Petition for Writ of Certiorari — Ballard v. United States

| Supreme Court, US.

89-977 i KILLED

No. - th}

npc 20 1988

JOSEPH &. SPANIOL, JR,

CLERK

In THE

Supreme Court of the United States

OctToBEeR TERM 1989

MICHAEL E. BALLARD,

Petitioner,

vs

UNITED STATES,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

Epwarp L. BLanton, JR.

BLanton & McC.eary,

102 W. Pennsylvania Avenue,

Towson, Maryland 21204

(301) 296-8160,

Attorneys for Petitioner.

QUESTION PRESENTED FOR REVIEW

Whether the “quick” assessment and collection from a cor-

porate officer by the Internal Revenue Service of a penalty

equal to 100% of taxes withheld from employees’ wages with-

out a hearing constitutes a deprivation of property contrary

to the due process requirement of the Fifth Amendment.

TABLE OF CONTENTS

QUESTION PRESENTED FOR REVIEW

TABLE OF CONTENTS

TABLE OF AUTHORITIES

Opinions BELow

JURISDICTION

CONSTITUTIONAL PROVISION

STATUTORY PROVISIONS

STATEMENT OF THE CASE

Reason Writ SHOULD Be GRANTED

This Court did not approve, in Phillips v. Commis-

sioner, 283 U.S. 589 (1931) as United States Courts

of Appeal have frequently inferred that it did, the

right of the Internal Revenue Service to determine

that a corporate officer (a) was a person responsible

for collecting and paying over withholding taxes,

and (b) that his failure to do so was willful, thereby

warranting the ministerial imposition of a penalty

and its collection without affording the taxpayer any

opportunity to refute the charges prior to paying

the tax.

APPENDIX

A.l

ii

PAGE

TABLE OF AUTHORITIES

Cases

Boddie v. Connecticut, 401 U.S. 379 28 L.Ed. 2d 119

(1970) 4

Fuentes v. Shevin, 407 U.S. 67, 32 L.Ed. 2d 556 (1972 +

Laing v. United States, 423 U.S. 161, 46 L.Ed. 2d 416

(1976) 5

Phillips v. Commissioner, 283 U.S. 589, 75 L.Ed. 189

(1931) 4

Shapiro v. Secretary of State, 424 U.S. 614, 47 L.Ed. 2d

278 (1976) 5

STATUTES

26 U.S.C. Section 6203 1,4

26 U.S.C. Section 6671

26 US. Section 6672 1

No.

In THE

Supreme Court of the United States

OctToBerR TERM, 1989

MICHAEL E. BALLARD,

Petitioner,

v.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

To Ture Honorasie, Tue Curer Justice AND ASSOCIATE

JUSTICES OF THE SUPREME CouRT OF THE UNITED STATES:

_ Petitioner, Michael E. Ballard, respectfully prays that a writ

of certiorari issue to review the judgment and opinion of the

United States Court of Appeals for the Fourth Circuit entered

in this case on September 21, 1989.

OPINIONS BELOW

The opinion of the Court of Appeals for the Fourth Circuit

is unpublished (No. 88-1208) and is reproduced at App. 1.

The opinion of the United States District Court for the Dis-

trict of Maryland (B-86-1314) is unreported and is reproduced

at App. 6.

JURISDICTION

The judgment of the Court of Appeals for the Fourth Cir-

cuit was entered on September 21, 1989 (A. 1), and the Peti-

tion for Writ of Certiorari was filed within ninety (90) days

of that date. This Court’s jurisdiction is invoked under 28

US.C., Section 1254 (1).

STATUTORY AND CONSTITUTIONAL PROVISIONS

Fifth Amendment to the Constitution of the United States:

AMENDMENT V—CAPITAL CRIMES; DOUBLE

JEOPARDY; SELF-INCRIMINATION; DUE

PROCESS; JUST COMPENSATION FOR

PROPERTY

No person shall be held to answer for a capital, or other-

wise infamous crime, unless on a presentment or indict-

ment of a Grand Jury, except in cases arising in the land

or naval forces, or in the Militia, when in actual service

in time of War or public danger; nor shall any person be

subject for the same offence to be twice put in jeopardy

of life or limb; nor shall be compelled in any criminal case

to be a witness against himself, nor be deprived of life,

liberty, or property, without due process of law; nor shall

private property be taken for public use, without just

compensation.

