeding instituted by
petitioner in July, 1969, for a real property arrangement under
Chapter XII of the Bankruptcy Act. The facts determined after
hearing by the bankruptcy judge, 74-2 USTC 9719 (ND Ohio 1974), are
not challenged. Petitioner purchased and assumed managerial control
of the Tas-Tee Catering, Tas-Tee Vending, and Charles Corporations
on January 31, 1969. When he bought the stock, petitioner
understood, and the purchase agreement reflected, that the
corporations had an outstanding obligation for taxes in the amount
of $250,000 due for payment on January 31, including withheld
employee wage and FICA taxes (hereinafter trust-fund taxes). During
the purchase negotiations, the sellers represented to petitioner
that balances in the various corporate checking accounts were
sufficient to pay these taxes as well as bills due other creditors.
Relying on the representation, petitioner, on Saturday, February 1,
sent four checks to the IRS in payment of the taxes.
Page 436 U. S. 242
On Monday, February 3, petitioner discovered that the accounts
were overdrawn, and stopped payment on the checks. Thus, at the
time that petitioner assumed control, the corporations had no
liquid assets, and whatever trust fund taxes had been collected
prior to petitioner's assumption of control had been
dissipated.
Petitioner immediately advised the IRS that the corporations had
no funds with which to pay the taxes, and solicited guidance
concerning how the corporations should proceed. App. 36. There was
evidence that IRS officials advised petitioner that they had no
objection to his continuing operations so long as current tax
obligations were met, and that petitioner agreed to do so and to
endeavor to pay the arrearages as soon as possible. Tr. 37-38. The
IRS never represented that it would hold petitioner harmless under
§ 6672 for the back taxes, however.
To continue operations, petitioner deposited personal funds in
the corporate account, and, to obtain inventory, agreed with
certain suppliers to pay cash upon delivery. During petitioner's
tenure, from January 31 to July 15, 1969, the corporations' gross
receipts approximated $130,000 per week for the first months, but
declined thereafter. The corporations
"established a system of segregating funds for payment of
withheld taxes and did, in fact, pay withheld taxes during the
period February 1, 1969, to July 15, 1969."
App. 30. The bankruptcy judge found, and the IRS concedes, that
the $249,212 in taxes paid during this period was approximately
sufficient to defray current tax obligations. No taxes owing for
periods prior to February 1 were paid, however, and, in July, 1969,
the corporations terminated operations and filed for
bankruptcy.
II
Several provisions of the Internal Revenue Code require third
persons to collect taxes from the taxpayer. Among the more
important are 26 U.S.C. §§ 3102(a) and 3402(a) (1970
Page 436 U. S. 243
ed. and Supp V) which, respectively, require deduction from
wages paid to employees of the employees' share of FICA taxes, and
the withholding tax on wages applicable to individual income taxes.
The withheld sums are commonly referred to as "trust fund taxes,"
reflecting the Code's provision that such withholdings or
collections are deemed to be a "special fund in trust for the
United States." 26 U.S.C. § 7501(a). There is no general
requirement that the withheld sums be segregated from the
employer's general funds, however, or that they be deposited in a
separate bank account until required to be paid to the Treasury.
Because the Code requires the employer to collect taxes as wages
are paid, § 3102(a), while requiring payment of such taxes
only quarterly, [
Footnote 2]
the funds accumulated during the quarter can be a tempting source
of ready cash to a failing corporation beleaguered by creditors.
[
Footnote 3] Once net wages are
paid to the employee, the taxes withheld are credited to the
employee regardless of whether they are paid by the employer, so
that the IRS has recourse only against the employer for their
payment. [
Footnote 4]
An employer who fails to pay taxes withheld from its employees'
wages is, of course, liable for the taxes which should have been
paid, § 3102(b) and 3403. The IRS has several means at its
disposal to effect payment of the taxes so withheld.
Page 436 U. S. 244
First, once it has been determined that an employer has been
inexcusably delinquent, the IRS, upon giving hand-delivered notice,
may require the employer, thereafter and until further notice, to
deposit withheld taxes in a special bank trust account within two
banking days after collection, to be retained there until required
to be paid to the Treasury at the quarter's end. § 7512.
Second, with respect to trust funds past due prior to any such
notification, the amount collected or withheld
"shall be held to be a special fund in trust for the United
States [and] [t]he amount of such fund shall be assessed,
collected, and paid in the same manner and subject to the same
provisions and limitations (including penalties) as are applicable
with respect to the taxes from which such fund arose."
26 U.S.C. § 7501. Thus, there is made applicable to
employment taxes withheld but not paid the full range of collection
methods available for the collection of taxes generally. After
assessment, notice, and demand, [
Footnote 5] the IRS may, therefore, create a lien upon the
property of the employer, § 6321, and levy, distrain, and sell
the employer's property in satisfaction. §§ 6331 to 6344
(1970 ed. and Supp. V).
Third, penalties may be assessed against the delinquent
employer. Section 6656 of the Code imposes a penalty of 5% of the
underpayment of any tax required to be deposited, and 26 U.S.C.
§§ 7202 and 7215 provide criminal penalties respectively
for willful failure to "collect or truthfully account for and pay
over" trust fund taxes, and for failure to comply with the
requirements of § 7512, discussed
supra, regarding
special accounting requirements upon notice by the Secretary.
Finally, as in this case, the officers or employees of the
employer responsible for effectuating the collection and
payment
Page 436 U. S. 245
of trust fund taxes who willfully fail to do so are made
personally liable to a "penalty" equal to the amount of the
delinquent taxes. Section 6672 provides,
inter alia:
"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 amount of the tax
evaded, or not collected, or not accounted for and paid over. . .
."
Section 6671(b) defines "person," for purposes of § 6672,
as including
"an officer or employee of a corporation, or a member or
employee of a partnership, who as such officer, employee, or member
is under a duty to perform the act in respect of which the
violation occurs."
