Acting Responsibly

In Lubetzky v. U.S., the First Circuit addressed the question of whether a individual who was designated as a corporate officer was a "responsible person" for purposes of liability for the 100% penalty for unpaid withholding taxes under IRC §6672.

The Court began its analysis by acknowledging that:

[T]here is a surprising gap at the center of [§6672]: it nowhere says who is so required or whether "required" refers to some statutory concept, common law doctrine, company by-laws or actual practice, or some mixture of all these.

According to the facts, there were a number of quarters at issue where the testimony was essentially uncontradicted that the taxpayer could only pay those bills that were approved by his superiors. The taxpayer testified that he would have regarded himself as "stealing" if he had acted contrary to his superiors'directions.

The Court acknowledged that if the taxpayer were a mere bookkeeper who only wrote checks, he would not be liable under §6672. However, the Court concluded that, because of the position held by the taxpayer (he was nominally the chief financial officer and had held himself out as an executive vice president of the company), the taxpayer had to confront what the Court termed a "harsh dilemma"--either confront top management and possibly resign from his position or face liability under §6672.

The Lubetzky opinion seems to me to say too much. If Lubetzky was truly a cypher, only executing the orders of others, he doesn't fall within the ambit of a statute that imposes some fairly harsh penalties. However, I am not certain that his actions fail the "responsible person" prong of the statute. Conceptually, it seems to make more sense to take the position that the willfullness prong is not satisfied, since he had no abililty to willfully make any payment other than as directed. The Court basically skipped any analysis of the willfullness requirement, stating that everybody agreed that the requirement was satisfied because Lubetsky knew that the taxes were due, but made other disbursements anyway.

The case is worth reading as well for the distinction the Court drew between the facts presented and those presentd in Vinnick v. Commissioner, 205 F.3d 1 (2000). In that case, the taxpayer, unlike Lubetzky,was "neither paid by the company nor engaged in day-to-day business affairs, had no office at the company, and did not sign checks in the relevant time frame."