Sections 6203, 6671 and 6672 of Title 26, United States

Code are reproduced in the Appendix at A.19 through 22.

STATEMENT OF THE CASE

The Petitioner sold his interest in a corporation engaged in

the business of repairing automobiles for cash and a note for

$25,000, payable in sixty monthly installments. He agreed to

pay all taxes through the date of sale, and as he received pay-

ments from the purchaser, a portion of each payment was paid

to the Internal Revenue Service (“IRS”) for that purpose

through January of 1981, at which time the Internal Revenue

Service directed the purchaser to make the monthly payments

directly to it, to be applied to Petitioner’s tax liabilities. In

late 1982, the purchaser sold the assets of the business, and

stopped making payments to the IRS. Petitioner was not ad-

vised by the IRS that the payments had stopped.

In March, 1983, the IRS advised Petitioner that limitations

were about to run on its right to assess a 100°% penalty

against him. To avoid immediate assessment of the penalty,

Petitioner signed a waiver extending the time during which

the tax could be assessed through December 31, 1983. Peti-

tioner unsuccessfully sought to help the IRS locate the assets

securing his note. On December 22, 1983, IRS made a “quick”

assessment, without a hearing, because the time was running

out within which the assessment could be made. Petitioner

was sent a cryptic, computerized “ notice ” advising him that

the assessment had been made.

The IRS then notified Petitioner on March 12, 1984 that it

“intended to assess a penalty” against him for the corpora-

tion’s taxes, and advised him that if he did “not agree with

the proposed assessment ” and appealed his case, he could “do

so within thirty (30) days from the date of this letter” and

that IRS did not hear from Petitioner “we will have to assess

the penalty and bill you.” Petitioner replied on March 20,

1984 requesting “a hearing for the matter of the taxes, said

owed by me for Mida Engineers, Inc. for Form 941, period

ending 1980.” Petitioner pointed out that he “was making

monthly payments to IRS” from the payments he was receiv-

ing “for the sale of Mida Engineers, Inc. in April, 1980” but

that “IRS prefers payment direct from purchaser of business

which was Thomas Foster.” The IRS received, but ignored,

Petitioner’s letter, and Petitioner was not granted the hearing

he had requested. An IRS employee, in her deposition, stated

that Petitioner’s request for a hearing was ignored because the

100°;, penalty had already been assessed in December, 1983.

The IRS filed a tax lien against Petitioner reflecting the

100°, penalty imposed upon him, and on July 26, 1985, levied

upon a bank account owned by Petitioner. Petitioner paid the

amount of the levy to the IRS on August 6, 1985 to obtain a

release of the levy on his bank account. A timely claim for

refund was filed, after which Petitioner instituted suit in the

United States District Court for the District of Maryland for

a refund of the taxes, contending that, inter alia, the assess-

ment of the penalty, without providing him notice and an op-

portunity to be heard, deprived him of his property without

due process of law contrary to the provisions of the Fifth

Amendment to the Constitution of the United States.

The government admitted that (a) there are no statutory

provisions providing for the manner of assessing 100% penal-

ties and (b) limitations already having been extended once by

the Petitioner's waiver, he was not given an opportunity to

protest the proposed penalty and have a hearing prior to the

assessment. Relying upon the authority of Phillips v. Com-

missioner, 283 U.S. 589, 51 S. Ct. 608, 75 L.Ed. 189 (1931)

and cases decided by other Courts of Appeal reaching a simi-

lar result, the Fourth Circuit held that failure to provide a

hearing prior to the assessment of a penalty and collection of

the tax did not deprive Petitioner of his right to due process.

Citing the Phillips decision, this Court in Boddie v. Connecti-

cut, 401 U.S. 379, held that “extraordinary situations” justify

postponing notice and an opportunity for hearing. In Fuentes

v. Shevin, 407 U.S. 67 (1972) it was suggested that (citing

Phillips) that collection of taxes is one of the exceptions to the

requirement of a prior hearing. This Court found in Phillips

that the statutory scheme, enacted by Congress including

those providing for “jeopardy” assessments of taxes, accom-

modated due process requirements.

