Lyon v. United States

Filed: August 14, 2003
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 02-1842
(CA-00-178-1)
Christopher H. Lyon,
Plaintiff - Appellee,
versus
United States of America,
Defendant - Appellant.
O R D E R
Upon consideration of the government’s motion to correct
errata and to publish the opinion,
IT IS ORDERED that the motion to publish is denied.
IT IS FURTHER ORDERED that the motion to correct errors is
granted, and the court amends it opinion filed July 1, 2003, as
follows:
On page 5, first paragraph, line 28 -- the date is corrected
to read “November 15, 1996.”
On page 5, first full paragraph, line 4 -- the date is
corrected to read “March 12, 1996.”
- 2 -
On page 10, first full paragraph, line 11 -- “nearly $50,000"
is corrected to read “exceeding $50,000.”
For the Court
/s/ Patricia S. Connor
Clerk
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
4444444444444444444444444444444444444444444444447
CHRISTOPHER H. LYON,
Plaintiff-Appellee,
v.
UNITED STATES OF AMERICA,
Defendant & Third Party Plaintiff- No. 02-1842
Appellant,
v.
HENRY H. LYON,
Third Party Defendant.
4444444444444444444444444444444444444444444444448
Appeal from the United States District Court
for the Western District of Virginia, at Abingdon.
Glen M. Williams, Senior District Judge.
(CA-00-178-1)
Argued: April 3, 2003
Decided: July 1, 2003
Before WILLIAMS and MICHAEL, Circuit Judges, and
Terry L. WOOTEN, United States District Judge for the
District of South Carolina, sitting by designation.
____________________________________________________________
Reversed and remanded by unpublished per curiam opinion.
____________________________________________________________
COUNSEL
ARGUED: Paula Keyser Speck, Tax Division, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant.
Daniel Robert Bieger, COPELAND & BIEGER, P.C., Abingdon, Vir-
ginia, for Appellee. ON BRIEF: Eileen J. O'Connor, Assistant Attor-
ney General, John L. Brownlee, United States Attorney, Gary R.
Allen, Tax Division, UNITED STATES DEPARTMENT OF JUS-
TICE, Washington, D.C., for Appellant.
____________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
____________________________________________________________
OPINION
PER CURIAM:
In March 1999 the Internal Revenue Service assessed Christopher
Lyon (Lyon) under I.R.C. § 6672 for $338,451.46 in trust fund taxes
owed by North Branch Coal Company, Inc. (North Branch). Lyon
was North Branch's president and secretary-treasurer, its sole share-
holder, and its sole director. After paying $500.00 in partial satisfac-
tion of the assessment, Lyon brought a suit for a refund in the U.S.
District Court for the Western District of Virginia, claiming that he
is not a person responsible for payment of taxes under § 6672. The
United States counterclaimed for the balance of the assessment and
filed a third-party complaint against Henry Lyon, Christopher Lyon's
father and the alleged power behind the North Branch operation. The
district court entered a default judgment against Henry Lyon on June
27, 2001. The United States and Christopher Lyon then filed cross
motions for summary judgment. The district court denied the United
States's motion and granted summary judgment to Lyon after con-
cluding that Lyon was not the party responsible for the payment of
North Branch's tax liability. For the reasons that follow, we reverse
the district court's grant of summary judgment to Lyon and remand
with instructions to enter summary judgment in favor of the United
States.
I.