Also, § 7202 of the Code, [
Footnote 6] which tracks the wording of § 6672, makes
a violation punishable as a felony subject to a fine of $10,000,
and imprisonment for 5 years. Thus, an employer-official or other
employee responsible for collecting and paying taxes who willfully
fails to do so is subject to both a civil penalty equivalent to
100% of the taxes not collected or paid, and to a felony
conviction. Only the application to petitioner of the civil penalty
provision, § 6672, is at issue in this case.
III
When the same individual or individuals who caused the
delinquency in any tax quarter are also the "responsible persons"
[
Footnote 7]
Page 436 U. S. 246
at the time the Government's efforts to collect from the
employer have failed, and it seeks recourse against the
"responsible employees,"
see IRS Policy Statement P-5-60,
IRS Manual, MT 1218-56 (Feb. 25, 1976), there is no question that
§ 6672 is applicable to them. It is the situation that arises
when there has been a change of control of the employer enterprise,
here corporations, prior to the expiration of a tax quarter, or at
a time when a tax delinquency for past quarters already exists that
creates the question for our decision. In this case, petitioner
assumed control at a time when a delinquency existed for unpaid
trust fund taxes, while the specific funds withheld but not paid
had been dissipated by predecessor officers, and when the
corporations had no liquid assets with which to pay the overdue
taxes.
A
Petitioner concedes that he was subject to personal liability
under § 6672 as a person responsible for the collection,
accounting, and payment of employment taxes required to be withheld
between January 31, 1969, when he assumed control of the
corporations, and July 15, 1969, when he resigned. Tr. of Oral Arg.
8. His contention is that he was not, however, a responsible person
within § 6672 with respect to taxes withheld prior to his
assumption of control, and that § 6672 consequently imposed no
duty upon him to pay the taxes collected by his predecessors.
Petitioner argues that this construction of § 6672 follows
necessarily from the statute's limitation of personal liability to
"[a]ny person required to collect, truthfully account for
and pay over any tax imposed by this title," who willfully
fails to discharge those responsibilities (emphasis added). He
argues that, since the obligations are phrased in
Page 436 U. S. 247
the conjunctive, a person can be subject to the section only if
all three duties -- (1) to collect, (2) truthfully account for,
and (3) pay over -- were applicable to him with respect to
the tax dollars in question.
See McCullough v. United
States, 462 F.2d 588 (CA5 1972). On the other hand, as the
Government argues, the language could be construed as describing,
in terms of their general responsibilities, the persons potentially
liable under the statute, without regard to whether those persons
were in a position to perform all of the duties with respect to the
specific tax dollars in question. Although neither construction is
inconsistent with the language of the statute, we reject
petitioner's as inconsistent with its purpose.
Sections 6672 and 7202 were designed to assure compliance by the
employer with its obligation to withhold and pay the sums withheld,
by subjecting the employer's officials responsible for the
employer's decisions regarding withholding and payment to civil and
criminal penalties for the employer's delinquency. If § 6672
were given petitioner's construction, the penalties easily could be
evaded by changes in officials' responsibilities prior to the
expiration of any quarter. Because the duty to
pay over
the tax arises only at the quarter's end, a "responsible person"
who willfully failed to
collect taxes would escape
personal liability for that failure simply by resigning his
position, and transferring to another the decisionmaking
responsibility prior to the quarter's end. [
Footnote 8] Obversely,
Page 436 U. S. 248
a "responsible person" assuming control prior to the quarter's
end could, without incurring personal liability under § 6672,
willfully dissipate the trust funds collected and segregated by his
predecessor. [
Footnote 9]
That this result, obviously at odds with the statute's purpose
to assure payment of withheld taxes, was not intended is buttressed
by the history of the provision. The predecessor of § 6672,
§ 1308(c), Revenue Act of 1918, 40 Stat. 1143, provided,
inter alia:
"Any person who willfully refuses to pay, collect, or truly
account for and pay over [taxes enumerated in § 1308(a)] shall
. . . be liable to a penalty of the amount of the tax evaded or not
paid, collected, or accounted for and paid over. . . . [
Footnote 10]"
The statute remained unchanged in this respect until 1954, when
the successor section to § 1308(c) [
Footnote 11]
Page 436 U. S. 249
was revised to its present form. Both before and after the 1954
revision, the "person" potentially liable under the statute was
defined in a separate provision, § 1308(d), succeeded by
present § 6671(b), as including
"an officer or employee of a corporation or a member or employee
of a partnership, who as such officer, employee, or member is under
a duty to perform the act in respect of which the violation
occurs."
When, in 1954, Congress added the phrase modifying "person" --
"Any person required to collect, truthfully account for, and pay
over any tax imposed by this title" -- it was not seeking further
to describe the class of persons defined in § 6671(b) upon
whom fell the responsibility for collecting taxes, but was
attempting to clarify the type of tax to which the penalty section
was applicable. Since, under the 1954 amendment, the penalty would
otherwise be applicable to "any tax imposed by this title," the
phrase modifying "person" was necessary to insure that the penalty
provided by that section would be read as applicable only to
failure to pay taxes which
require collection, that is,
third-party taxes, and not failure to pay "
any tax imposed
by this title," which, of course, would include
direct
taxes such as employer FICA and income taxes. As both the House and
Senate Committees expressed it,
"the application of this penalty is limited only to the
collected or withheld taxes which are imposed on some person other
than the person who is required to collect, account for and pay
over, the tax. [
Footnote
12]"
Thus, by adding the
Page 436 U. S. 250
phrase modifying "person," Congress was attempting to clarify
the type of tax to which the penalty section was applicable,
perhaps inartfully, by reference to the duty of the person required
to collect them. This view is supported by the fact that the
Commissioner of Internal Revenue issued a regulation shortly after
the amendment, limiting the application of the § 6672 penalty
to third-party taxes. 22 Fed Reg. 9148 (1957), now codified as
Treas.Reg. § 301.6672-1, 26 CFR § 301.672-1 (1977).
We conclude therefore that the phrase "[a]ny person required to
collect, truthfully account for, and pay over any tax imposed by
this title" was meant to limit § 6672 to persons responsible
for collection of third-party taxes, and not to limit it to those
persons in a position to perform all three of the enumerated duties
with respect to the tax dollars in question. [
Footnote 13]
We turn then to the Government's contention that petitioner was
subject to personal liability under § 6672 when, during the
period in which he was a responsible person, the corporations
generated gross receipts sufficient to pay the back taxes, but used
the funds for other purposes.
