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Smith v. United States

February 17, 2009



The opinion of the court was delivered by: Briscoe, Circuit Judge.


Before HENRY, BRISCOE, and LUCERO, Circuit Judges.

Plaintiff-Appellant Richard A. Smith filed a complaint in the district court pursuant to 28 U.S.C. § 1346(a)(1), seeking a refund of amounts paid in partial satisfaction of Internal Revenue Service ("IRS") assessments. Smith alleged the assessments were erroneously and illegally made because he was not a "responsible person" as defined by 26 U.S.C. § 6672. Defendant-Appellee United States filed an answer and counterclaim for amounts still owed. The case proceeded to jury trial. At the close of his presentation of evidence, Smith moved for judgment as a matter of law, which the district court denied after all the evidence had been presented. After a jury verdict for the United States, Smith moved for a new trial. Smith timely appeals the district court's denial of his motion for judgment as a matter of law and his motion for new trial.

We have jurisdiction over Smith's appeal pursuant to 28 U.S.C. § 1291 and affirm.


Woodruff Printing, Inc. ("Woodruff Printing") was incorporated in 1959 and throughout its incorporation was wholly owned by members of the Woodruff family. Rex Woodruff owned controlling shares of Woodruff Printing and managed the corporation until some time in the 1990s. During 2002-2003, the time period at issue herein, Mark Woodruff, Rex Woodruff's son, was the president of Woodruff Printing.

Smith began working for Woodruff Printing in 1991, and he ultimately became the corporation's general manager. Smith left Woodruff Printing in 2000, but later was contacted by Rex and Mark Woodruff and asked to return. Smith went back to work for Woodruff Printing in January 2002. Mark Woodruff wanted Smith to return as accounting manager, but Smith insisted that he could only help Woodruff Printing if he were general manager and put in charge of overall operations. Mark Woodruff understood that upon Smith's return, all of Woodruff Printing's departments would report to Smith and Smith would be making most of the decisions in the operation areas. After Smith's return to Woodruff Printing in 2002, Smith was also Woodruff Printing's primary contact with the Internal Revenue Service ("IRS") for a system Smith set up to pay employment taxes electronically. Smith was aware from reviewing Woodruff Printing's records prior to his return that Woodruff Printing's financial situation was "bleak."

In June 2002, however, Smith sent a memorandum to Mark Woodruff in which he made projections that Woodruff Printing would have positive net income for 2002. Yet by July or August 2002, many of Woodruff Printing's suppliers began demanding payment on delivery. As a result, Mark Woodruff developed priorities that favored making payments to two of Woodruff Printing's bank lenders, to Woodruff Printing's landlord, and to certain of the materials suppliers. In August 2002, an employee of Woodruff Printing's accounting department sent an e-mail to Smith and Mark Woodruff in which she detailed Woodruff Printing's unpaid tax liabilities, including sales taxes, state taxes, and federal employment taxes. According to the e-mail, there were then unpaid employment taxes for June and July in a total amount of $33,305.22. Despite this unpaid amount, no payments were made to the IRS during August 2002.

After Mark Woodruff received the e-mail, he held a meeting with the accounting department employee and Smith. Mark Woodruff testified that he came away from that meeting with the understanding that the accounting department "would continue to work on [the tax problem]." Later in the fall of 2002, however, Mark Woodruff found delinquency notices from the IRS in the accounting department. In late October 2002, Mark Woodruff sent an e-mail to Smith asking Smith to prepare and provide a schedule of payments to be made for the next two months for all Woodruff Printing's accounts payable. In that e-mail, Mark Woodruff pointed out that Woodruff Printing had paid tax penalties for being late on taxes, and that taxes should always be kept current.

At some point near the end of 2002, Mark Woodruff informed other Woodruff family members about Woodruff Printing's tax problem. It was determined that Mark Woodruff would monitor Woodruff Printing's payments to creditors more closely, and it was agreed that Smith should limit his check writing to amounts less than $5000. Mark Woodruff testified, however, that he never limited Smith's authority to pay employment taxes via electronic transfers. The United States also introduced evidence at trial that Smith continued to write checks to Woodruff Printing's creditors in amounts larger than $5000.

