Cashaw v. CIR ( 2023 )

Case: 22-60024 Document: 00516769258 Page: 1 Date Filed: 05/31/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
May 31, 2023
No. 22-60024 Lyle W. Cayce
____________ Clerk
Pamela Cashaw,
Petitioner—Appellant,
versus
Commissioner of Internal Revenue,
Respondent—Appellee.
______________________________
Appeal from a Decision of the
United States Tax Court
Tax Court No. 9352-16L
______________________________
Before Richman, Chief Judge, and Stewart and Douglas, Circuit
Judges.
Per Curiam: *
Pamela Cashaw appeals from the judgment of the Tax Court holding
her liable for trust fund recovery penalties (TFRPs) assessed against her by
the Internal Revenue Service (IRS). Because we conclude on the record
before us that Cashaw was a responsible person who willfully failed to pay
over taxes, we affirm.
_____________________
*
This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 22-60024 Document: 00516769258 Page: 2 Date Filed: 05/31/2023
No. 22-60024
I
Cashaw worked at Riverside General Hospital (Riverside), beginning
in 1978 as a pharmacist, but later assuming administrative responsibilities. In
October 2012, Riverside’s chief administrator was indicted for participating
in a scheme to defraud Medicare and was removed from his position at the
hospital. Cashaw has maintained, and the Government does not dispute, that
a federal district judge overseeing an administrative proceeding directed that
Cashaw serve as the temporary administrator, although the record is not
entirely clear as to the nature of the proceedings before that judge. Cashaw
was given nonexclusive signature authority for the former administrator
while his trial was pending. As chief administrator, Cashaw oversaw “the
functionality of the hospital,” including Riverside’s payroll and other
operations; reviewed the hospital’s expenses; signed checks as one of two
individuals whose signatures were required on all checks; and attended board
meetings. Cashaw served in this role until she resigned on April 18, 2014,
citing a “toxic environment” at the hospital that included “undue stress,
interference, [and] lack of integrity.”
Riverside experienced serious financial distress during Cashaw’s
tenure as chief administrator due in part to its Medicaid and Medicare
funding being withdrawn. In 2013, one of Riverside’s major creditors, Dixon
Financial Services, initiated legal proceedings in Texas state court. As part
of the lawsuit, Riverside and Dixon entered into four Texas Rule of Civil
Procedure Rule 11 Agreements (Rule 11 Agreements) that addressed
Riverside funding, payment of creditors, property sales, construction
contracts, and other matters. In 2013 and 2014, Riverside failed to pay
portions of its federal tax liabilities to the IRS.
The IRS audited Riverside’s unpaid employment taxes and assessed
TFRPs against Cashaw. Cashaw failed to pay the assessed liabilities, and the
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IRS sent her a Notice of Intent to Levy and Right to a Hearing and Notice of
Federal Tax Lien Filing and Your Right to a Hearing. She requested a
collection due process (CDP) hearing to dispute her liability for the amounts
assessed. The Appeals Officer to whom the hearing was assigned concluded
that Cashaw was liable for the penalty and sustained the lien filing and
decision to collect by levy. Cashaw timely petitioned for review in the Tax
Court. The Tax Court remanded the case to the Appeals Office, which
determined that Cashaw was not liable for the full tax liability assessed
against her. The matter was then restored to the Tax Court’s general docket.
Following a bench trial, the Tax Court held that Cashaw was liable for
employment taxes, in the amount of $173,630, withheld but not turned over
between July 1, 2013 and Cashaw’s resignation in April 2014. Cashaw
appeals, arguing that she was not a responsible person who willfully failed to
remit the taxes. Cashaw also argues that the IRS abused its discretion and
violated her due process rights with inadequate procedures.
II
“In a collection due process case in which the underlying tax liability
is properly at issue, the Tax Court (and hence this Court) reviews the
underlying liability de novo and reviews the other administrative
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determinations for an abuse of discretion.” 1 Cashaw’s underlying tax
liability is properly at issue here, 2 and so we review her liability de novo.
