## Facts

- ITAC Corporation was required to withhold federal income and Social Security taxes from employee wages and hold them in trust for the United States.
- ITAC failed to remit withheld “trust fund” taxes for the last quarter of 1981 and the first two quarters of 1982.
- Dan O. Davis was ITAC’s president and major shareholder and participated in financial management and disbursement decisions.
- Davis learned in July 1982 that ITAC was delinquent on its trust-fund tax obligations.
- After learning of the delinquency, ITAC received additional revenues, and Davis directed that these after-acquired funds be paid to non-IRS creditors that lacked priority over the United States.
- The IRS assessed Davis a 100% penalty under 26 U.S.C. § 6672 as a responsible person who willfully failed to pay over trust-fund taxes.

## Issues

1. Whether Davis was a “responsible person” under 26 U.S.C. § 6672.
2. Whether Davis acted “willfully” under § 6672 by paying other creditors with knowledge that trust-fund taxes were due, and whether the district court erred by refusing Davis’s requested jury instruction based on Slodov.
3. Whether the assessment for the last quarter of 1981 should have been reduced.

## Decision

- The Ninth Circuit affirmed the judgment for the United States.
- The evidence permitted the jury to find Davis was a responsible person with significant control over ITAC’s finances.
- The district court’s willfulness instructions correctly stated the law; refusing Davis’s proposed instruction was not error.
- Slodov did not excuse Davis because he was not new management and was in control during the periods when the payroll-tax liabilities accrued.
- The district court properly denied Davis’s request to reduce the assessment for the last quarter of 1981.

## Legal Principles

- Under 26 U.S.C. § 6672, a “responsible person” is one with significant control over corporate finances, particularly the choice to pay the government or other creditors.
- “Willfulness” is a voluntary, conscious, and intentional decision not to remit trust-fund taxes, including paying other creditors after learning payroll taxes are due.
- A purpose to keep the business operating or to pay the IRS later does not negate willfulness once the responsible person knows of the delinquency and prefers other creditors.
- Slodov’s limitation on § 6672 liability for new management does not apply to an officer who was in charge when the taxes were withheld and later directs payment of after-acquired funds to other creditors instead of the United States.

## Conclusion

The Ninth Circuit held Davis personally liable under § 6672 because the jury could find he controlled ITAC’s financial decisions and, after learning of unpaid trust-fund taxes, willfully preferred other creditors over the United States; the challenged jury instructions and the unreduced assessment were upheld.


Davis v. United States, 961 F.2d 867 (9th Cir. 1992)