Nirmala Noronha v. Internal Revenue Service

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 09a0727n.06
No. 08-6261
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
NIRMALA NORONHA, ) Nov 06, 2009
) LEONARD GREEN, Clerk
Appellant, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR
INTERNAL REVENUE SERVICE, ) THE WESTERN DISTRICT OF
) KENTUCKY
Appellee. )
)
)
Before: KEITH, GIBBONS, and KETHLEDGE, Circuit Judges.
KETHLEDGE, Circuit Judge. Nirmala Noronha appeals the bankruptcy court’s order
denying her objection to the Internal Revenue Service’s proof of claim in her Chapter 13 bankruptcy
proceeding. We affirm.
I.
Noronha and her husband, David Noronha (“David”), formed Internal Data Group, Inc.
(“IDG”), a technical personnel staffing agency, in 1988. During the time relevant here—primarily
1999-2001—Noronha and David each owned 50% of the company’s stock. David was IDG’s
president then, and Noronha its secretary and treasurer.
Norohona and David transferred more than $250,000 of their own money to IDG during 1999
and 2000. In August 2000, they also co-signed a $350,000 revolving line of credit with PNC Bank.
No. 08-6261
Noronha v. IRS
Despite those transfers, IDG did not pay its withholding taxes in the second and third quarters of
2000. The IRS assessed the outstanding tax at $132,264.56, and determined that—as a “responsible
person” required to collect the tax—Noronha was personally liable under 26 U.S.C. § 6672(a) for
the unpaid taxes.
Noronha thereafter filed a Chapter 13 bankruptcy petition. The IRS filed a proof of claim
for $170,221.81, based upon the unpaid IDG taxes, penalties, and interest. Noronha filed an
objection to the proof of claim, which objection the bankruptcy court denied. Norohona appealed
to the district court, which affirmed the bankruptcy court’s order. This appeal followed.
II.
In a bankruptcy appeal from a district court, we “review the bankruptcy court’s legal
conclusions de novo and uphold its factual findings unless clearly erroneous.” In re Eagle-Picher
Indus., Inc., 447 F.3d 461, 463 (6th Cir. 2006) (internal quotation marks omitted).
Noronha argues that she is not personally liable for IDG’s delinquent taxes under 26 U.S.C.
§ 6672(a). That section provides that “any person” who is required to collect taxes and willfully fails
to account for and pay over them is personally liable for the total amount not paid to the government.
Gephart v. United States, 818 F.2d 469, 473 (6th Cir. 1987). It attaches liability to an individual if
she is a person “responsible” for paying the taxes and “willfully failed” to pay the taxes due. Id.
Noronha first argues that she was not a responsible person with respect to IDG’s financial
affairs. In deciding whether a person is “responsible” for paying taxes, we focus “upon the degree
of influence and control which the person exercised over the financial affairs of the corporation and,
specifically, disbursements of funds and the priority of payments to creditors.” Id. We typically
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No. 08-6261
Noronha v. IRS
consider factors such as the identity of the officers and shareholders of the corporation, or a person’s
ability to sign company checks. Kinnie v. United States, 994 F.2d 279, 283 (6th Cir. 1993).
Here, Noronha had the requisite control of IDG’s financial affairs. She was the secretary and
treasurer and a 50% shareholder of IDG during the two quarters in which it failed to pay its
withholding taxes. Noronha also possessed check-writing authority for IDG from August 2000 to
May 2001. She thus had control of the company’s financial affairs on paper. And—notwithstanding
Noronha’s assertion to the contrary—she exercised that control in fact. On February 4, 2001, for
example, Noronha called an IDG board meeting to discuss the company’s financial problems,
including specifically its unpaid taxes. Noronha also filed IDG’s 2000 income tax return and
exercised her check-writing authority on repeated occasions. These undisputed facts support the
bankruptcy court’s finding that she was a responsible person within the meaning of the statute.
Noronha says that finding is undermined, however, by her adherence to what she describes
as traditional Indian culture—and specifically its alleged exclusion of women from business affairs.
But the bankruptcy court found this aspect of Noronha’s testimony—and indeed numerous
others—to lack credibility. And for the reasons cited in its opinion, the record fully supports that
finding. The bankruptcy court did not err, then, in finding that Noronha was a responsible person
with respect to IDG’s taxes.
Second, Noronha argues she did not willfully fail to pay IDG’s taxes. “Willfulness is present
if the responsible person had knowledge of the tax delinquency and knowingly failed to rectify it
when there were available funds to pay the government.” Gephart, 818 F.2d at 475. Here, Noronha
signed and endorsed checks from IDG’s account to herself, after she knew that IDG had failed to pay
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Noronha v. IRS
its taxes. Her “deliberate choice to voluntarily, consciously, and intentionally pay other creditors
rather than make tax payments” supports a finding of willful failure. Collins v. United States, 848
F.2d 740, 742 (6th Cir. 1988). The bankruptcy court was correct, therefore, to find Noronha liable
under 26 U.S.C. § 6672(a), and to deny her objection to the IRS’s proof of claim.
The bankruptcy court’s judgment is affirmed.
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