Page 436 U. S. 251
B
Although, at the time petitioner became a responsible person,
the trust fund taxes had been dissipated and the corporations had
no liquid assets, the Government contends that § 6672 imposed
civil liability upon petitioner because sums received from sales in
carrying on the businesses after January 31, 1969, were impressed
with a trust in favor of the United States for the satisfaction of
overdue employment taxes, and petitioner's willful use of those
funds to pay creditors other than the United States, violated the
obligation to "pay over" imposed by § 6672. The Government
does not argue that the statute requires a "responsible person" to
liquidate corporate assets to pay the back taxes upon assuming
control, however; it argues only that a trust was impressed on all
cash received by the corporations. Tr. of Oral Arg. 26, 28-29,
30-31, 32. We think that that construction of § 6672 would not
advance the statute's purpose, and, moreover, is inconsistent with
the context and legislative history of the provision and its
relation to the Code's priority rule applicable to collection of
back taxes.
(1)
The Government argues that its construction of the statute is
necessary to effectuate the congressional purpose to assure
collection and payment of taxes. Although that construction might
in this case garner tax dollars otherwise uncollectible, its
long-term effect arguably would more likely frustrate than aid the
IRS's collection efforts.
At the time petitioner assumed control, the corporations owed
back taxes, were overdue on their supplier accounts, and had no
cash. To the extent that the corporations had assets unencumbered
by liens superior to a tax lien, the IRS could satisfy its claim by
levy and sale. But, as will often be the case, the corporations
here apparently did not have such assets. The
Page 436 U. S. 252
Government admits that, in such circumstances, the IRS's
practice is to be "flexible," Tr. of Oral Arg. 27, 28, 32, 48, and
does not insist that the corporation discontinue operations,
thereby substituting for certain loss at least the potential of
recovering back taxes if the corporation makes a financial
recovery. It argues, nevertheless, that the "responsible person"
renders himself personally liable to the § 6672 penalty by
using gross receipts to purchase inventory or pay wages, or even by
using personal funds for those purposes, [
Footnote 14] so long as any third-party employment tax
bill remains unpaid. [
Footnote
15]
Thus, although it is in the IRS's interest to encourage the
responsible person to continue operation with the hope of receiving
payment of the back taxes, if the attempt fails and the taxes
remain unpaid, the IRS insists that the § 6672 personal
liability penalty attached upon payment of the first dollar to a
supplier. The practical effect of that construction of the statute
would be that a well counseled person contemplating
Page 436 U. S. 253
assuming control of a financially beleaguered corporation owing
back employment taxes would recognize that he could do so without
incurring personal civil and criminal penalties only if there were
available sufficient borrowed or personal funds fully to pay all
back employment taxes before doing any business. If that course is
unattractive or unavailable to the corporation, the Government will
be remitted to its claim in bankruptcy. When an immediate filing
for bankruptcy means a total loss, the Government understandably,
as it did here, does not discourage the corporation from continuing
to operate so long as current taxes are paid. As soon as the
corporation embarks upon that course, however, the "responsible
person" is potentially liable to heavy civil and criminal penalties
not for doing anything which compromised the Government's
collection efforts, but for doing what the Government regards as
maximizing its chances for recovery. As construed by the
Government, § 6672 would merely discourage changes of
ownership and management of financially troubled corporations and
the infusion of equity or debt funding which might accompany it
without encouraging employer compliance with tax obligations or
facilitating collection of back taxes. Thus, recovery of employer
taxes would likely be limited to the situation in which the
prospective purchaser or management official is ignorant of §
6672. [
Footnote 16]
(2)
As noted in the previous section, § 6672 as construed by
the Government would, in effect, make the responsible person
Page 436 U. S. 254
assuming control of a business a guarantor for payment of the
delinquent taxes simply by undertaking to continue operation of the
business. That construction is precluded by the history and context
of § 6672 and cognate provisions of the Code.
Section 6672 cannot be read as imposing upon the responsible
person an absolute duty to "pay over" amounts which should have
been collected and withheld. The fact that the provision imposes a
"penalty" and is violated only by a "willful failure" is itself
strong evidence that it was not intended to impose liability
without personal fault. Congress, moreover, has not made corporate
officers personally liable for the corporation's tax obligations
generally, and § 6672 therefore should be construed in a way
which respects that policy choice. The Government's concession --
that § 6672 does not impose a duty on the responsible officer
to use personal funds or even to liquidate corporate assets to
satisfy the tax obligations -- recognizes that the "pay over"
requirement does not impose an absolute duty on the responsible
person to pay back taxes.
Recognizing that the statute cannot be construed to impose
liability without fault, the Government characterizes petitioner's
use of gross receipts for payment of operating expenses as a breach
of trust, arguing that a trust was impressed on all after-acquired
cash. Nothing whatever in § 6672 or its legislative history
suggests that the effect of the requirement to "pay over" was to
impress a trust on the corporation's after-acquired cash, however.
Moreover, the history of a related section, 26 U.S.C. § 701,
[
Footnote 17] makes clear
that it was not.
Page 436 U. S. 255
Section 7501 of the Code provides,
inter alia, that
the
"amount of tax . . . collected or withheld shall be held to be a
special fund in trust for the United States [which] shall be
assessed, collected, and paid in the same manner and subject to the
same provisions and limitations (including penalties) as are
applicable with respect to the taxes from which such fund
arose."
This section was enacted in 1934. Act of May 10, 1934, ch. 277,
§ 607, 48 Stat. 768, 26 U.S.C. § 3661 (1952 ed.). The
provision was added to H.R. 7835, 73d Cong., 2d Sess., by the
Senate Finance Committee, which explained:
"Under existing law, the liability of the person collecting and
withholding the taxes to pay over the amount is merely a debt, and
he cannot be treated as a trustee or proceeded against by
distraint. Section [607] of the bill as reported impresses the
amount of taxes withheld or collected with a trust and makes
applicable for the enforcement of the Government's claim the
administrative provisions for assessment and collection of
taxes."