Employment withholding and social security taxes are self

assessed, and the Internal Revenue Code (Sec. 6203) provides

that the 100% penalty is to be assessed in the same manner

as the tax to which it relates. Thus, the Internal Revenue

Service, whenever limitations are running on its right to make

an assessment, assesses such a penalty, with or without a hear-

ing, and in the process of so doing, makes a factual determina-

tion that the individual against whom the tax is assessed is

(a) a person responsible for paying the tax, and (b) has will-

fully failed to do so. The government admits in its brief be-

low that there are no “due process” safeguards pertaining to

such penalties in the Internal Revenue Code. There is no rea-

son, however, why the assessment of such a penalty like any

other tax or penalty (“addition to tax”) should not be subject

to issuance of a notice of deficiency and a right to review by

the Tax Court, prior to payment.

In Shapiro v. Secretary of State, 424 U.S. 614, the issue pre-

sented by this Petition was anticipated by the Court in the

following passage:

“. . . Thus, insofar as Phillips may be said to have sus-

tained the constitutionality of the Anti-Injunction Act,

as applied to a jeopardy assessment and consequent levy

on a taxpayer's assets without prompt opportunity for

final resolution of the question of his liability by the Tax

Court, it did so only by way of dicta. The dicta were

carefully expressed . . .” Id. p. 631.

The year previous, in Laing v. United States, 423 US. 161, 46

L.Ed 2d 416 (1976) also involving jeopardy assessments, this

Court reserved the question of the constitutionality of pro-

cedures identical to those involved in this Petition by con-

struing “deficiency” broadly enough to include an amount ow-

ing for a termination period. Id. p. 183, n. 26. Equally com-

pelling arguments exist for extending to corporate officers the

same due process protection offered the class of taxpayers at

which the jeopardy assessment provisions are directed. When

such taxpayers are required to pay a tax, and file a claim for

refund, there is an automatic, minimum deprivation of at least

eight (8) months. Due to the realities of litigation in the Fed-

eral Courts the actual deprivation is longer. In this case, it

took almost three years for Petitioner, after paying the tax in

August, 1985, to get a decision in a refund suit from the Dis-

trict Court, on his Motion for Summary Judgment, in July,

1988.

The Supreme Court is requested to issue a Writ of Certiorari

to the U.S. Court of Apepals for the Fourth Circuit to review

and consider whether the assessment and collection of such

penalties without any hearing, violates the due process safe-

guards guaranteed by the Fifth Amendment to the Constitu-

tion of the United States. 7

Respectfully submitted,

Edward L. Blanton, Jr..—7—

Blanton & McCleary

Suite 501, Alex Brown Building

102 W. Pennsylvania Avenue

Baltimore, Maryland 21204

(301) 296-8160

Attorneys for Petitioner

\~

Al

APPENDIX

United States Court of Appeals for the Fourth Circuit

No. 88-1308

Michael E. Ballard

Plaintiff-A ppellant

v.

United States of America

Defendant-A ppellee

Appeal from the United States District Court for the

District of Maryland, at Baltimore

Walter E. Black, Jr., District Court Judge

(C'/A-86-1314)

Argued: May 8, 1989 Decided: September 21, 1989

Before ERVIN, Chief Judge, CHAPMAN, Circuit Judge, and

KAUFMAN, Senior United States District Judge for the Dis-

trict of Maryland, sitting by designation.

Edward L. Blanton, Jr., (Blanton & McCleary on brief) for

Appellant. William L. Estabrook (William S. Rose, Jr.,

Assistant Attorney General; Gary R. Allen, Jane 8. Kim-

ball, Tax Division, Department of Justice; Breckinridge

L. Willcox, United States Attorney on brief) for Appellee.

A2

PER CURIAM:

At all relevant times up until and including April 1, 1980,

Ballard was the sole stockholder and president of Mida Engi-

neers, Inc. (““Mida”). Mida failed timely to pay, as required,

FICA and federal withholding taxes for several quarters in

1978, 1979 and 1980. On March 19, 1980, Ballard and Thomas

E. Foster, III entered into an agreement pursuant to which

Ballard sold to Foster all of the shares of Mida stock for

$55,000-—$30,000 in cash at the time of settlement on April 1,

1980 and $25,000 by way of a promissory note payable with

interest in sixty monthly installments of $537.38.

On May 1, 1980, Mida forwarded its check to the Internal

Revenue Service (“IRS”) for the unpaid balance of FICA and

withholding taxes for the first calendar quarter of 1980. How-

ever, that check was returned by the drawee bank for insuffi-

cient funds. The IRS then levied upon the monthly note pay-

ments from Foster to Ballard, and apparently applied all or

some of those payments to certain 1974 and 1975 federal tax

liabilities of Ballard and to certain of Mida’s withholding tax

liability.

