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May 9, 2005.

ROBERT S. ASHWORTH, Plaintiff/Counterclaim Defendant,
UNITED STATES, Defendant/Counterclaim Plaintiff.

The opinion of the court was delivered by: ROBERT KUGLER, Magistrate Judge


Presently before the Court in this action by Plaintiff Robert Ashworth to recover taxes paid to the Internal Revenue Service are cross-motions for summary judgment by the United States of America and Robert Ashworth. Collectively, the parties' motions invite the Court to decide whether Ashworth was a person responsible for payment of his employer's payroll taxes under 26 U.S.C. § 6672. For the reasons stated below, the Court will decline the parties' invitations because whether Ashworth was a responsible person must be decided by a jury in this case. The United States also seeks judgment on whether Ashworth acted willfully. The Court will grant that motion on the limited issue of Ashworth's willfulness. I. INTRODUCTION

The tax liability at issue in this case arose out of the Lavelle Company's ("Lavelle") failure to pay employee payroll taxes deducted from employees' paychecks during the third and fourth quarters of 1998 and the third quarter of 1999. Lavelle ceased operations during the third quarter of 1999 and thus had no further tax liability after that time. Ashworth was the controller at Lavelle and until July of 1998 had full authority to pay all of the company's debts. This is undisputed. Specifically, Ashworth had authority to sign checks on behalf of Lavelle, to make payments to creditors, to pay taxes owed, and to issue payroll checks. This authority, according to Ashworth, was given to him when he was hired at Lavelle in November 1997 by Al Bailey — president of Lavelle at the time. Ashworth deposed that this authority was given to him by Bailey when Bailey told Ashworth that he "was responsible for payment of all bills in a manner consistent with professional ethics, professional standards and my good judgment on what to pay and when." (Ashworth Dep. at 60:16-20).

  Ashworth's authority changed, however, when Bailey left Lavelle and was replaced by William Miller. Though not completely clear from the record, it appears Bailey left Lavelle sometime in May 1998. (See Ashworth Dep. at 164:15-16). According to Ashworth, Miller took over as president of Lavelle in July of 1998. Prior to that, Miller worked for Eastwind, the parent and sole owner of Lavelle. On Miller's arrival at Lavelle, Ashworth claims to have lost the authority, granted to him by Bailey, to pay Lavelle's bills. According to Asworth's deposition testimony, his authority to write and sign checks on behalf of Lavelle had not changed, rather "the authority to make a decision on who was to be paid and who was not to be paid. That changed." (Ashworth Dep. at 62:11-14). As for how his authority was removed, Ashworth deposed, "when Mr. Miller became president, Mr. Miller gained financial control. . . . once Mr. Bailey left, he was in total control. He had total control of the operations because he was the president of the company, and he had total control of the finances because he took it from me. He determined what would be paid, what would not be paid and when it would be paid." (Ashworth Dep. at 24:19 to 25:4). Asked how Miller removed his authority to pay bills, Ashworth responded, "[f]lat out told me don't cut these checks. Don't pay this and don't pay that. It was most explosive." (Ashworth Dep. at 68:8-11).

  After Miller's tenure as president began, Ashworth admits to having had some authority to pay relatively minor bills. Ashworth could still pay COD's (Cash on Delivery). COD payments were generally in small amounts — in the hundreds of dollars — and became a more frequent occurrence as Lavelle's financial situation became more dire. But as to larger bills, including taxes, Ashworth stated that he had no authority to pay them and was forbidden by Miller to pay them. Asked whether Miller ever told him the consequences of not following his orders, Ashworth deposed, "[s]pecifically, no. Implied, yes." As to how it was implied, Ashworth deposed "[y]our job is now limited. Your job is not to do this. . . . This is the definition of your job. These are now your job responsibilities. These are no longer your job responsibilities. You will not do them." (Ashworth Dep. at 158:11-17).

  The deposition testimonies of Dora Madero and Michael Schlupp tend to corroborate Ashworth's account of not having authority during Miller's tenure. Ashworth hired Madero to work in the accounts payable department for him while Bailey was still president of Lavelle. She was the only person Ashworth ever hired to work at Lavelle. Madero continued to work for Lavelle while Miller was president. Madero deposed that, from her vantage point, Ashworth and Miller discussed which creditors should get paid; but she never participated in any such discussion with them. When asked if there were any times when Ashworth made a decision about who to pay without first consulting Miller, Madero answered, "[n]o, I never saw that." (Madero Dep. at 18:24-19:3). As to the specific topic of payroll taxes, Madero was asked whether, during Miller's tenure, Ashworth had authority to pay payroll taxes, she responded, "[n]o, he did not have the authority." (Madero Dep. at 82:6-9). Later in her deposition, Madero was asked, "[s]o even though Bob signed the checks, your testimony is he really, during this period of time . . . had no control?" She answered, "No, he had no control." (Madero Dep. at 89:10-14).