North Branch is a mining corporation organized under Virginia
laws. North Branch's mining operations were carried out under a sub-
2
contract with Consolidation Coal Company (Consol), J.A. 544, and
were conducted under a collective bargaining agreement with the
United Mine Workers of America (UMWA), as required by the
union's contract with Consol. J.A. 643-44, 544-45. Under the terms
of that agreement, North Branch could not maintain its affiliation with
the union, or its contract with Consol, if any of its officers or share-
holders were affiliated with non-union operations. Id. Black Gold
Leasing Corp. (Black Gold) is a corporation owned by Jerry Tackett
and Danny Blankenship, and Henry Lyon had some (never-specified)
"interest" in the corporation. J.A. 535-36, 624-27, 664-65. Black Gold
does not have a collective bargaining agreement with the UMWA. In
December 1994 Black Gold arranged to buy North Branch's equip-
ment from North Branch's sole shareholder and then lease it back to
North Branch. J.A. 624-25, 629-30, 633, 656-57, 665. To avoid
breaking North Branch's agreement with the UMWA, the Black Gold
group had Michael Adkins, North Branch's mining superintendent,
acquire North Branch's stock. J.A. 537-39, 645. Adkins did so, appar-
ently paying for the stock, and thereafter became North Branch's sole
shareholder and president. J.A. 466-68, 538, 540-41. In April 1995
Adkins assigned his North Branch stock to Joyce Kretzer, Henry
Lyon's secretary. Kretzer became North Branch's president and
secretary-treasurer. J.A. 466-68, 525, 540-41. During that time
Kretzer handled the payroll, prepared federal employment tax returns,
and completed other administrative tasks for North Branch. J.A. 465-
66, 478-80, 485-87. Tackett, Blankenship, and Henry Lyon assumed
de facto direction over North Branch's operations during Kretzer's
tenure as president. J.A. 541-42. At no time, however, were any of
these men shareholders, directors, officers, or (according to company
records) employees of North Branch. J.A. 630, 666. Henry Lyon
referred to Kretzer as a "title holder" only, J.A. 541, but she exercised
her authority to pay North Branch's withholding taxes to the govern-
ment, over the objections of Tackett, Blankenship, and Henry Lyon.
J.A. 497. She continued to pay such taxes until the three men took the
company checkbook away from her and asked her to resign her posi-
tion and relinquish her stock. J.A. 481-83, 491-94, 545-46. Despite
the fact that Kretzer paid the withholding taxes, Henry Lyon testified
that the authority to pay the taxes rested with him, Tackett, and
Blankenship. J.A. 545.
On December 31, 1995, at the direction of Henry Lyon, Blanken-
ship, and Tackett, Kretzer assigned her North Branch stock to Chris-
3
topher Lyon for no consideration. J.A. 473, 481-82, 512-13, 519-21.
At that time Lyon lived at home with his father and had recently grad-
uated with a bachelor's degree in business administration from Tran-
sylvania University in Kentucky. J.A. 154-55. Lyon was twenty-two
years old when he assumed his North Branch responsibilities. J.A.
326. On January 1, 1996, Lyon appointed himself sole director of
North Branch. J.A. 499, 524. On January 21, 1996, he accepted
Kretzer's resignation as president and secretary-treasurer and took
those offices himself. J.A. 500, 516, 546. He remained the president,
secretary-treasurer, sole director, and sole shareholder of North
Branch until the company ceased operations in the spring of 1997.
J.A. 246-47, 252-53. As president of North Branch, Lyon received a
biweekly salary of $500.00, plus a monthly check based on the
amount of coal mined by the company. J.A. 194. He was paid
$35,888.01 in 1996 and $15,989.43 in 1997. J.A. 191-97, 312-19.
According to North Branch's bylaws, the president has "supervision
of the affairs of the Corporation" and "shall sign all certificates of
stock" and "shall sign or counter-sign all contracts and other instru-
ments of the Corporation." J.A. 84. The Secretary "shall have charge
of the seal and of the corporate books." Id. It appears that there was
only one other officer for North Branch, a Vice-President of Opera-
tions, whose sole responsibility was to direct mining operations at the
mine site. The Vice-President of Operations had no authority to make
financial decisions. J.A. 514.
Despite Lyon's various roles in the corporation, he claims to have
only done as he was told by his father. Henry Lyon testified that all
corporate authority rested with him, Tackett, and Blankenship. J.A.
549. Specifically, Henry Lyon testified that his son lacked authority
over general decision-making and management of the corporation,
over decisions about which creditors or vendors would be paid, and
over whether withholding taxes would be paid. Id. Lyon spent little
time in the business offices and devoted little time to corporate duties.