In 1982, Foster sold his interest in Mida and stopped mak-

ing payments on his note to Ballard. At that time, there was

still unpaid to the IRS withholding taxes for Mida for part of

the first calendar quarter of 1980 and the third quarter of

1979. The taxes due for the second quarter of 1978 and the

second and fourth quarters of 1979 had by then been paid in

full. In March, 1983, the IRS discussed with Ballard his re-

sponsibility for collection and payment of Mida withholding

taxes, and in a March 25, 1983 letter indicated that the as-

sessment of a 100%, penalty for such taxes would be made

pursuant to Section 6672 of the International Revenue Code

AS

(“Code”) 2 On March 28, 1983, Ballard signed a waiver ex-

tending until December 31, 1983, the statutory period for as-

sessment by the IRS of the 100% penalty.

On December 22, 1983, the IRS made an assessment against

Ballard for the third quarter of 1979 and the first quarter of

1980 in the amount of $7,110.53 with respect to unpaid Mida

withholding taxes. On that same date, the IRS sent to Bal-

lard a notice of that assessment and a demand for payment.

Notwithstanding the December, 1983 assessment, the IRS

sent a letter to Ballard on March 12, 1984 referring to the

March 25, 1983 proposed assessment and requesting Ballard

to sign and return an enclosed form if he agreed with the

proposal. That letter also notified Ballard of his opportunity

to appeal administratively if he disagreed with the assessment.

Ballard responded on March 20, 1984 with a letter protesting

the assessment and requesting an administrative hearing. In

response, the IRS informed Ballard on June 27, 1984 that the

assessment had already been made and could not be admini-

stratively appealed.

Without holding a hearing, the IRS, on July 26, 1985, levied

upon Ballard’s bank account. On August 1, 1985, the IRS re-

leased that levy after Ballard provided information to the IRS

of Ballard’s inability to pay the amount. Then, on August 6,

1988, Ballard paid $8,584.54 to the IRS as a payment in full

of the 100% penalty assessment, accrued interest, fees and

1 That section provides in pertinent part:

Any person required to collect, truthfully account for, and pay

over any tax imposed by this title who willfully fails to collect such

tax, or truthfully account for and pay over such tax, or willfully at-

tempts in any manner to evade or defeat any such tax or the pay-

ment thereof, shall, in addition to other penalties provided by law,

be liable to a penalty equal to the total amount of the tax evaded, or

not collected, or not accounted for and paid over. No penalty shall

be imposed under section 6653 for any offense to which this section

is applicable.

AA

costs. On September 16, 1985, Ballard filed a refund claim

with the IRS, and after the IRS failed to act upon that claim,

instituted his refund claim in the District Court. After the

District Court granted summary judgment denying Ballard’s

refund claim, Ballard filed this appeal. We affirm.

I.

In the District Court, Ballard, although conceding his re-

sponsibiilty for payment of the Mida withholding taxes relat-

ing to the period prior to March 19, 1980, the date of the sale

by Ballard to Foster of Ballard’s interest in Mida, denied any

responsibility for such taxes with respect to the March 19,

1980 through April 1, 1980 period. Ballard, in the District

Counrt, also claimed that he had been deprived of due process

because the assessment and the levy upon his bank account

had occurred without any hearing and that the IRS had

failed to afford to him the administrative hearing which the

IRS had seemingly promised. Finally Ballard, in the District

Court, contested the amount of the assessment. That last issue

was settled by Ballard and the IRS. As to all other issues,

Judge Black ruled in favor of the IRS.

II.

Ballard states in his brief that the following single issue is

presented:

Whether a “jeopardy” assessment and subsequent col-

lection of a 100% penalty from a taxpayer after he had

voluntarily extend the period within which such an assess-

ment could be made, without a hearing requested by the

taxpayer, was a deprivation of property contrary to the

Fifth Amendment to the Constitution of the United

States.” ?

* Thus, in this Court, Ballard has not pursued any contention relat-

ing to his responsibility for the March 19, 1980 through April 1, 1980

period.

Ab

Appellant mischaracterizes the behavior of the IRS. Instead

of a “jeopardy” assessment pursuant to 26 US.C. §§ 6861,

6331, and 6213, the IRS made what it terms a “quick” assess-

ment of a 100% penalty for employer withholding taxes due,

pursuant to section 6672. “Assessments under Section 6672

may be collected without a prior judicial hearing.” Cohn v.