  Schlupp was the Sales Director for Lavelle while Miller was president. Schlupp testified that he participated in meetings with Miller and Ashworth concerning which creditors should get paid. His understanding was that both Ashworth and Miller needed to be present before a decision about paying creditors could be made. In pressing for clarification the questioner asked, "[i]s it your understanding that if [Ashworth] were there alone, during the same one year period of time, that [Ashworth] alone could have made a decision about that." His answer tends to confirm Ashworth's account of bounded authority: "I believe he could have made the decision on his own depending on I guess the amount. And there was no specific threshold. But I mean if it was a small amount of [fifty] dollars or something like that to pay for postage or something like that, I believe Bob could do it on his own." (Schlupp Dep. at 68:2-9) To the follow-up question of "[h]ow about if it was something more than that?," Schlupp answered, "I think he would have discussed it with Miller." (Schlupp Dep. at 68:10-13). Asked if Miller was similarly restricted in his decision making, Schlupp responded, "[h]e could have made a decision but it would have had to come down to [Ashworth] to issue a check." (Schlupp Dep. at 68:14-21).

  Alas, the payroll taxes owed by Lavelle went unpaid for the third quarter of 1998, fourth quarter of 1998, and third quarter of 1999. During its investigation that centered on these unpaid taxes, the IRS provided Ashworth a "Trust Fund Recovery Penalty Interview" form. The form posed six questions regarding the interviewee's authority to manage the company's financial affairs. The form is designed so that the interviewee must check either "Yes" or "No," and then provide the date range during which the interviewee held, or did not hold, the particular authority. Ashworth checked "Yes" for all six of the following questions: Did you (1) Hire/Fire employees; (2) Manage employees; (3) Direct or authorize payment of bills; (4) Sign/Countersign payment of bills; (5) Authorize payroll checks; (6) Prepare and/or sign payroll tax returns? The only date range Ashworth inserted on the form was November 1997 to June 1999. The form also queries whether other people held the same authority, so Ashworth listed Miller as having all of the same authorities Ashworth attributed to himself. Ashworth did not list Bailey as ever having authority and did not note any distinction between the period before or after July 1998. On the part of the form that permits additional comments, Ashworth wrote, "[a]s controller I had authority to determine payment(s), sign checks, and allocate funds. The case of mortgages and taxes I was told by my supervisor not to pay them."

  The deposition testimony of William Miller is consistent with Ashworth's responses on the IRS form and tends to contradict the testimonies of Ashworth, Schlupp, and Madero. Miller deposed that he did not become president of Lavelle until December of 1998 — well-after the payroll taxes had accrued for the third quarter of 1998 — and that Ashworth was responsible for the non-payment of payroll taxes. He further deposed that he never restricted Ashworth's authority to pay any bills, let alone payroll taxes.*fn1

  After filling out the interview form, Ashworth sent a letter to Douglas Engler of the IRS, formally protesting the trust fund recovery penalty the IRS was planning to impose on Ashworth. In the letter, Ashworth explained that "the authority to pay taxes and other specific debts of my employer was removed from me by the President and my supervisor, Mr. William Miller." Ashworth then elaborated that he was "repeatedly and expressly told not to pay the taxes in question. . . ."

  As to bills Ashworth did pay, the record contains several checks to suppliers along with one check to PECO Energy. Each of the checks in the record carries a date that is after Lavelle's payroll tax liability accrued; and each carries Ashworth's signature. Also bearing Ashworth's signature are two federal tax forms. One is Lavelle's Form 941 Quarterly Federal Tax Return that is dated October 30, 1998 and reflects a tax liability of $156,747.22 for the third quarter of 1998. The other is Lavelle's 940-EZ Annual Federal Unemployment Tax Return that is dated January 29, 1999 and reflects an Unemployment Tax Liability of $3,342.42 for the year of 1998. Also, it is undisputed that Ashworth issued and signed the payroll checks for Lavelle employees the entire time he was controller.

  In response to a Trust Fund Recovery Penalty assessment of $142,574.06 from the IRS, Ashworth paid nominal amounts and filed a refund claim. Specifically, Ashworth paid $1,311.25 for the third quarter of 1998, $100 for the fourth quarter of 1998; and $100 for the second quarter of 1999. He then filed claims for full refunds of those amounts, all of which were denied. See Complaint exhibit C. Ashworth's next step was to file this civil action against the United States in which he seeks (1) judgment in his favor in the amount of $1511.25 plus interest; (2) abatement of the entire Trust Fund Recovery Penalty that remains; and (3) attorney's fees.

  Seeking to enforce its original assessment, the United States brought a counterclaim against Ashworth. In its counterclaim, the United States alleges Ashworth was a responsible person under 26 U.S.C. § 6672 and that he willfully failed to collect, truthfully account for, and pay the payroll taxes owed by Lavelle. The United States seeks judgment in its favor in the amount of $157,163.38, representing the remaining balance of taxes owed plus credits and interest through June 2, 2004, plus any interest that has since accrued. The United States also seeks an award of its costs in defending Ashworth's action and in pursuing its counterclaim.

  Both parties have filed a motion for summary judgment. The motions are identical in that they urge this Court to decide as a matter of law whether Ashworth is liable for the ...

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