J.A. 281-84. He did, however, perform tasks such as delivering the
payroll. J.A. 174. And, when necessary Lyon carried out numerous
corporate tasks, such as accepting the resignation of the Vice Presi-
dent of Operations and appointing a new one, signing the corpora-
tion's annual reports, and signing federal tax returns. J.A. 505-06,
682-83, 162-63, 294-95, 105, 107, 246, 350. For instance, Lyon
accepted the resignation of Ricky Sloane as Vice President on Sep-
4
tember 30, 1996, and appointed Steve Vinson to that post. J.A. 505-
06, 526. On March 8, 1996, and March 26, 1997, Lyon signed North
Branch's 1996 and 1997 annual reports to the Virginia State Corpora-
tion Commission. On July 10, 1996, and January 31, 1997, he signed
North Branch's Employer's Quarterly Federal Tax Return (Form 941)
for the second and fourth quarters of 1996, respectively. J.A. 261,
402. His signature also appears on Form 941s for the first quarter of
1996 and the first quarter of 1997. J.A. 348, 400. And on January 31,
1997, he signed North Branch's 1996 Employer Annual Federal
Unemployment Tax Return. J.A. 246. According to Lyon, he signed
documents when told to do so and did not read what he was signing.
"I mean I signed so many things. . . . [T]o be honest with you, I've
never really read anything that I did sign. Like I told you before, . . .
the little hot pink post-it [sic] notes were there and if they said sign
here, I would just sign and, and turn the page and go on." J.A. 200.
Lyon also executed a number of documents between North Branch
and its bank, First Sentinel. Lyon was an authorized signatory on
North Branch's checking account at First Sentinel and was authorized
to conduct all banking business for the corporation, including opening
accounts, withdrawing funds, executing promissory notes, borrowing
money, and pledging corporate assets as security for loans. J.A. 510-
11, 527-28, 201-08. On February 16, 1996, Lyon executed a credit
agreement with the bank, under which North Branch received a
$200,000 line of credit for three months. J.A. 211-13, 284-85. He also
executed a security agreement, personal guaranty, and promissory
note in connection with the line of credit. J.A. 213-19, 284-85, 328-
32. He executed extensions of the line of credit on May 17, August
17, and November 15, 1996, and effectively extended it through Feb-
ruary 15, 1997, for a total credit line of $1,919,000. J.A. 227-29, 346.
Lyon and an accountant retained by North Branch met on three
occasions with IRS Revenue Officer Hunter to discuss North
Branch's failure to pay its employment tax liabilities. J.A. 27-29, 261-
64, 275-76, 610-14. At the first meeting on March 12, 1996, Hunter
explained that the delinquent taxes amounted to approximately
$78,000 and that they were due by April 30. J.A. 27-28. Hunter also
informed Lyon that the taxes were mandatory and explained enforce-
ment policies. J.A. 28. Hunter specifically warned Lyon that the IRS
could make an assessment against him under I.R.C. § 6672 as North
Branch's president. Id. Lyon said that he understood and promised to
5
pay the taxes promptly. J.A. 28-29. North Branch did not pay the
taxes, however, and Lyon met again with Hunter on May 22, 1996.
J.A. 29, 41. When North Branch still failed to pay, Hunter met with
Lyon again on November 21, 1996. J.A. 32, 47. Hunter prepared a
record of the meeting, which Hunter and Lyon both signed. J.A. 80.
Lyon has not explained why he did not take steps to pay the back
employment taxes except to say that his father was willing to accept
"the blame for all of this because obviously I had nothing to do with
it, that I was just put in as president, quote unquote." J.A. 183.
According to Lyon, he simply did what his father told him to do
because he had "been taken very well care of by [his father] through-
out [his] life." J.A. 174. Henry Lyon explained that his son did not
know where the checkbook was and further claimed that his son
would never have gone to the bank to obtain a certified check payable
to the IRS. J.A. 568-69.
On March 1, 1999, the IRS assessed Lyon under I.R.C. § 6672 for
$338,451.46 in trust fund taxes owed by North Branch for 1996 and
the second quarter of 1997. Lyon paid $500.00 and then brought suit
for a refund. The government counterclaimed for the balance of the
assessment and also filed a third-party complaint against Henry Lyon.
