## Facts

- Mystic Tape, Inc. failed to pay over federal employment withholding and FICA taxes.
- Mystic borrowed under a revolving credit agreement with Security Pacific Business Credit, Inc.; after Mystic defaulted in 1983, Security Pacific assumed control over Mystic’s finances for about six weeks.
- Security Pacific advanced roughly $500,000 to fund payroll and tightly controlled disbursements.
- Security Pacific permitted payment of net wages but prohibited using the advances to pay withholding taxes, knowing Mystic lacked other funds to pay those taxes.
- Mystic paid employees but did not remit the trust-fund taxes; the unpaid trust-fund amount attributable to the controlled period was $241,488.70.
- The IRS assessed (1) a § 6672 penalty against Security Pacific for $241,488.70 and (2) a § 3505(b) liability for $123,009.50 (pre-assessment interest component, limited by the 25% cap on the wage-funding advances).
- The district court entered judgment for the government on both theories; Security Pacific appealed.

## Issues

1. Whether the government may impose liability on the same entity under both 26 U.S.C. § 6672 (responsible person) and 26 U.S.C. § 3505(b) (lender liability) for the same employment-tax delinquency period.
2. Whether § 3505(b)’s 25% cap limits or precludes additional recovery under § 6672 when the lender’s conduct also satisfies the responsible-person standard.

## Decision

- The Seventh Circuit affirmed the judgment for the United States.
- The court held the government may proceed under both § 6672 and § 3505(b) when the defendant qualifies under each statute on the facts.
- Security Pacific was liable for the full unpaid trust-fund taxes under § 6672 and for additional liability under § 3505(b) for interest, subject to § 3505(b)’s 25% cap.

## Legal Principles

- Section 6672 and § 3505(b) create overlapping but independent remedies; neither provision implies exclusivity or limits the other absent statutory text.
- Section 3505(b)’s 25% cap restricts only the amount recoverable under § 3505(b), not the government’s separate recovery under § 6672.
- A lender can be a § 6672 “responsible person” if it exercises sufficient control over the employer’s finances and payment decisions, including deciding which creditors are paid.
- Imposing § 6672 for the trust-fund tax amount and § 3505(b) for authorized interest does not constitute impermissible double recovery of the same tax.

## Conclusion

Because Security Pacific both controlled Mystic’s payment decisions (triggering § 6672) and funded wages with knowledge Mystic would not pay employment taxes (triggering § 3505(b)), the IRS could recover the unpaid trust-fund taxes under § 6672 and interest under § 3505(b) within the statutory cap.


United States v. Sec. Pac. Bus. Credit, Inc., 956 F.2d 703 (7th Cir. 1992)