Saturday, July 11, 2009

Milchling v. U.S. (Maryland U.S.D.C.)

Filed: July 7, 2009
Opinion by Judge J. Frederick Motz

Held: CFO and controller of corporation found personally liable under 26 U.S.C. § 6672 for unpaid federal wage withholding amounts.

Facts: Milchling was responsible for payroll for the entire company when he was controller or CFO, as well as when he was project manager. Milchling also prepared checks to the company's creditors. According to Bryan Meinken, one of the company's principals, Milchling participated in decisions as to which creditors to pay and when to pay them. Milchling prepared the company's quarterly federal employment tax returns for the four taxable periods at issue in this case.

In arguing that Milchling was a “responsible person” for the company, the government pointed to evidence that Milchling:
  • Was the controller and CFO of the company,
  • Had control over the company's payroll,
  • Had input on which creditors to pay and when to pay them,
  • Participated in the day-to-day management of the company,
  • Possessed the power to write checks, and exercised that power,
  • Had the authority to hire or fire employees,
  • Had access to the company's books and records, and
  • Was aware of the outstanding trust fund tax liabilities as they were accruing.
The Court held that:

1. Milchling was a "responsible person" within the meaning of § 6672(a) because he "so participated in decisions concerning payment of creditors and disbursement of funds that he effectively had the authority – and hence a duty – to ensure payment of the corporation’s payroll taxes.” Citing Plett v. United States, 185 F.3d 216, 219 (4th Cir. 1999).

2. Milchling was a "responsible person" even for quarters when he was not actually employed by the company, because he was a "responsible person" at the time when the tax payments were due.

3. Milchling "willfully" failed to pay over the tax because he "was aware throughout the period of his employment with [the company] that [the company] was not paying the withholding taxes which it was required to pay to the government and that [the company] was instead paying employee salaries and paying other creditors."

The full opinion is available in PDF. The opinion has not been approved for publication.

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