A default judgment was entered against Henry Lyon on June 27,
2001. As of November 2002 no payments had been made on that
judgment. The parties then filed cross-motions for summary judg-
ment. The district court granted Lyon's motion and denied the gov-
ernment's, concluding that Lyon lacked actual authority within the
business and thus was not a party responsible for payment of North
Branch's taxes under § 6672. The government now appeals.
II.
We review a district court's summary judgment determination de
novo. Thompson v. Potomac Elec. Power Co., 312 F.3d 645, 649 (4th
Cir. 2002). Summary judgment is appropriate only where there is no
factual dispute as to a material fact and the moving party is entitled
to judgment as a matter of law. Fed. R. Civ. P. 56(c). When faced
with cross motions for summary judgment, the court must review
each motion separately on its own merit to determine whether either
of the parties deserves judgment as a matter of law. Rossignol v.
Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003). "When considering
6
each individual motion, the court must take care to resolve all factual
disputes and any competing, rational inferences in the light most
favorable to the party opposing that motion." Id. (internal quotations
marks and citation omitted). The non-moving party may not rely upon
mere allegations but must set forth specific facts showing that there
is a genuine issue for trial. See Fed. R. Civ. P. 56(e); Celotex Corp.
v. Catrett, 477 U.S. 317, 323 (1986); Cray Communications, Inc. v.
Novatel Computer Sys., Inc., 33 F.3d 390, 393-94 (4th Cir. 1994). If
the non-moving party fails to respond, summary judgment, if appro-
priate, will be entered. See Fed. R. Civ. P. 56(e). "[W]hen an appeal
from a denial of summary judgment is raised in tandem with an
appeal of an order granting a cross-motion for summary judgment, we
have jurisdiction to review the propriety of the denial of summary
judgment by the district court." Monahan v. County of Chesterfield,
95 F.3d 1263, 1265 (4th Cir. 1996) (internal quotation marks and cita-
tion omitted). See also Podberesky v. Kirwan, 38 F.3d 147, 157 (4th
Cir. 1994). In this case the government appeals the district court's
grant of summary judgment to Lyon and the denial of summary judg-
ment to the United States.
III.
The Internal Revenue Code requires employers to withhold federal
social security, hospital insurance, and income taxes from the wages
of their employees and to turn over the withheld amounts to the
United States. See I.R.C. §§ 3102(a), 3402(a). The withheld taxes
constitute a special fund held in trust for the benefit of the United
States. See I.R.C. § 7501; see also Begier v. IRS, 496 U.S. 53, 60-62
(1990). "These trust fund taxes are for the exclusive use of the gov-
ernment and cannot be used to pay business expenses of the
employer, including salaries." Brewery, Inc. v. United States, 33 F.3d
589, 593 (6th Cir. 1994) (internal quotation marks and citation omit-
ted). If an employer withholds the taxes but fails to remit them to the
government, the employee is nevertheless credited with the payment.
Slodov v. United States, 436 U.S. 238, 243 (1978). Unless the govern-
ment can recover the withheld taxes, however, the taxes are lost. To
protect against such revenue losses, I.R.C. § 6672 imposes personal
liability for the amount of taxes due upon those officers or agents of
the employer who are responsible for the default. See Slodov, 436
U.S. at 246-50; Plett v. United States, 185 F.3d 216, 218 (4th Cir.
7
1999). Section 6672 has been broadly construed to allow the govern-
ment to reach those responsible for a corporation's failure to pay
withholding taxes. See O'Connor v. United States, 956 F.2d 48, 50
(4th Cir. 1992).
Section 6672(a) provides that "[a]ny person required to collect,
truthfully account for, and pay over any tax imposed by this title who
willfully fails" to do so shall be liable for "a penalty equal to the total
amount of the tax" withheld from the government. Section 6672 thus
imposes personal liability for an employer's unpaid withholding taxes
on wages paid to its employees on any person (1) who is responsible
for collecting and paying such withholding taxes over to the govern-
ment and (2) who willfully fails to see that those taxes are paid. Plett,
185 F.3d at 218; O'Connor, 956 F.2d at 50. Once assessed for such
a liability, the taxpayer has the burden of proof on both elements of
§ 6672 liability. O'Connor, 956 F.2d at 50. In this case the district
court concluded that the government presented insufficient evidence
to establish that Christopher Lyon was a person responsible for col-
lecting and paying North Branch's withholding taxes. J.A. 714.