S.Rep. No. 558, 73d Cong., 2d Sess., 53 (1934). Since the very
reason for adding § 7501 was, as the Senate Report states,
that "the liability of the person collecting and withholding the
taxes . . . is
merely a debt" (emphasis added), §
6672, whose predecessor section was enacted in 1919 while the
debt concept prevailed, hardly could have been intended to
impose a trust on after-acquired cash.
We further reject the argument that § 7501, whose trust
concept may be viewed as having modified the duty imposed under
§ 6672, [
Footnote 18]
can be construed as establishing a fiduciary
Page 436 U. S. 256
obligation to pay over after-acquired cash unrelated to the
withholding taxes. The language of § 7501 limits the trust to
"the amount of the taxes
withheld or collected." (Emphasis
added.) Comparing that language with 6672, which imposes liability
for a willful failure to collect as well as failure to pay over,
makes clear that under § 7501 there must be a nexus between
the funds collected and the trust created. That construction is
consistent with the accepted principle of trust law requiring
tracing of misappropriated trust funds into the trustee's estate in
order for an impressed trust to arise.
See D. Dobbs,
Handbook on the Law of Remedies 421 125 (1973). Finally, for the
reasons discussed in the next section, a construction of §
7501 or § 6672 as imposing a trust on all after-acquired
corporate funds without regard to the interests of others in those
funds would conflict with the priority rules applicable to the
collection of back taxes.
(3)
We developed in
436 U. S.
supra, that the Code affords the IRS several means to
collect back taxes, including levy, distraint, and sale. But the
IRS is not given the power to levy on property in the hands of the
taxpayer beyond the extent of the taxpayer's interest in the
property, [
Footnote 19] and
the Code
Page 436 U. S. 257
specifically subordinates tax liens to the interests of certain
others in the property, generally including those with a perfected
security interest in the property. [
Footnote 20] For example, the Code and established
decisional principles subordinate the tax lien to perfected
security interests arising before the filing of the tax lien,
[
Footnote 21] to certain
perfected security interests in certain collateral, including
inventory, arising after the tax lien filing when pursuant to a
security agreement entered into before the filing, [
Footnote 22] and to collateral which is the
subject of a purchase
Page 436 U. S. 258
money mortgage regardless of whether the agreement was entered
into before or after filing of the tax lien. [
Footnote 23] As a consequence, secured parties
often will have interests in certain proceeds superior to the tax
lien, and it is unlikely, moreover, that corporations in the
position of those involved here could continue in operation without
making some payments to secured
Page 436 U. S. 259
creditors under the terms of security agreements. Those payments
may well take the form of cash or accounts receivable, which like
other property may be subject to security interest, when, for
example, the security agreement covers the proceeds of inventory
the purchase of which is financed by the secured party, or the
security agreement requires the debtor to make payments under a
purchase money mortgage by assigning accounts receivable which are
the proceeds of inventory financed by the mortgage. [
Footnote 24] Thus, although the IRS is
powerless to attach assets in which a secured party has a superior
interest, it would impose a penalty under § 6672 if the
responsible person fails to divert the secured party's proceeds to
the Treasury without regard to whether the secured party's
interests are superior to those of the Government. Surely Congress
did not intend § 6672 to hammer the responsible person with
the threat of heavy civil and criminal penalties to pay over
proceeds in which the Code does not assert a priority interest.
IV
We hold that a "responsible person" under § 6672 may
violate the "pay over" requirement of that statute by willfully
failing to pay over trust funds collected prior to his accession to
control when, at the time he assumed control, the corporation has
funds impressed with a trust under § 7501, but that §
7501 does not impress a trust on after-acquired funds, and that the
responsible person consequently does not violate § 6672 by
willfully using employer funds for purposes other than satisfaction
of the trust fund tax claims of the United States when, at the time
he assumed control, there were no
Page 436 U. S. 260
funds with which to satisfy the tax obligation and the funds
thereafter generated are not directly traceable to collected taxes
referred to by that statute. [
Footnote 25] That portion of the judgment of the Court of
Appeals on the Government's cross-appeal holding petitioner liable
under § 6672 for wage withholding and FICA taxes required to
be collected from employees' wages prior to January 31, 1969,
is
Reversed.
[
Footnote 1]
In the Court of Appeals, petitioner appealed from a decision of
the District Court holding him liable for withholding taxes for the
period February 1 to July 15, 1969. The Court of Appeals reversed,
552 F.2d at 161-163, and review of that holding was not sought
here. Only the decision on the Government's cross-appeal holding
petitioner liable for withholding taxes collected prior to January
31 is before us.
Id. at 163-165.
[
Footnote 2]
See Treas.Regs. §§ 31.6011(a)-1(a)(1) and
31.6011(a)-4, 26 CFR §§ 31.6011(a)-1(a)(1) and
31.6011(a)-4 (1977), regarding return filing requirements. Treasury
Reg. § 31.6151(a), 26 CFR § 31.6151(a) (1977), requires
that the tax be paid when the return is due for filing. Treasury
Reg. § 31.6011(a)-5, 26 CFR § 31.6011(a)-5 (1977),
provides that monthly returns may be required in lieu of quarterly
returns at the direction of the District Director.
See
also 26 U.S.C. § 7512(b).
[
Footnote 3]
See United States v. Sotelo, post at
436 U. S.
277-278, n. 10.
[
Footnote 4]
See Moore v. United States, 465 F.2d 514, 517 (CA5
1972);
Dillard v. Patterson, 326 F.2d 302, 304 (CA5 1963);
United States Fidelity & Guaranty Co. v. United
States, 201 F.2d 118, 120 (CA10 1952). This at the least is
the administrative practice.
See Brief for United States
10-11.
[
Footnote 5]
Assessment is made by recording the liability of the taxpayer in
the office of the Secretary of the Treasury, 26 U.S.C. § 6203,
and notice of the assessment and demand for payment generally are
required to be made within 60 days of the assessment. 26 U.S.C.
§ 6303(a).