Cashaw argues that she is not liable for the TFRPs because she does
not meet the requirements of 26 U.S.C. § 6672, the provision of the Internal
Revenue Code governing TFRPs. The Internal Revenue Code requires
employers to withhold from employees’ wages federal income taxes and
social security contributions. 3 The employer holds these funds “in trust for
the United States.” 4 When a corporate employer fails to pay over the trust
funds, § 6672(a) imposes a penalty equal to the entire amount of the unpaid
taxes on “any person” required to collect, account for, or pay over the
withheld taxes who “willfully” fails to do so. Liability for the penalty is
established if a person is (1) a “responsible person” (2) who “willfully”
failed to pay over the withheld taxes. 5 “In § 6672(a) cases, once the
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1
Jones v. Comm’r, 338 F.3d 463, 466 (5th Cir. 2003) (citing Craig v. Comm’r, 119
T.C. 252, 260 (2002)); see also Craig, 119 T.C. at 260 (explaining that the Tax Court
reviews a taxpayer’s liability under the de novo standard if “the validity of the underlying
tax liability is at issue,” and that a taxpayer’s underlying tax liability may be at issue only if
the taxpayer “did not receive any statutory notice of deficiency for such tax liability or did
not otherwise have an opportunity to dispute such tax liability” (citations omitted)); cf. Est.
of Duncan v. Comm’r, 890 F.3d 192, 197 (5th Cir. 2018) (“When reviewing the result of a
CDP hearing in which the underlying tax liability is not properly at issue, the court must
determine whether IRS Appeals abused its discretion.” (citations omitted)).
2
See 26 U.S.C. § 6330(c)(2)(B) (“The person may also raise at the hearing
challenges to the existence or amount of the underlying tax liability for any tax period if the
person did not receive any statutory notice of deficiency for such tax liability or did not
otherwise have an opportunity to dispute such tax liability.”).
3
Id. §§ 3102, 3402.
4
Barnett v. IRS, 988 F.2d 1449, 1453 (5th Cir. 1993) (citing 26 U.S.C. § 7501(a)).
5
Id. (citations omitted).
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Government offers an assessment into evidence, the burden of proof is on the
taxpayer to disprove h[er] responsible-person status or willfulness.” 6
A
Cashaw first asserts that she is not a “responsible person” under
§ 6672. A responsible person is any person “required to collect, truthfully
account for, and pay over [employment tax] imposed by this title.” 7 “This
circuit generally takes a broad view of who is a responsible person under
§ 6672,” 8 and “cases not finding § 6672 responsibility are relatively few and
far between.” 9 In Barnett v. IRS, 10 we listed six “circumstantial indicia of
responsible person status when a party lacks the precise responsibility of
withholding or paying employees’ taxes.” 11
We ask whether such a person: (i) is an officer or member of
the board of directors; (ii) owns a substantial amount of stock
in the company; (iii) manages the day-to-day operations of the
business; (iv) has the authority to hire or fire employees;
(v) makes decisions as to the disbursement of funds and
payment of creditors; and (vi) possesses the authority to sign
company checks. No single factor is dispositive. 12
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6
Id. (citations omitted).
7
26 U.S.C. § 6672(a).
8
Gustin v. United States, 876 F.2d 485, 491 (5th Cir. 1989) (citing Wood v. United
States, 808 F.2d 411, 415 (5th Cir. 1987)).
9
Barnett, 988 F.2d at 1456.
10
988 F.2d 1449 (5th Cir. 1993).
11
Id. at 1455.
12
Id. (citations omitted).
5
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“The crucial inquiry is whether a party . . . , by virtue of h[er] position in (or
vis-a-vis) the company, could have had ‘substantial’ input into [withholding
and paying employees’ taxes], had [s]he wished to exert h[er] authority.” 13
Cashaw argues that the first five Barnett factors are not present
because she was not an officer or member of the board of directors, did not
own any stock in Riverside, did not manage Riverside’s day-to-day
operations, did not have hiring or firing authority, and did not make decisions
as to disbursement of funds. She claims that the only factor that may arguably
be present in this case is the limited and nonexclusive authority to sign checks
on behalf of Riverside. The Government counters that “the Tax Court
correctly held that Cashaw was a responsible person for the periods at issue
because she was the chief executive administrator responsible for overseeing
the functionality of the hospital, including its payrolls, and she signed checks,
transferred funds between accounts, prioritized payments to some creditors
over others, and participated in board meetings.”
Cashaw falls within the “sweeping net of § 6672 responsibility.” 14
The record shows that Barnett factors (iii), (v), and (vi) are present. During
trial, Cashaw explained that she “met with many people” to “see if [they]
c[ould] do anything to get bills paid” and that as the temporary administrator
she “overs[aw] the functionality of the hospital.” She “check[ed] over
payrolls” and signed checks on behalf of Riverside. Although Cashaw’s
testimony indicates that she was presented with the checks to sign, it also
shows that she nevertheless reviewed the checks “to determine if [they were
payments for] nursing staff, auxiliary staff, and . . . the utilities and other
vendors as required for patient care or supplies.” Cashaw described at least
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13
Id.