United States, 399 F. Supp. 168, 170 (E.D.N.Y. 1975). See

also Boynton v. United States, 566 F.2d 50, 53 (9th Cir. 1977) ;

Kalb v. United States, 505 F.2d 506, 510 (2d Cir. 1974) , cert.

denied, 421 US. 979 (1975).

26 US.C. § 6203 provides the IRS with the method for mak-

ing tax assessments for sums owed by a taxpayer, including

penalties, and enables, with notice and demand and the sub-

sequent refusal of the taxpayer to pay, the enforcement of

such a penalty by a levy pursuant to 26 U.S.C. § 6331. United

States v. Chila, 871 F.2d 1015 (11th Cir. 1989); Boynton,

supra.

Because Ballard had been afforded notice and demand prior

to the assessment and subsequent levy, he was not deprived of

due process; indeed, he was afforded the opportunity to file,

and in fact filed, this refund action in federal district court.

See Boynton, supra. Cf. Laing v. United States, 423 US. 161

(1976); Clark v. Campbell, 501 F.2d 108 (5th Cir. 1974),

cert. denied, 423 U.S. 1091 (1976) ; Schreck v. United States,

301 F. Supp. 1265 (D. Md. 1969).

In addition to his other claims of error by the District Court,

Ballard points to the alleged failure of the IRS to follow the

provisions of its own procedural manual and afford Ballard a

hearing. But such failure, if it did occur, does not constitute

a denial of due process rights. Luhring v. Glotzbach, 304 F.2d

560 (4th Cir. 1962); United States v. Horne, 714 F.2d 206

(1st Cir. 1983) .

For those reasons, Ballard’s appeal is without merit.

AFFIRMED

As

United States District Court

District of Maryland

Case No. 86-1314

Baltimore, Maryland

June, 1989

THE CLERK: The matter now attending before the Court,

Civil Docket Number B86-1314, Michael E. Ballard versus

United States of America.

THE COURT: Counsel, thank you for coming in today to

do it this way. It dawned on me that having gotten into it

and having made the conclusions I needed to make, the quick-

est way to get things moving was to get you all in, rather

than sti back in chambers polish this thing so I can give it to

you in writing. So I will—I will rule on the pending matters

by means of an informal oral opinion, reserving the right to

edit that opinion if it is transcribed for any reason.

This is an action to recover a refund from taxes, which the

Internal Revenue Service assessed and collected from the

Plaintiff, Michael E. Ballard. Presently pending before the

Court are Plaintiff's motion for summary judgment, paper 12,

Defendant’s motion for summary judgment, paper 14, and

Defendant’s motion to permit the service of an untimely re-

sponse to Plaintiff's supplemental request for admissions of

fact and genuineness of documents.

Ballard was the sole stockholder and president of Mida

Engineers, Inc. Mida was delinquent in paying its FICA and

Ad

withholding tax liability for several quarters in 1978, ’79 and

°80. On March 19, 1980, Ballard tendered an agreement to

sell all of Mida stock to Thomas E. Foster, III. The agree-

ment provided that settlement would occur on April 1, 1980.

On May 1, 1980, Mida issued a check to the IRS for the un-

paid balance of tax liability for the first quarter of 1980, but

the check was returned by—for insufficient funds.

The consideration for the sale of Mida stock to Foster was

$55,000, 30,000 in cash and the remainder in 16 monthly pay-

ments, pursuant to a promissory note date April 1, 1980. The

IRS levied on this note and Foster’s payments were applied to

the unpaid balance of Ballard’s 1974 and 1975 income tax

liabilities.

In 1982, however, Foster sold Mida and stopped making

payments to the IRS under the promissory note. The Mida

equipment subject to the IRS lien, and which was Ballard’s

security for the promissory note, was removed by Foster and

cannot be found.

In March of 1983 the IRS communicated with Ballard and

proposed that a hundred percent penalty be assessed against

Ballard for Mida’s unpaid withholding taxes. On March 25,

1983, in exchange for deferring on immediate assessment of the

penalty, Ballard signed a waiver extending the statutory

period for the assessment of the penalty against him to De-

cember 31, 1983.

On December 22nd, 1983, the IRS made an assessment of

a hundred percent penalty for the unpaid withholding taxes of

Mida for the third quarter of 1979 and the first quarter of

1980, totaling $7,110.53. On that same date the IRS forwarded

a notice of the assessment to Ballard with a request for the

payment.