[
Footnote 6]
Section 7202 provides:
"Any person required under this title to collect, account for,
and pay over any tax imposed by this title who willfully fails to
collect or truthfully account for and pay over such tax shall, in
addition to other penalties provided by law, be guilty of a felony
and, upon conviction thereof, shall be fined not more than $10,000,
or imprisoned not more than 5 years, or both, together with the
costs of prosecution."
[
Footnote 7]
The cases which have been decided under § 6672 generally
refer to the "person required to collect, truthfully account for,
and pay over any tax imposed by this title" by the shorthand phrase
"responsible person." We use that phrase without necessarily
adopting any of the constructions placed upon it in the
decisions.
[
Footnote 8]
Petitioner argues that his construction of the statute is
consistent with imposition of § 6672 liability upon a
"responsible person" removed before the end of the quarter,
explaining that, in such case, § 6672 liability would attach
because,
"[w]hile the taxpayer was removed as a responsible officer
before the time payment was required
to be made, he
nevertheless came under the
requirement of making the
payment when he collected the taxes."
Brief for Petitioner 9 (emphasis in original). "All three
elements required to charge the taxpayer with the penalty . . . did
in fact converge."
Ibid. If that is so, we fail to see why
all three elements did not "converge" when petitioner assumed
control. In both circumstances, liability is asserted under the
statute as to a person not in a position to fulfill each of the
duties with respect to the specific tax dollars in question.
Moreover, apart from any illogic from which that argument suffers,
it is highly dubious that Congress intended the words of the
statute to create the almost metaphysical distinction suggested by
petitioner's argument between a choate duty to perform all three
functions upon one in control at the start of a tax quarter, and an
inchoate duty as to one assuming control in mid-quarter.
[
Footnote 9]
Although petitioner argues that neither § 6672 nor any
other provision of the Code imposes liability in this situation, he
suggested at oral argument that liability might lie under ordinary
trust principles. Tr. of Oral Arg. 14, 20-21.
[
Footnote 10]
As introduced in the House, H.R. 12863, 65th Cong., 2d Sess.,
§ 1308 (1918), § 1308 was a reenactment of existing law.
Revenue Act of 1917, ch. 63, § 1004, 40 Stat. 325-326. The
Senate Finance Committee completely rewrote the section, adding the
major penalty provisions which have since continuously existed in
the Code. The Committee Reports do not shed any light on the
problem at hand, however. Between 1918 and 1954, the only change in
§ 1308(c), other than renumbering in the various Codes,
see n 11,
infra was that effected by the Revenue Act of 1924, ch.
234, § 1017(d), 43 Stat. 344, which changed the word "refuses"
in the 1918 Act to "fails," and which, in § 1017(b), the
predecessor of Internal Revenue Code of 1954, 26 U.S.C. §
7202, changed the penalty from a misdemeanor to a felony.
[
Footnote 11]
Under the 1939 Code, the successor provisions to § 1308(c)
were separately codified with each of the third-party collection
taxes to which they were applicable. 26 U.S.C. § 2557(b)(4)
(1952 ed.) (narcotics); 26 U.S. c. § 2707(a) (1952 ed.)
(firearms); 26 U.S.C. § 1821(a)(3) (1952 ed.) (documents); 26
U.S.C. § 1718(c) (1952 ed.) (admissions and dues).
[
Footnote 12]
S.Rep. No. 1622, 83d Cong., 2d Sess., 596 (1954); H.R.Rep. No.
1337, 83d Cong., 2d Sess., A420 (1954). The complete text of the
Senate Report's discussion of § 6672 is as follows:
"This section is identical with that of the House bill."
"This section is similar to certain sections of existing law
which prescribe a penalty equal to the total amount of the tax
evaded, not collected, or not accounted for and paid over, in the
case of willful failure to collect, or to truthfully account for
and pay over, any tax imposed by this title, or willful attempt in
any manner to evade or defeat such tax.
However, the
application of this penalty is limited only to the collected or
withheld taxes which are imposed on some person other than the
person who is required to collect, account for and pay over, the
tax. Under existing law, this penalty is not applicable in any
case in which the additions to the tax in the case of delinquency
or fraud are applicable. Under this section, the additions to the
tax provided by section 6653, relating to negligence or fraud,
shall not be applied for any offense to which this section is
applicable."
(Emphasis added.) The House Report is nearly identical.
[
Footnote 13]
See Rubin v. United States, 380 F.
Supp. 1176, 1179 (WD Pa.1974),
aff'd, 515 F.2d 507
(CA3 1975);
Louisville Credit Men's Assn., Inc. v. United
States, 73-2 USTC 9740 (ED Ky.1970);
Tiffany v. United
States, 228 F.
Supp. 700 (NJ 1963).
[
Footnote 14]
See, e.g., Sorenson v. United States, 521 F.2d 325, 327
(CA9 1975). The court reasoned that payment of creditors from
personal funds is a willful failure to pay because when personal
funds are used for corporate purposes they become corporate funds,
and any payment of them to creditors other than the United States
is an unlawful preference. That reasoning was unnecessary to the
result reached in the case, however. The responsible person there
had used personal funds to pay net wages to employees. The finding
of liability therefore could have been founded on the failure to
collect and withhold taxes as wages were paid.
Cf. 26
U.S.C. § 3505.
[
Footnote 15]
Indeed, the IRS's policy is to augment the personal liability of
the responsible person by earmarking the taxes he collects and pays
from
current wages first to the past due
direct
corporate employment tax, that is, the
employer's share of
FICA taxes, thus rendering him liable for trust fund taxes he
thought were paid, but which the Government does not credit as
paid. This policy prevails unless the Government is notified in
writing that the taxes are to be credited solely to current
employment taxes. When payment results from enforced collection
methods, however, the IRS nevertheless refuses to honor the
designation. IRS Policy Statement P-60, IRS Manual, MT 12156 (Feb.
25, 1976).
[
Footnote 16]
There might be cases in which a person would undertake to
continue operations knowing of the risk of personal liability, but
confident that the prospects for profitability make that risk
acceptable. The fact that such risk-taking might occur in marginal
cases would not, however, justify a construction of the statute as
requiring the risk when to impose it does not further the overall
deterrent and tax collection goals of the statute.
