CFO Was Responsible for Employment Taxes, Notwithstanding Government Receivership

(Parker Tax Publishing May 2019)

The Eleventh Circuit held that a taxpayer, who was the CFO and co-president of two companies that failed to pay trust fund taxes, was liable for the taxes as a responsible person, even though the parent company had been placed into receivership of the U.S. Small Business Administration (SBA) and an SBA agent told the CFO to prioritize other vendors over paying the trust fund taxes. The court rejected the CFO's argument that he should not be liable for the taxes because a government agency told him not to pay them; the court concluded that it could not apply different substantive law simply because the receiver was the SBA. Myers v. U.S., 2019 PTC 180 (11th Cir. 2019).

Steven Myers was the CFO and co-president of two newspaper publishing companies that failed to pay trust fund taxes. The two companies were owned by a parent company which was licensed by the U.S. Small Business Administration (SBA) as a Small Business Investment Company (SBIC). The SBA guarantees debentures that SBICs issue and has the power to place SBICs into receivership.

The parent company violated the terms of its license, so the SBA filed suit. Under a consent order, a district court placed the parent company in receivership. The court took exclusive jurisdiction of the parent company and all of its assets and appointed the SBA as the parent company's receiver. As the receiver, the SBA was given all powers, authorities, rights and privileges enjoyed by the general partners, managers, officers and directors of the parent company. In turn, the parent company's actual general partners, managers, officers and directors were dismissed.

In 2009, the two companies that Myers worked for failed to pay employment, or trust fund, taxes. During this time, Myers was the CFO and co-president and had signature authority on the companies' bank accounts. Because the parent company was in receivership, the SBA was calling the shots when the companies that Myers worked for failed to pay their trust fund taxes. According to Myers, the SBA's agent told him to prioritize other vendors over the trust fund taxes. Myers knew the trust fund taxes were due but did not pay them. Eventually, the IRS assessed the trust fund recovery penalty under Code Sec. 6672(a) against Myers. Myers paid a portion of the assessment and then sued for a refund. A district court held in favor of the government, and Myers appealed to the Eleventh Circuit.

Myers conceded that he would be liable for the unpaid taxes if the parent company's receiver had been a private entity. This case was different, Myers said, because the receiver was the SBA, a government agency. Myers argued that he should not be liable because it was a government agent who told him not to pay the taxes. The Eleventh Circuit rejected that argument and affirmed the district court. The court found that Code Sec. 6672(a) applied with equal force when a government receiver tells a taxpayer not to pay trust fund taxes. The court reasoned that it could not apply different substantive law simply because the receiver was the SBA.

Observation: In a concurring opinion, one judge said that Myers was essentially arguing that the IRS should be estopped from recovering the penalties because Myers acted pursuant to the instructions of the SBA receiver. The concurring judge would have held that Myers' reliance on these instructions was not objectively reasonable because a business in SBA receivership is subject to the same tax liabilities as if it were conducted by an individual or corporation.

For a discussion of the trust fund recovery penalty, see Parker Tax ¶210,108.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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