On March 12, 1984, although the IRS had already assessed

a penalty against Ballard and requested payment, the IRS

notified Ballard that intended to assess a penalty against him.

AS

This letter also stated that Ballard could appeal the proposed

assessment within 30 days. Ballard responded by letter on

March 20, 1984, in which he requested a hearing. On June—

on June 27, 1984, an IRS representative called Ballard and

advised him that he could not appeal the 100 percent penalty

assessment.

On July 26th, 1984, the IRS levied on Ballard’s bank ac-

count. On August 6th, 1985, Ballard paid $8,584.54 to the

IRS for the 100 percent penalty assessment, accrued interest,

fees and costs, to secure a release of the tax lien filed pursuant

to th assessment. On September 16th, 1985, Ballard filed a

claim for refund with the IRS, and on April 28, 1986, filed a

complaint in this Court.

As a result of the parties cross motions for summary judg-

ment, the following—issues are presently before the Court.

One, was Ballard a responsible person who wilfully failed to

pay over taxes Mida withheld from its employees for the

period of March 19, 1980 to April 1, 1980? Two, was Ballard

entitled to a hearing and a more detailed notice and demand

prior to the collection of the 100 percent penalty? Three, did

the IRS fraudulently induce Ballard to sign a waiver extend-

ing the statutory period for assessment? And four, did the

IRS allocate certain tax payments to Ballard’s income tax

liabilities for 1974 and 1975, and to Mida’s withholding tax

liability for fourth quarter, 1979, when such liabilities had

been paid in full, And accordingly, were such payments prop-

erly allocable to Mida’s withholding tax liabilities for third

quarter, 1979, and first quarter, 1980? The Court will address

each of these issues in turn.

Ballard contends that he was not responsible for Mida’s em-

ployment taxes after March 19, 1980, conceding that he is

responsible prior to that date. He alleges that the March 19,

1980 sale to Foster made Foster the responsible person for the

remainder of the first quarter.

Ad

Pursuant to Section 3402 of the Internal Revenue Code,

employers must deduct and withhold a specific percentage of

wages paid to an employee. These funds must be turned over

to the IRS at least by the last day of the first calendar month

following the end of each quarter, 26 CFR Section 31.6071

(A) (1), unless the aggregate amount of withholding taxes

had exceeded $200 at the end of the month. If they do, 26

CFR Section 31.6302(C) (1) requires the money to be de-

posited with an authorized financial institution within 15 days

of the month end, or, if the quarter ended, within a month.

These funds are not merely a debt of the employer. They’re

held in trust for the United States, Maggy v. United States,

560 F.2nd, 1372, Ninth Circuit, 1977, cert. denied 439 US

821, 1978.

Section 6672 of the Code is an enforcing mechanism with re-

spect to the payment of withholding taxes. It imposes duty on

those connected with an employer who should have seen to

it that the withholding taxes were paid. The statute imposes

a penalty upon any officer or employee who wilfully fails to

collect, truthfully account for and pay over such taxes. A per-

son is a responsible person under Section 6671(B) if he has

a duty to perform any of these functions, collecting, account-

ing or paying over. A person need not be, quote, in a position

to perform all three of the enumerated duties with respect to

the tax dollars im question, Slodov v. United States, 436 US

238 at 250, 1978.

The willfulness requirement is satisfied, quote, if the respon-

sible person acts with a reckless disregard of a known or ob-

vious risk that trust funds may not be remitted to the Gov-

ernment, Mazo v. United States, 591 F 2nd, 1151 at 1154,

Fifth Circuit, cert. denied, 444 US 842, 1979. See, for example,

Teel v. United States, 529 F 2nd 903 at 905, Ninth Circuit,

1975. A voluntary, conscious and intentional act, such as pay-

ment of other creditors in preference to the United States may

demonstrate willfulness, Brown v. United States, 591 F 2nd

A.10

1136 at 1140, Fifth Circuit, 1979. The burden of proving lack

of willfulness is on the taxpayer, citing Brown again at page

1140.

There is no question that Ballard was a responsible person

at Mida who wilfully failed to pay over employment taxes, at

least until March 19, 1980. He was sole stockholder and presi-

dent. He admitted in his deposition that he paid employees

and other Mida creditors while employment taxes were not

turned over to the Government. The point of contention is

whether Ballard remained a responsible person after he signed

an agreement to transfer the Mida stock to Foster on March

19, 1980.