[
Footnote 17]
Section 7501 provides:
"(a) General rule."
"Whenever any person is required to collect or withhold any
internal revenue tax from any other person and to pay over such tax
to the United States, the amount of tax so collected or withheld
shall be held to be a special fund in trust for the United States.
The amount of such fund shall be assessed, collected, and paid in
the same manner and subject to the same provisions and limitations
(including penalties) as are applicable with respect to the taxes
from which such fund arose."
"(b) Penalties."
"For penalties applicable to violations of this section, see
sections 6672 and 7202."
[
Footnote 18]
Although the Government primarily relies upon § 6672, it
suggests that liability would attach under § 7501, as well,
for a breach of the trust established by that section. Brief for
United States 18 n. 6. Petitioner, on the other hand, argues that
§ 7501 is applicable only to employers, since the applicable
definitional section, 26 U.S.C. § 7701(a)(1), defines "person"
as "construed to mean and include an individual, a trust, estate,
partnership, association, company or corporation," while that
applicable to § 6672 defines "person" as including "an officer
or employee of a corporation. . . ." 26 U.S.C. § 6671(b).
Since we do not decide whether § 7501 establishes a basis of
liability applicable to responsible persons independent of §
6672, we need not address these contentions. We decide only that
§ 7501 properly may be regarded as informing the scope of the
duty imposed by § 6672.
[
Footnote 19]
Section 6321 provides that the lien shall be applicable to "all
property and rights to the property, whether real or personal,
belonging to such person." (Emphasis added.) We have held
that the extent of the tax debtor's interest in the property is
determined by state law, and that the lien cannot attach when the
debtor has no interest.
Aquilino v. United States,
363 U. S. 509
(1960);
United States v. Durham Lumber Co., 363 U.
S. 522 (1960).
[
Footnote 20]
The basic priority rules for tax liens are established by 26
U.S.C. § 6323, which, in addition to subordinating the federal
tax lien to certain perfected security interests, makes superior to
the lien, interests of persons who, without actual knowledge of the
lien, acquire interests in personal property purchased from retail
dealers in the ordinary course of trade, personal property (less
than $250) purchased in casual sales, securities, motor vehicles,
and real property by virtue of a lien for certain local real
property and special assessment taxes, or for mechanic's liens.
§§ 6323(b)(1) to(7).
[
Footnote 21]
Section 6323(a) provides:
"The lien imposed by section 6321 shall not be valid as against
any purchaser, holder of a security interest, mechanic's lienor, or
judgment lien creditor until notice thereof which meets the
requirements of subsection (f) has been filed by the
Secretary."
[
Footnote 22]
Section 6323(c) provides that a tax lien is subordinate to a
security interest which came into existence
after the tax
lien filing but which is a
"commercial transactions financing agreement . . . protected
under local law against a judgment lien arising, as of the time of
tax lien filing, out of an unsecured obligation."
§§ 6323(c)(1)(A)(i) and (c)(1)(b). (A commercial
transactions financing agreement includes accounts receivable and
inventory, § 6323(c)(2)(C).)
The local law applicable is, in 49 States and the District of
Columbia, the Uniform Commercial Code (UCC); and 26 U.S.C. §
6323, as amended by the Federal Tax Lien Act of 1966, Pub.L. No.
89-719, § 101, 80 Stat. 1125, was in large part adopted in
order to "conform the lien provisions of the internal revenue laws
to the concepts developed in [the] Uniform Commercial Code."
H.R.Rep. No. 1884, 89th Cong., 2d Sess., 1 (1966).
Under the UCC, a perfected security interest is superior to a
judgment lien creditor's claim in the property,
see UCC
§§ 9-301, 9-312. Perfection of a security interest in
inventory or accounts receivable occurs only when a financing
statement is filed, UCC § 9-302, and when it has attached. UCC
§ 9-303(1). Attachment requires an agreement, value given by
the secured party, and that the debtor have rights in the
collateral. UCC § 9-204. Thus when a security agreement exists
and filing has occurred prior to the filing of a tax lien to secure
advances made after the tax filing, perfection is, at the least,
achieved when the secured party makes the advance. When that occurs
after the tax lien has been filed, § 6323(d) protects the
secured party from the federal tax lien if the advance is made not
later than 45 days after the filing of the tax lien or upon receipt
of actual notice of the tax lien filing, whichever is sooner. For a
more detailed explanation of these provisions
see Coogan,
The Effect of the Federal Tax Lien Act of 1966 Upon Security
Interests Created Under the Uniform Commercial Code, 81 Harv.L.Rev.
1369, 1403-1413 (1968).
[
Footnote 23]
Decisional law has long established that a purchase money
mortgagee's interest in the mortgaged property is superior to
antecedent liens prior in time,
See
United States v. New
Orleans R. Co., 12 Wall. 362 (1871), and,
therefore, a federal tax lien is subordinate to a purchase money
mortgagee's interest notwithstanding that the agreement is made and
the security interest arises after notice of the tax lien. The
purchase money mortgage priority is based upon recognition that the
mortgagee's interest merely reflects his contribution of property
to the taxpayer's estate, and therefore does not prejudice
creditors who are prior in time.
In enacting the Federal Tax Lien Act of 1966, Congress intended
to preserve this priority, H.R.Rep. No. 1884, 89th Cong., 2d Sess.,
4 (1966), and the IRS has since formally accepted that position.
Rev.Rul. 68-57, 68-1 Cum.Bull. 553;
see also IRS General
Counsel's Op. No. 13-60, 7 CCH 1961 Stand.Fed.Tax Rep. �
6307 (1960).
[
Footnote 24]
A security interest in accounts may be perfected by filing, UCC
§ 9-302, while a security interest in cash, except as
hereafter noted, can be perfected only by possession. UCC §
9-304(1). When the secured party perfects a security interest in
inventory and proceeds, the security interest in accounts which are
proceeds is continuously perfected. UCC § 9-306(3)(a). The
identifiable cash proceeds are also perfected, but only for a
10-day period. UCC § 9-306(3).
