IRS Imposes Responsible Person Penalty on Company Owners for their Accountant’s Failure to Deposit Payroll Taxes

 Although their accountant had embezzled funds and was solely responsible for completing payroll, Court deems that the company owners are personally responsible for unpaid employment taxes because they were also “responsible persons.”

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Oppliger v. U.S. (CA 8 3/29/11), 107 AFTR 2d ¶2011-631

Facts. James and Gayle Oppliger formed Double O, Inc. (“Double O”), a trucking business, and Livestock Feed Company, LLC (“LFC”) in 1992 and 1997, respectively.  They served as the sole owners and primary officers of Double O, and as the sole members of LFC.  In 1996, the Oppligers hired Mary Kerkman to perform accounting and bookkeeping services for both companies.  The Oppligers delegated to Kerkman the tasks of filing employment tax returns and paying payroll taxes, and Kerkman provided the Oppligers with weekly reports that informed them of the financial status of the companies.  


On April 3, 2002, Kerkman committed suicide.  The next day, an IRS revenue officer contacted the Oppligers to inform them that LFC employment taxes were not paid to the government for 13 consecutive quarters and Double O employment taxes were not paid for 17 quarters.  The Oppligers claimed that this was when they first learned that Double O and LFC had not been paying employment taxes, and subsequently learned that Kerkman had also embezzled $10,000 from the companies.

The IRS considered the Opplinger’s “responsible persons,” and assessed penalties directly against them for LFC’s unpaid employment taxes in the amount of $2,363,704.25, and Double O’s unpaid employment taxes in the amount of $27,013.21, and the Oppilgers filed for relief.


District Court’s Decision.  The Oppligers argued that they were not liable for the unpaid taxes because, when the IRS informed them of the outstanding tax responsibilities, they had bank balances of only $3,426.29 and $4,632.73 due to the embezzlement, and also had outstanding checks on both of the accounts. They claimed that their potential liability as responsible persons was limited to the unencumbered funds available on the date of the assessment and asserted that when they reassumed control of their companies, unencumbered funds did not exist to pay the taxes owed.


The district court granted summary judgment to the IRS, since they found that there were no genuine issues of material fact regarding whether the Oppligers were classified as responsible persons under I.R.C. § 6672.  The district court further determined that the Oppligers willfully failed to pay the employment taxes because they admitted that, after IRS informed them of their outstanding tax liabilities, they paid employees and third parties over $5 million in compensation.  The Oppligers appealed the ruling of the district court.


Appellate Court’s Decision. The Eighth Circuit affirmed the district court’s ruling and held that the Oppligers were responsible persons under I.R.C. § 6672 because they had the status, duty, and authority to pay the taxes. The Eighth Circuit refuted the Oppligers’ claim that their accountant’s misconduct deprived them of the opportunity to make informed decisions by noting that whether their accountant may have been a responsible person under I.R.C. § 6672 is immaterial to the Oppligers’ liability since they were both responsible persons for purposes of the penalty.

Further, the Eighth Circuit concluded that the Oppligers had willfully failed to pay the taxes. In this case, the Oppligers were responsible persons during each of the quarters in which they failed to pay the employment taxes. Accordingly, the Oppligers’ decision to pay employees and other creditors in lieu of the IRS constituted a willful failure to pay taxes as a matter of law.