Slodov v. United States

Mr. Justice White, with whom The Chief Justice and Mr. Justice Blackmun join,

dissenting in part.

The Court recognizes, as even petitioner concedes, that 26 U. S. C. § 6672 makes those individuals who are “required to *262collect, truthfully account for, and pay over any tax imposed by this title” (“responsible persons”) personally liable for the failure to use available corporate funds to pay to the IRS amounts equal to sums withheld from employees during those periods in which they were “responsible persons.” It also holds, and I agree, that the obligations of a “responsible person” under § 6672 are not limited to liabilities incurred during the period during which he occupied such a position but that he “violate [s] the 'pay over’ requirement of that statute by willfully failing to pay over trust funds collected prior to his accession to control when at the time he assumed control the corporation has funds impressed with a trust under § 7501 .. . Ante, at 259. Prom this conclusion it would seem to follow automatically that one who becomes a “responsible person” subsequent to the collection of withholding tax payments from employees is, for purposes of § 6672, in the same shoes as one who was a “responsible person” at the time of collection. After all, as the Court recognizes, the purpose of § 6672 is to- assure the collection and payment of taxes, and it is difficult to comprehend why the United States should be precluded from looking to what is probably its best source, the flow of funds coming into business entities, merely because a change in ownership or management has occurred subsequent to the time when the amounts in question were withheld from employees. Moreover, there is absolutely nothing in the language or legislative history of § 6672 which distinguishes between the obligations of “responsible persons” on the basis of when they assumed such a position. Indeed, this is the thrust of Part III-A of the Court’s opinion. Inexplicably, however, and in disregard of these controlling principles, the Court holds that a “responsible person” does not violate § 6672 by willfully using funds acquired by the corporation after his accession for purposes other than the satisfaction of withholding tax claims of the United States arising from duties imposed by law prior to his accession.

*263I

Although the Court concedes that the construction of § §672 adopted by the Court of Appeals in this case and urged by the United States “might. . . garner tax dollars otherwise un-collectible” in cases such as this, ante, at 251, it rejects this construction in favor of one which permits corporations to escape their tax obligations through change of ownership or management primarily because of its belief that the free enterprise system is best promoted by the use of tax funds to subsidize the takeover of financially beleaguered companies. The majority deems it desirable to encourage “changes of ownership and management of financially troubled corporations and the infusion of equity or debt funding,” ante, at 253, and construes the statute in a manner it believes to be consistent with this goal. Apparently, in the Court’s view, tax funds are better used to subsidize such takeovers than to meet other social needs for which Congress has specifically appropriated tax funds. But I believe that the Court exceeds its mandate by construing the statute so as to conform to its conclusions concerning the best use of tax dollars collected from American employees. Section 6672 is not an appropriations statute or even a law, like the bankruptcy statute, designed to accomplish substantive ends. The statute lends no support to the Court’s conclusion that an insolvent corporation with unpaid withholding taxes should be permitted to continue its business under the aegis of a successor officer, even at the cost of the United States’ tax claim. It is, purely and simply, a tax collection statute which is designed to do nothing more than assure that taxes withheld from employees find their way to the United States to be spent for those purposes defined by Congress. In my view, it is error to construe the statute in a way which permits the diversion of these funds from the uses determined by Congress to be in the public interest to ends which in the Court’s view would better promote the general welfare.

*264The Court relies upon the fact that the IRS often applies a flexible approach and does not always insist that financially troubled concerns use all available funds to pay back taxes if such payment would require the corporation to discontinue operations. For present purposes, I assume that the IRS may properly so exercise its discretion and may, where it deems it appropriate, even waive any resort to § 6672 if the company should ultimately fail. What this establishes, however, is that the Court’s construction of § 6672 is totally unnecessary even given its perception that a rigid application of the statute to successor employers would in the long run damage the economy and hinder IRS collection efforts. It is one thing to conclude that there are some circumstances in which the IRS might decide that the rigid application of § 6672 is not in its own interests but quite another matter to prevent the IRS from using this valuable collection tool in connection with successor employers and managers where it is convinced that its application will effectuate the collection of taxes.