14
Id. at 1457.
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one instance in which she refused to sign a check because she disagreed with
how those funds would be used. While Cashaw might not have been “the
person most responsible for the payment of the taxes,” she was a responsible
person, and “the statute expressly applies to ‘any’ responsible persons.” 15
B
Cashaw also asserts that, even if she is a responsible person, she did
not “willfully” fail to pay the trust fund taxes at issue. “Willfulness under
§ 6672 requires only a voluntary, conscious, and intentional act, not a bad
motive or evil intent.” 16 Normally, “evidence that the responsible person
paid other creditors with knowledge that withholding taxes were due at the
time to the United States” will establish willfulness. 17
The Tax Court centered its holding on the proposition that
“[w]illfulness is typically proven by evidence that a responsible person paid
other creditors when withholding taxes were due to the Federal
Government.” Since Cashaw signed checks to vendors and creditors while
Riverside failed to pay the United States, the Tax Court held that Cashaw
acted willfully. Cashaw counters that the Tax Court misinterpreted our
holding in Gustin v. United States. 18 She alleges “Gustin stands for the
proposition that where a responsible person (1) is repeatedly promised by his
or her employer that the taxes would get paid and (2) has no reason to believe
that the employer would not resolve any tax delinquency, then he or she
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15
Id. at 1455 (citing Howard v. United States, 711 F.2d 729, 737 (5th Cir. 1983)).
16
Id. at 1457 (citations omitted); see also Logal v. United States, 195 F.3d 229, 232
(5th Cir. 1999) (“A responsible person acts willfully if he knows the taxes are due but uses
corporate funds to pay other creditors, or if he recklessly disregards the risk that the taxes
may not be remitted to the government.” (internal citations omitted)).
17
Barnett, 988 F.2d at 1457 (citation omitted).
18
876 F.2d 485 (5th Cir. 1989).
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cannot be found to be willful.” Thus, because Cashaw was promised that the
taxes would be paid, she argues that she did not willfully fail to pay them.
The facts of Gustin do not support Cashaw’s reading and are
distinguishable from her case. Gustin was a corporation president who was
assessed TFRPs for two tax periods. 19 For the first period, the owners of the
corporation had assured Gustin not only that the taxes would be paid but also
that the taxes “had been paid.” 20 Despite these assurances, Gustin arranged
for [the owners] to meet” with the IRS, and “he was informed afterward that
the parties had reached an agreement and that the taxes would be paid
immediately.” 21 We held that, given that Gustin “made every reasonable
effort to see that the [taxes from the first period] were paid, that he was
repeatedly promised by the owners of the corporation that the taxes would be
paid and that he had no reason to believe that the meeting between [the IRS]
and the owners of the corporation had not resolved the. . . delinquency,”
Gustin did not willfully fail to pay the taxes for the second period. 22 As for
the taxes for the first period, we instructed the district court to consider
whether Gustin’s failure to pay over the taxes “was willful in light of his
efforts to see that the taxes were paid and the representations made to him
by the owners of the company that the taxes would be or had been paid.” 23
Cashaw argues that, just like the taxpayer in Gustin, she “should not
be found to have willfully failed to pay a tax she was told would be resolved.”
However, the record does not show that Cashaw made “every reasonable
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19
Id. at 487.
20
Id.21
Id.22
Id. at 493.
23
Id. (citation omitted).
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effort” 24 to ensure the taxes were paid, and “we have repeatedly rejected the
argument that a taxpayer’s good faith belief that payment for the taxes had
been arranged is a defense to personal liability under § 6672.” 25 Cashaw’s
testimony at trial establishes that she was aware Riverside was not paying its
withholding taxes, and she made the choice to prioritize essential patient
services. As a responsible person, “[o]nce [Cashaw] became aware of the tax
liability, [she] had a duty to ensure that the taxes were paid before any
payments were made to other creditors.” 26 By authorizing checks for the
payment of vendors and employees’ wages, Cashaw willfully failed to pay the
trust fund taxes.
Cashaw also argues that her duty to her patients negates a finding of
willfulness. At trial, Cashaw testified to the competing interests that left her
“in a difficult position” as chief administrator. She put “the care of the
patients” at the “forefront” because “[t]hat’s what the hospital’s there for,
to treat and serve patients.” She spoke to the standards of care set by the
state of Texas, as well as the financial constraints imposed by the Rule 11
Agreements. As discussed above, the willfulness inquiry does not turn on
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24
See id.
