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Corporate officer was responsible person despite not having check-signing authority

U.S. v. Steven Lindsey, (CA 10, 10/7/2002) 90 AFTR2d 2002-5468
The Tenth Circuit has upheld a determination of the Utah district court that an individual was a responsible person for purposes of liability for unpaid employment taxes despite the fact that he had no authority to sign checks for the employer corporation.

Background.
If an employer fails to properly deposit its employment taxes, IRS can seek to collect a 100% penalty tax from a "responsible person." A responsible person is any person responsible to collect, account for, and pay over any tax who willfully fails to perform his responsibility. (Code Sec. 6672)

Facts.
Steven Lindsey was a founder and 50% shareholder of TFS, which leased truck drivers solely to Clearwater, another company with the same owners. Lindsey was president of Clearwater and vice president of TFS. TFS operated rent-free out of Clearwater's facilities and had no financial obligations other than for payroll and employment taxes. Because Lindsey authorized all employee lease payments from Clearwater to TFS, he had substantial financial control over TFS. Lindsey could sign Clearwater checks, but had no authority to sign checks on the TFS account. Because of financial problems, Clearwater favored other creditors and stopped paying TFS the amounts necessary to cover the truck drivers' wages and the employment taxes. As a result, TFS failed to pay its employment taxes. When IRS asserted the 100% penalty tax against him, Lindsey contended that because he lacked authority to write checks on TFS's bank account he could not be responsible for paying the employment taxes and for willfully failing to do so.

Analysis.
The Tenth Circuit framed the question here as-is check-signing authority on a corporate account a necessary predicate for demonstrating both personal responsibility and willfulness?

In finding that the lack of check-signing authority wasn't conclusive, the Tenth Circuit said that the authority to sign checks is only one of several factors that need to be considered in determining a person's responsibility. The crucial inquiry is whether the person had the effective power to pay the taxes, i.e., whether he had the actual authority or ability, in view of his status within the corporation, to pay the taxes owed. It is not necessary for the officer himself to write the check, so long as the individual has significant authority and control over the corporation's finances.

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