Moreover, it is far from clear that permitting employers to use funds acquired subsequent to^ their assumption of control for purposes other than the satisfaction of the withholding tax claims of the United States will serve primarily as an aid to financially troubled concerns rather than as an invitation to defraud the Treasury. The Court holds that a person who assumes control must satisfy the business’ pre-existing trust-fund tax obligations if the concern has funds available at the time he assumes control. Apparently, neither it nor the IRS would require the sale of the business’ assets in order to meet such obligations. It is clear, however, that there will be a great number of companies which do not have cash available at the time of a change in ownership and management but are nevertheless viable, ongoing enterprises not in need of Government subsidization. Furthermore, any businessman with a minimum of acumen could in most circumstances make sure that the financial affairs of the company are so arranged *265that there are no uncommitted funds available at the moment of his accession to control. Finally, there can be little doubt that the Court’s ruling today will result in changes in management and ownership which are in fact nothing but subterfuges to avoid using the company’s funds to pay outstanding trust-fund tax obligations. The investors in any corporation seriously in arrears will also have a strong incentive to arrange changes of management, whether sham or real, in order to permit funds acquired by the corporation to be used for purposes other than satisfying its tax obligations without exposing its managers to personal liability. In addition, changes of ownership, often more formal than real, will frequently be arranged for no purpose other than to permit the concern to use future funds without regard to its pre-existing tax obligations. '

II

The Court next makes the remarkable suggestion that § 6672 cannot be read as imposing an absolute duty upon “responsible persons” to use after-acquired funds to pay over amounts which should have been withheld because to do so would be to impose liability without personal fault which, according to the Court, is precluded by the statutory requirement of a “willful failure.” As the concurring opinion of Mr. Justice Rehnquist suggests, the term “willful” in our jurisprudence, particularly in connection with tax matters, normally connotes nothing more than a conscious act or omission which violates a known legal duty. In this case, there can be no doubt that petitioner acted willfully because with full knowledge that the corporations in question had outstanding tax obligations he chose to apply gross receipts received subsequent to his purchase to purposes other than payment of these taxes. It may be that the Court believes that the requirement of a “willful failure” is satisfied only by a showing of conduct which is immoral in some undefined sense. This view, however, is not only unsupported by evidence of legisla*266tive intent but would also prove far too much because even in instances where there is continuity of ownership and, under the Court’s view, § 6672 is fully applicable, it will often be the case that “responsible persons” are not morally at fault for the failure to pay over in a timely fashion.

Ultimately, the Court is reduced to arguing that nothing in the legislative history of § 6672 indicates that the statute requires “responsible persons” to pay over after-acquired cash to meet outstanding tax obligations. Ante, at 254. I would have supposed that the burden of proof for a statutory construction as extraordinary as that adopted by the Court today is at the very least on its proponents. All that the Court is able to offer, however, is a brief excerpt from the legislative history of an entirely separate statute enacted some 15 years after the predecessor of § 6672 which, with all respect, has nothing to do with the question to be'decided.

Ill

Finally, the Court purports to find support for its construction of § 6672 from the fact that priority rules applicable, to the collection of back taxes in some cases subordinate tax liens to certain other interests in the property. Although this discussion may be of some educational value, it has absolutely nothing to do with the case at hand or the proper construction of § 6672. In the first place, as petitioner conceded at oral argument, the funds which came into his corporations subsequent to his assumption of control were unencumbered by liens. Tr. of Oral Arg. 4^5. Moreover, the conclusion which the Court draws from its exploration of priority rules for tax liens that “Congress did not intend § 6672 to hammer the responsible person with the threat of heavy civil and criminal penalties to pay over proceeds in which the Code does not assert a priority interest,” ante, at 259, again proves far too much. If the mere possibility that others might have interests superior to a tax lien in proceeds which should under *267§ 6672 be paid over to the United States is sufficient to render the statute inapplicable despite the fact that the funds in question are unencumbered, the section, for all practical purposes, has been judicially deleted from the United States Code. Even where there is no change in “responsible persons” or there are corporate funds available to a successor to make back payments of trust-fund tax claims, situations in which the Court would apply § 6672, there will be many occasions in which a tax lien would not have priority over all other hypothetical interests in funds which must be paid over to the United States under the statute. The fact is, of course, as the Court recognizes earlier in its opinion, ante, at 243-245, that the tax lien is merely one of several remedies which the IRS has at its disposal to effect the collection of taxes withheld by employers from employees and § 6672 was clearly not designed to be superfluous, but rather independent of and a supplement to other means of collecting trust-fund taxes from employers.

Because I believe that the Court has-, without justification, created yet another means of impeding the collection of taxes for purposes designated by Congress, I dissent from Parts III-B and IV of the Court’s opinion.