Because the district court concluded that the government could not
meet the first requirement for establishing a taxpayer's liability under
§ 6672, the court did not reach the question of whether Lyon willfully
failed to see that those taxes were paid. We address each issue in turn.
A.
Courts refer to an individual who falls under § 6672 as a "responsi-
ble person." In Plett we emphasized that even though a determination
of whether an individual qualifies as a "responsible person" under
§ 6672 is largely fact-based, summary judgment is appropriate where,
in the absence of a dispute over material facts, it is clear as a matter
of law that the taxpayer is a "responsible person" under the statute.
Plett, 185 F.3d at 223. The "key element" for determining whether
someone is a responsible person "is whether that person has the statu-
torily imposed duty to make the tax payments." O'Connor, 956 F.2d
at 51 (emphasis added). That duty "is considered in light of the per-
son's authority over an enterprise's finances or general decision mak-
ing." Id. Such authority "is generally found in high corporate officials
charged with general control over corporate business affairs who par-
ticipate in decisions concerning payment of creditors and disburse-
8
ment of funds." Id. That said, a party is not presumed to be a
"responsible person" based on title alone. Id. The focus is "on sub-
stance rather than form." Id. "The substance of the circumstances
must be such that the officer exercises and uses his authority over
financial affairs or general management, or is under a duty to do so,
before that officer can be deemed to be a responsible person." Id.
(emphasis added).
We have developed a list of factors to guide us in determining
whether the substance of the circumstances is sufficient to create
§ 6672 liability: (1) whether the individual is an officer; (2) whether
the individual has control over the payroll; (3) whether the individual
determines which creditors to pay or not pay; (4) whether the individ-
ual is responsible for the day-to-day operations of the corporation,
including its financial affairs; (5) whether the individual has the
power to sign checks and in fact does so; and (6) whether the individ-
ual has the ability to hire and fire employees. See Plett, 185 F.3d at
222; O'Connor, 956 F.2d at 51. Other courts look to similar factors
for determining whether an individual is a responsible person under
§ 6672. See, e.g., United States v. Landau, 155 F.3d 93, 100-01 (2d
Cir. 1998); United States v. Kim, 111 F.3d 1351, 1362-63 (7th Cir.
1997); Barnett v. IRS, 988 F.2d 1449, 1455 (5th Cir. 1993). In evalu-
ating a person's status under these factors, the critical inquiry is
"whether the person had the `effective power' to pay the taxes—that
is, whether he had the actual authority or ability, in view of his status
within the corporation, to pay the taxes owed." Vinick v. United
States, 205 F.3d 1, 8 (1st Cir. 2000) (quoting Barnett, 988 F.2d at
1454). See also Kim, 111 F.3d at 1362 (whether the "individual could
have impeded the flow of business to the extent necessary to prevent
the corporation from squandering the taxes it withheld from its
employees") (internal quotation marks and citation omitted); Bowlen
v. United States, 956 F.2d 723, 728 (7th Cir. 1992) (whether the per-
son is "connected closely enough with the business to prevent the
default from occurring"); Johnson v. United States, 203 F. Supp. 2d
416, 422 (D. Md. 2002).
When the Plett/O'Connor factors are applied to this case, the fol-
lowing undisputed facts come to the front. Lyon was not only an offi-
cer of North Branch, he was its president, secretary-treasurer, and sole
director and shareholder. Under Virginia corporate law and under
9
North Branch's bylaws, Lyon had the authority to supervise the
affairs of the corporation and to sign and counter-sign contracts of the
corporation. Lyon was, in fact, the only corporate officer with the
authority to perform these tasks. The only other officer, the Vice Pres-
ident of Operations, had no authority over the corporation's finances.
Lyon accepted the resignation of the first Vice President of Opera-
tions and, while it does not appear that Lyon actually chose the suc-
cessor, Lyon formally appointed him. Lyon was a signatory on North
Branch's bank account, and he signed the documentation for the cor-
poration's credit agreement that ultimately extended almost
$2,000,000 in credit to North Branch. Lyon in fact executed a per-
sonal guaranty and promissory note in connection with the line of
credit. He routinely signed corporate reports and corporate tax forms.