Mark Woodruff's testimony was inconsistent, at best. He testified that in 2002 and 2003, the standard operating procedure was for Smith to discuss with him the cash flow problem and the priorities for determining what should be paid. He later testified that in 2002, he and Smith discussed how to handle the taxes, and that his strategy then was to "keep the presses rolling." He also testified that in 2003, he made the final decision as to which creditors should be paid, and that he was the one who decided to pay or to not pay taxes in 2003. In sum, his testimony at trial alternated between stating that he and Smith discussed which bills to pay, and stating that he decided which bills to pay.

It is undisputed that Smith was aware throughout the latter part of 2002, and all of 2003 until Woodruff Printing ceased operations, that Woodruff Printing's federal employment taxes were not being paid. At one point Smith advised Mark Woodruff to not pay bank loans and to pay the IRS, but Smith testified he did not pay the payroll taxes because in July 2002 Mark Woodruff told Smith to defer paying the payroll taxes in order to keep the business operating by paying suppliers. During the period in question, there were insufficient funds available to pay all creditors and also pay all taxes. Smith testified that he reported to Mark Woodruff, got payment priorities from Mark Woodruff, and did not have authority to override Mark Woodruff.

Woodruff Printing's bookkeeper testified in support of Smith. She stated that during 2002, Mark Woodruff's creditor payment priorities were to first pay two bank loans, and then to pay vendors. She also testified that Mark Woodruff had the final decision-making authority in Woodruff Printing, and that in meetings during 2002, Mark Woodruff had the final say as to which creditors would be paid. She further testified that in August 2002, she had a discussion with Smith about how much was owed to the IRS for payroll taxes, and she testified that she discussed the tax problem with Mark Woodruff three or four times in 2002. Finally, she testified that Rex and Mark Woodruff had ultimate authority over the management and finances of Woodruff Printing.

Drew Elkins, a former employee of Woodruff Printing, offered to purchase Woodruff Printing in March 2003, but his offer was rejected by Rex and Mark Woodruff. Elkins testified that Smith handled most operational problems, but that Mark Woodruff had the final word as the "owner" of Woodruff Printing. Elkins also testified that "on a couple of occasions" Smith had generated checks "for a tax deal" and given them to Mark Woodruff to sign, but that Mark Woodruff refused. Elkins testified, however, that he did not know that employment taxes were set up by Woodruff Printing to be paid electronically throughout 2002-03.

Woodruff Printing eventually ceased operations in 2003. The IRS made assessments against Smith pursuant to 26 U.S.C. § 6672, after making a determination that Smith was a person responsible for withholding, accounting for, and paying taxes withheld from the wages of the employees of Woodruff Printing for the last two quarters of 2002 and the first three quarters of 2003, who willfully failed to do so. The total assessments made against Smith were $279,353. Smith paid a portion of the assessment and then filed suit, seeking refund of that amount. The United States counterclaimed for amounts still owed.*fn1


A. Judgment as a Matter of Law

Smith timely moved for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50, Aplt. App. at 378-84, and on appeal he continues to assert that he is "entitled to judgment on the facts" on the issue of "responsibility." Aplt. Br. at 17-18.

We review de novo the district court's denial of Smith's motion for judgment as a matter of law under Rule 50 of the Federal Rules of Civil Procedure. Loughridge v. Chiles Power Supply Co., 431 F.3d 1268, 1280 (10th Cir. 2005). We make all reasonable inferences in favor of the non-moving party. Id. Both before the district court and on appeal, "[j]udgment as a matter of law is appropriate only if the evidence points but one way and is susceptible to no reasonable inferences which may support the nonmoving party's position." Id. (internal quotations omitted). This is a difficult and high standard for the movant to satisfy.

Under 26 U.S.C. §§ 3102(a) and 3402(a), employers are required to withhold federal social security and income taxes from wages paid to employees, and to remit those withheld amounts to the IRS on a regular basis. If an employer withholds these payroll taxes (also known as "trust-fund taxes"), but fails to pay them over to the government, the employee is nevertheless credited with having paid the taxes, and the government may not require any additional payment from the employee. Slodov v. United States, 436 U.S. 238, 243 (1978).

The IRS may then effect payment of the withheld taxes from the employer, via 26 U.S.C. ยง 6672. Id. at 244-45 ("[T]he officers or employees of the employer responsible for effectuating the collection and payment 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."); see also Taylor v. I.R.S., 69 F.3d 411, 413 (10th Cir. 1995) ("When an officer or employee of a corporation fails to ...

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