25
Conway v. United States, 647 F.3d 228, 237 (5th Cir. 2011) (citations omitted);
see also Bowen v. United States, 836 F.2d 965, 968 (5th Cir. 1988) (“We have not accepted
the mere reasonable expectation of sufficient funds at a later date as a defense to a charge
of willful failure to comply with the commands of § 6672.”); Mazo v. United States, 591
F.2d 1151, 1157 (5th Cir. 1979) (“[A]ppellants’ primary argument is that an issue was
created with respect to willfulness by their contention that [the controller] misled them by
asserting that he had taken care of the matter or would take care of the matter for them.
However, once they were aware of the liability to the government, they were under a duty
to ensure that the taxes were paid before any payments were made to other creditors.”).
26
Barnett v. IRS, 988 F.2d 1449, 1457 (5th Cir. 1993) (citing Mazo, 591 F.2d at
1154).
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motive. 27 Despite any other conflicting duties, “[o]nce [Cashaw] became
aware of the tax liability, [she] had a duty to ensure that the taxes were paid
before” authorizing payments to vendors or employees. 28
C
Finally, Cashaw argues that even if she is found to be a responsible
person who acted willfully, she had reasonable cause for the failure to pay the
trust fund taxes. While we have recognized that “reasonable cause” may
negate a finding of willfulness for purposes of § 6672, we have cautioned that
“reasonable cause should have a very limited application,” 29 and “no
taxpayer has yet carried that pail up the hill.” 30 The reasonable cause defense
may not “be asserted by a responsible person who knew that the withholding
taxes were due, but who made a conscious decision to use corporate funds to
pay creditors other than the government,” including the wages of
employees. 31 As explained above, Cashaw authorized checks to pay staff,
utilities, and vendors despite being aware that withholding taxes were due.
The reasonable cause defense does not apply to her.
Cashaw offers two out-of-circuit tests for determining whether
reasonable cause excuses her failure to pay over taxes and urges us to apply
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27
See Newsome v. United States, 431 F.2d 742, 745 (5th Cir. 1970) (“It has been
consistently held by this Court and other courts that ‘willfully,’ as used in section 6672,
does not require a criminal or other bad motive on the part of the responsible person, but
simply a voluntary, conscious and intentional failure to collect, truthfully account for, and
pay over the taxes withheld from the employees.” (citations omitted)).
28
See Barnett, 988 F.2d at 1457 (citing Mazo, 591 F.2d at 1154).
29
Newsome, 431 F.2d at 746-47.
30
Bowen v. United States, 836 F.2d 965, 968 (5th Cir. 1988) (citations omitted).
31
Logal v. United States, 195 F.3d 229, 232-33 (5th Cir. 1999) (first citing Newsome,
431 F.2d at 747 n.11; and then citing Frazier v. United States, 304 F.2d 528, 530 (5th Cir.
1962)).
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them here. Cashaw does not explain why we should adopt either test, nor
how the tests would operate within our existing caselaw on § 6672 liability.
We decline to adopt either test.
III
Last, Cashaw takes issue with IRS procedures, contending that the
agency abused its discretion and violated her due process rights with
inadequate procedures. Cashaw forfeited these procedural arguments by
failing to raise them before the Tax Court. 32
“The Tax Court’s review is ‘limited to issues that were properly
raised during the CDP hearing.’” 33 Under § 6330(c)(2)(A), Cashaw was
permitted to “raise at the hearing any relevant issue relating to the unpaid
tax or the proposed levy.” Despite Cashaw’s assertions otherwise, the
record contains no indication that she challenged the IRS procedures during
the CDP hearing. We will not consider such challenges now for the first time
on appeal.
* * *
For the foregoing reasons, we AFFIRM the judgment of the Tax
Court.
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32
See Lyles v. Medtronic Sofamor Danek, USA, Inc., 871 F.3d 305, 310 (5th Cir. 2017)
(stating the general rule that we will not consider arguments that were not presented to the
district court); Stearman v. Comm’r, 436 F.3d 533, 537 (5th Cir. 2006) (applying the rule to
an appeal from the Tax Court); see also McElhaney v. Comm’r, 651 F. App’x 256, 260 (5th
Cir. 2016) (unpublished) (per curiam) (“[Taxpayer] never presented this argument to the
Tax Court, so we do not consider it.” (citing Savers Fed. Sav. & Loan Ass’n v. Reetz, 888
F.2d 1497, 1501 n.5 (5th Cir. 1989))).
33
Est. of Duncan v. Comm’r, 890 F.3d 192, 198 (5th Cir. 2018) (quoting Keller Tank
Servs. II, Inc. v. Comm’r, 854 F.3d 1178, 1189 (10th Cir. 2017)).
11