In sum, as the district court recognized, Lyon " did have the capacity
to authorize checks and run the financial aspects of the company."
J.A. 708 (emphasis added). It is true, however, that Lyon did not
oversee the payroll, make determinations about which creditors to pay
or not pay, or engage in the day-to-day operations of the corporation.
Nonetheless, in light of his many roles within the corporation — pres-
ident, secretary/treasurer, sole director, and sole shareholder — Lyon
legally could have assumed such corporate responsibilities. It is clear
from the undisputed facts in the record that Lyon had the authority,
if he had chosen to exercise it, to take any and all of the actions listed
among the Plett/O'Connor factors. It is equally clear, however, that
Lyon only exercised his authority at the direction of his father. The
district court concluded that under these unique circumstances Lyon
was relieved of liability under § 6672. We disagree.
In this case, the critical question is whether someone like Lyon,
who clearly controls the corporation on paper and who exercises
authority over matters such as check-signing, loan procurement, and
hiring and firing but who does so at the direction of others, is a "re-
sponsible person." The parties agree that Lyon was essentially a pup-
pet of his father and that Lyon performed his duties as president and
sole director of North Branch at the direction of Henry Lyon. Clearly,
the senior Lyon was running the show. But that is not necessarily
enough to permit the younger Lyon to shirk his statutorily imposed
duties to North Branch, particularly where he obtained benefits,
exceeding $50,000, for assuming such responsibilities. This circuit's case
law emphasizes that persons such as Lyon, with statutorily imposed
10
duties for the financial operations of a corporation, are more often
than not "responsible persons." We, along with other courts, look at
whether or not the person in question has the "power to compel or
prohibit the allocation of corporate funds." Godfrey v. United States,
748 F.2d 1568, 1576 (Fed. Cir. 1984). Where persons have authority
to sign a corporation's checks or to prevent their issuance by denying
a needed signature or where persons control the voting stock of a cor-
poration, they are generally held to be "responsible." Id. Moreover,
when a taxpayer claims, such as Lyon does, that he has only technical
but not actual authority, the taxpayer retains the burden of showing
"that actual authority was in reality more limited than technical
authority, and if the individual fails" to show a genuine dispute of
material fact on this issue, we may "conclude that the documentary
evidence of authority reflects the reality." Landau, 155 F.3d at 103.
See also United States v. Rem, 38 F.3d 634, 644-45 (2d Cir. 1994).
During his tenure as corporate officer and sole director and share-
holder of North Branch, Lyon possessed sole legal authority to direct
the financial operations of the corporation. At any time, he could have
paid the trust fund taxes without needing further authorization. It is
true that his father and the two other men involved might have been
displeased, but these three individuals could not legally have pre-
vented Lyon from making the payments. The evidence does not
reflect that these three had any legal or official role in North Branch's
affairs, and they have not suggested otherwise; they simply assert that
they made all of the corporation's decisions. The fact that Kretzer,
during her tenure as president, did pay the taxes indicates that Lyon
could have done so had he chosen. That Kretzer was asked to step
down because she insisted on paying the taxes does not indicate that
she could have been forced to step down. She held all the legal cards,
as did Lyon once he assumed her role. Lyon has offered no evidence
to show that he was in any way prevented from carrying out his
authority to pay the taxes. He was not incapacitated in any way, nor
was he under any kind of threat. Cf. Howard v. United States, 711
F.2d 729, 734 (5th Cir. 1983) (finding that the fact that the plaintiff
might have been fired had he disobeyed instructions and paid the
taxes does not make him any less responsible for their payment).
While Lyon's father might have called the shots, his father could not
legally have stopped Lyon from acting for the corporation — at least
not based on the facts proffered by Lyon. Lyon bears the burden of
11
showing that his "paper authority" could not translate into actual
authority. The fact that he chose not to exercise his legal authority is
not enough to show that he had no actual authority.