[
Footnote 25]
The basis for the dissent's contrary construction is that
"it is difficult to comprehend why the United States should be
precluded from looking to what is probably its best source, the
flow of funds coming into business entities, merely because a
change in ownership or management has occurred subsequent to the
time when the amounts in question were withheld from
employees."
Post at
436 U. S. 262.
We agree that the employer's liability is unaffected by changes in
management, and the Government may, under various Code provisions,
enforce its lien against any employer asset including the flow of
incoming cash. But that does not answer the question before us,
which is whether § 6672 imposes a penalty on a responsible
person for failing to pay over withheld taxes when those taxes had
been dissipated before he acceded to control.
MR. JUSTICE REHNQUIST, concurring.
I Join the Court's opinion and write separately only to
emphasize that part of it which I think is critical to the
disposition of this case. Both petitioner and the Government have
available to them arguments, based upon two different clauses of
§ 6672, which, if accepted, would enable them to prevail on
the literal language of the clause alone without further
consideration of other factors. Petitioner argues with considerable
cogency that the portion of § 6672 phrased conjunctively,
ante at
436 U. S. 245,
fails to include him within the class of persons liable for the
penalty imposed by that section. If his argument were to be
accepted, that would be the end of the case. I agree with the Court
that his argument should be rejected, because its appeal based on
the literal language of the clause is more than outweighed by the
fact that the clause was added in 1954 very probably to narrow the
class of
Page 436 U. S. 261
persons who might be subject to the predecessor penalty
provisions which were phrased in the disjunctive.
Having won this point, the Government could then rely on the
disjunctive literal language of the statute and its predecessors
and argue that petitioner, a responsible corporate official at some
point in time, is liable for all taxes which he failed to collect,
or, as is the case here, pay over. But the Government does not
advance this argument, realizing, no doubt, that it is foreclosed
largely for the reasons given by the Court in
436 U.
S. I fully agree with the Court's conclusion in this
respect, stressing in addition only the fact that both the language
and history of § 6672 make it perfectly clear that liability
for this penalty cannot be imposed in the absence of a willful
failure and the word "willful," used as it is in this context in
conjunction with the word "penalty," requires some action that
tends to impede collection of the corporation's trust fund taxes
before liability can attach. For example, even the Government
concedes that a responsible officer need not use personal funds or
liquidate corporate assets to satisfy past tax obligations which
have arisen under the withholding provisions before the official
assumed responsibility.
Ante at
436 U. S. 254.
It should be apparent from the Court's opinion, however, that this
notion of "fault" may have little to do with other sections of the
Tax Code. Its importation into § 6672 is compelled by the
normal canons of statutory construction, but those canons may speak
differently as to the meaning of the word "willful" or the concept
of "fault" in other sections of the Code. Indeed, the
interpretation of § 6672 we adopt today is limited by the very
factors which caused us to adopt it.
MR. JUSTICE WHITE, with whom THE CHIEF JUSTICE and MR. JUSTICE
BLACKMUN join, dissenting in part.
The Court recognizes, as even petitioner concedes, that 26
U.S.C. § 6672 makes those individuals who are "required to
Page 436 U. S. 262
collect, truthfully account for, and pay over any tax imposed by
this title" ("responsible persons") personally liable for the
failure to use available corporate funds to pay to the IRS amounts
equal to sums withheld from employees during those periods in which
they were "responsible persons." It also holds, and I agree, that
the obligations of a "responsible person" under § 6672 are not
limited to liabilities incurred during the period during which he
occupied such a position, but that he
"violate[s] the 'pay over' requirement of that statute by
willfully failing to pay over trust funds collected prior to his
accession to control when, at the time he assumed control, the
corporation has funds impressed with a trust under § 7501. . .
."
Ante at
436 U. S. 259.
From this conclusion it would seem to follow automatically that one
who becomes a "responsible person" subsequent to the collection of
withholding tax payments from employees is, for purposes of §
6672, in the same shoes as one who was a "responsible person" at
the time of collection. After all, as the Court recognizes, the
purpose of § 6672 is to assure the collection and payment of
taxes, and it is difficult to comprehend why the United States
should be precluded from looking to what is probably its best
source, the flow of funds coming into business entities, merely
because a change in ownership or management has occurred subsequent
to the time when the amounts in question were withheld from
employees. Moreover, there is absolutely nothing in the language or
legislative history of § 6672 which distinguishes between the
obligations of "responsible persons" on the basis of when they
assumed such a position. Indeed, this is the thrust of
436 U.
S. Inexplicably, however, and in disregard of these
controlling principles, the Court holds that a "responsible person"
does not violate § 6672 by willfully using funds acquired by
the corporation after his accession for purposes other than the
satisfaction of withholding tax claims of the United States arising
from duties imposed by law prior to his accession.
Page 436 U. S. 263
I
Although the Court concedes that the construction of § 6672
adopted by the Court of Appeals in this case and urged by the
United States "might . . . garner tax dollars otherwise
uncollectible" in cases such as this,
ante at
436 U. S. 251,
it rejects this construction in favor of one which permits
corporations to escape their tax obligations through change of
ownership or management primarily because of its belief that the
free enterprise system is best promoted by the use of tax funds to
subsidize the takeover of financially beleaguered companies. The
majority deems it desirable to encourage "changes of ownership and
management of financially troubled corporations and the infusion of
equity or debt funding,"
ante at
436 U. S. 253,
and construes the statute in a manner it believes to be consistent
with this goal. Apparently, in the Court's view, tax funds are
better used to subsidize such takeovers than to meet other social
needs for which Congress has specifically appropriated tax funds.
But I believe that the Court exceeds its mandate by construing the
statute so as to conform to its conclusions concerning the best use
of tax dollars collected from American employees. Section 6672 is
not an appropriations statute or even a law, like the bankruptcy
statute, designed to accomplish substantive ends. The statute lends
no support to the Court's conclusion that an insolvent corporation
with unpaid withholding taxes should be permitted to continue its
business under the aegis of a successor officer, even at the cost
of the United States' tax claim. It is, purely and simply, a tax
collection statute which is designed to do nothing more than assure
that taxes withheld from employees find their way to the United
States to be spent for those purposes defined by Congress. In my
view, it is error to construe the statute in a way which permits
the diversion of these funds from the uses determined by Congress
to be in the public interest to ends which in the Court's view
would better promote the general welfare.