In light of the foregoing, we conclude that the undisputed evidence
shows that Lyon possessed the actual authority to direct the financial
operations of North Branch and to pay the taxes should he have cho-
sen to do so. The onus was on Lyon to demonstrate that he was pre-
vented from exercising this authority. He has not done so. He
certainly demonstrated that his father controlled the operations of the
corporation. But Lyon has not demonstrated that his father actually
prevented him, or that he could have prevented him, from paying the
taxes if Lyon had attempted to do so. Lyon's statement that he
thought his father would take care of things falls short of the mark.
"[C]asting a wide net of responsibility under § 6672 serves the impor-
tant prophylactic purpose of encouraging all those with authority to
stay abreast of a company's tax withholding and payment obliga-
tions." Fiataruolo v. United States, 8 F.3d 930, 941 (2d Cir. 1993).
Absolving Lyon in a situation such as this one would essentially
create a loophole in which willful tax evaders could simply place the
entire corporate control in the hands of a puppet who has authority on
paper but not in practice. While he may not have been running the day
to day operations of North Branch, Lyon had a responsibility to moni-
tor North Branch's finances. See Barnett, 988 F.2d at 1457 ("[W]e
believe that not only is it a bad business practice for a high-level com-
pany official such as [Lyon] to fail to monitor his company's
finances, it also subjects him to being held a responsible party under
§ 6672."). We conclude that the government has presented undisputed
evidence sufficient to establish as a matter of law that Lyon was a "re-
sponsible person" under § 6672.
B.
We turn now to the question of whether the government offers
undisputed evidence sufficient to establish as a matter of law that
Lyon willfully failed to pay the withheld taxes. In this case the district
court never reached the question of "willfulness." We may nonethe-
less decide an issue without resorting to remand when the facts with
respect to the particular issue are not in dispute. Monahan, 95 F.3d
at 1265. In this case the government proffered evidence of willfulness
12
in support of its motion for summary judgment. Lyon had the oppor-
tunity to offer evidence to the contrary but chose instead to argue to
the district court and on appeal that "he had no actual authority over
the corporation's activities . . . [and could not] willfully fail to do
something that [he] has no authority to do." Appellee's Br. at 32. We
are left then to determine whether the government's uncontested evi-
dence is sufficient to establish "willfulness" as a matter of law. See
Fed. R. Civ. P. 56(e).
The "willful" failure to pay trust fund taxes requires either "knowl-
edge of nonpayment or reckless disregard of whether the payments
were being made." Turpin v. United States, 970 F.2d 1344, 1347 (4th
Cir. 1992) (internal quotation marks and citation omitted). It is undis-
puted that Lyon was aware of the overdue taxes. He met on three
occasions with IRS Revenue Officer Hunter, who repeatedly
informed Lyon of the unpaid taxes and explained the consequences
of a continued failure to pay. Lyon knew that he could be held person-
ally responsible for the unpaid taxes and, in fact, promised to make
payments but never did so. During the time period in question, the
corporation had access to funds to pay the taxes, but the funds were
used to pay other creditors instead. Cf. id. ("The intentional prefer-
ence of other creditors over the United States is sufficient to establish
the element of willfulness under section 6672(a).") (internal quotation
marks and citation omitted). Even viewing the evidence in the light
most favorable to Lyon, we conclude that the record allows no con-
clusion other than that the failure to pay the taxes was willful on
Lyon's part.
C.
In sum, we conclude that the district court erred in concluding that
"Chris Lyon was not the party responsible for the payment of North
[Branch]'s tax liability." J.A. 714. Rather, we conclude that the gov-
ernment has proffered evidence sufficient to establish as a matter of
law that Lyon was a "responsible person" under § 6672. We further
conclude that the government proffered evidence sufficient to estab-
lish as a matter of law that Lyon "willfully" failed to see that the with-
holding taxes were paid. Accordingly, the government has established
as a matter of law that personal liability may be imposed upon Lyon
under § 6672 for North Branch's unpaid withholding taxes.
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IV.
For all of the foregoing reasons, we reverse the district court's
grant of summary judgment to Lyon and remand to the district court
with instructions that summary judgment be entered in favor of the
United States.
REVERSED AND REMANDED
14