Page 436 U. S. 264
The Court relies upon the fact that the IRS often applies a
flexible approach, and does not always insist that financially
troubled concerns use all available funds to pay back taxes if such
payment would require the corporation to discontinue operations.
For present purposes, I assume that the IRS may properly so
exercise its discretion and may, where it deems it appropriate,
even waive any resort to § 6672 if the company should
ultimately fail. What this establishes, however, is that the
Court's construction of § 6672 is totally unnecessary even
given its perception that a rigid application of the statute to
successor employers would, in the long run, damage the economy and
hinder IRS collection efforts. It is one thing to conclude that
there are some circumstances in which the IRS might decide that the
rigid application of § 6672 is not in its own interests, but
quite another matter to prevent the IRS from using this valuable
collection tool in connection with successor employers and managers
where it is convinced that its application will effectuate the
collection of taxes.
Moreover, it is far from clear that permitting employers to use
funds acquired subsequent to their assumption of control for
purposes other than the satisfaction of the withholding tax claims
of the United States will serve primarily as an aid to financially
troubled concerns, rather than as an invitation to defraud the
Treasury. The Court holds that a person who assumes control must
satisfy the business' preexisting trust fund tax obligations if the
concern has funds available at the time he assumes control.
Apparently, neither it nor the IRS would require the sale of the
business' assets in order to meet such obligations. It is clear,
however, that there will be a great number of companies which do
not have cash available at the time of a change in ownership and
management, but are nevertheless viable, ongoing enterprises not in
need of Government subsidization. Furthermore, any businessman with
a minimum of acumen could, in most circumstances, make sure that
the financial affairs of the company are so arranged
Page 436 U. S. 265
that there are no uncommitted funds available at the moment of
his accession to control. Finally, there can be little doubt that
the Court's ruling today will result in changes in management and
ownership which are, in fact, nothing but subterfuges to avoid
using the company's funds to pay outstanding trust fund tax
obligations. The investors in any corporation seriously in arrears
will also have a strong incentive to arrange changes of management,
whether sham or real, in order to permit funds acquired by the
corporation to be used for purposes other than satisfying its tax
obligations without exposing its managers to personal liability. In
addition, changes of ownership, often more formal than real, will
frequently be arranged for no purpose other than to permit the
concern to use future funds without regard to its preexisting tax
obligations.
II
The Court next makes the remarkable suggestion that § 6672
cannot be read as imposing an absolute duty upon "responsible
persons" to use after-acquired funds to pay over amounts which
should have been withheld because to do so would be to impose
liability without personal fault which, according to the Court, is
precluded by the statutory requirement of a "willful failure." As
the concurring opinion of MR. JUSTICE REHNQUIST suggests, the term
"willful" in our jurisprudence, particularly in connection with tax
matters, normally connotes nothing more than a conscious act or
omission which violates a known legal duty. In this case, there can
be no doubt that petitioner acted willfully because with full
knowledge that the corporations in question had outstanding tax
obligations he chose to apply gross receipts received subsequent to
his purchase to purposes other than payment of these taxes. It may
be that the Court believes that the requirement of a "willful
failure" is satisfied only by a showing of conduct which is immoral
in some undefined sense. This view, however, is not only
unsupported by evidence of legislative
Page 436 U. S. 266
intent but would also prove far too much because even in
instances where there is continuity of ownership and, under the
Court's view, § 6672 is fully applicable, it will often be the
case that "responsible persons" are not morally at fault for the
failure to pay over in a timely fashion.
Ultimately, the Court is reduced to arguing that nothing in the
legislative history of § 6672 indicates that the statute
requires "responsible persons" to pay over after-acquired cash to
meet outstanding tax obligations.
Ante at
436 U. S. 254.
I would have supposed that the burden of proof for a statutory
construction as extraordinary as that adopted by the Court today
is, at the very least, on its proponents. All that the Court is
able to offer, however, is a brief excerpt from the legislative
history of an entirely separate statute enacted some 15 years after
the predecessor of § 6672 which, with all respect, has nothing
to do with the question to be decided.
III
Finally, the Court purports to find support for its construction
of § 6672 from the fact that priority rules applicable to the
collection of back taxes in some cases subordinate tax liens to
certain other interests in the property. Although this discussion
may be of some educational value, it has absolutely nothing to do
with the case at hand or the proper construction of § 6672. In
the first place, as petitioner conceded at oral argument, the funds
which came into his corporations subsequent to his assumption of
control were unencumbered by liens. Tr. of Oral Arg. 5. Moreover,
the conclusion which the Court draws from its exploration of
priority rules for tax liens that
"Congress did not intend § 6672 to hammer the responsible
person with the threat of heavy civil and criminal penalties to pay
over proceeds in which the Code does not assert a priority
interest,"
ante at
436 U. S. 259,
again proves far too much. If the mere possibility that others
might have interests superior to a tax lien in proceeds which
should under
Page 436 U. S. 267
§ 6672 be paid over to the United States is sufficient to
render the statute inapplicable despite the fact that the funds in
question are unencumbered, the section, for all practical purposes,
has been judicially deleted from the United States Code. Even where
there is no change in "responsible persons" or there are corporate
funds available to a successor to make back payments of trust fund
tax claims, situations in which the Court would apply § 6672,
there will be many occasions in which a tax lien would not have
priority over all other hypothetical interests in funds which must
be paid over to the United States under the statute. The fact is,
of course, as the Court recognizes earlier in its opinion,
ante at
436 U. S.
243-245, that the tax lien is merely one of several
remedies which the IRS has at its disposal to effect the collection
of taxes withheld by employers from employees, and § 6672 was
clearly not designed to be superfluous, but rather independent of
and a supplement to other means of collecting trust fund taxes from
employers.
Because I believe that the Court has, without justification,
created yet another means of impeding the collection of taxes for
purposes designated by Congress, I dissent from Parts III-B and IV
of the Court's opinion.