The March 19 agreement of sale and promissory note are

persuasive evidence that Ballard did not relinquish control of

Mida on March 19, 1980. First, the agreement of sale, al-

though entered into on March 19, designated the settlement

date as April 1, 1980. Second, the payment terms reflect Bal-

lard’s retention of Mida past March 19. The agreement of sale

required Foster to pay oily $3,000 on March 19th, as opposed

to $27,000 on the April 1 settlement date. It seems highly un-

likely that Ballard intended to surrender all of his interest and

control over Mida for $3,000 of the $55,000 purchase price.

Third, the agreement provided that all work commenced prior

to April 1 and accounts receivable at Mida prior to April 1

would remain the property of Ballard. Lastly and most im-

portantly, Ballard warranted that but for one debt owed to

a private creditor, there would be no outstanding debts owed

by Mida by April 1. This warranty indicates that with the

exception of one debt, all other Mida debts accruing before

April 1, which necessarily includes employment taxes, would

be Ballard’s responsibility.

Ballard contends that Foster filled out an employer's quart-

erly tax return on May 1 for the first quarter of 1980 and

mailed a check to the Government. That check was later re-

turned by Mida’s bank for insufficient funds. Ballard asserts

that these documents signed by Foster evidence that it was

A.ll

Foster, not Ballard, who was responsible for the unpaid with-

holding taxes of the first quarter.

There’s nothing in the record to establish that it was Foster

who filled out the May 1 return and signed the bad check. In

fact, Foster has submitted an affidavit saying he did not sign

the employment tax return and accompanying check for the

first quarter of 1980. On the other hand, the agreement of sale

provides probative evidence of Ballard’s continued involve-

ment with Mida past March 19. Unsubstantiated allegations

that Foster submitted a return and a check for the first quarter

of 1980 do not convince the Court otherwise.

Furthermore, even if this were regarded as a disputed issue

of fact, it does not affect the Court’s ruling on this issue, since

the fact that Foster may also be liable as a responsible per-

son who wilfully failed to pay over withheld taxes does not

exonerate Ballard for failing to pay. Liability under Section

6672 is joint and several, citing Brown again at 1142. The Code

does not limit the IRS to, quote, the most responsible person,

quote, for a 6672 penalty, but to all persons who fulfill the

definition of being a responsible person, Ackerman v. United

States, 56 AFTR 2nd. 5069 at 5073, Central District, Cali-

fornia, 1985.

The inquiry does not stop, however, with a determination

that Ballard was a responsible person past March 19th. He is

liable under Section 6672 only if he wilfully failed to insure

that the withholding taxes are paid. Ballard has a burden of

proving to the Court that he did not act with a reckless dis-

regard to whether the withholding taxes were turned over to

the Government.

This he has not done. The record shows that Ballard had

often paid other creditors, although his employment tax liabil-

ity was accruing. This is sufficient to demonstrate willfulness.

See Ackerman at page 5072. Furthermore,, Foster asserts in

his affidavit that there were no funds available to pay employ-

A,12

ment taxes when Ballard turned over the Mida operations in

April. Ballard has offered no proof to dispute this assertion

other than his bald assertions to the contrary. The Court does

conclude that Ballard was a responsible person for the entire

first quarter of 1980, and that he wilfully failed to ensure that

the employment taxes were paid to the Government.

Implicit in this discussion is the Court’s resolution of an

aspect of the Government’s motion to permit the service of

untimely response to Plaintiff’s supplemental request for ad-

missions of fact and genuineness of documents. The disputed

admission by the Government, upon which the Plaintiff has

relied, involves the check alleged—allegedly signed by Mr.

Foster on May 1 that accompanied Mida’s quarterly tax re-

turn for the first quarter of 1980. The Government did not re-

spond to Plaintiff’s supplemental request for admissions, there-

by admitting that Foster sent the May 1 check. The Govern-

ment now seeks to respond to the request by admitting the

statement, except to assert that the IRS had no way to deter-

mine who in fact signed the check.

Under Rule 36(B) of the Federal Rules of Civil Procedure,

the Court may permit the withdrawal or amendment of an ad-

mission. In the present case, the Government was not in a

position to state with certainty who signed the check in ques-

tion at the time the request for admission was served. Further-

more, the Government’s delay does not hinder Ballard’s ability

to prove who did sign the check. He has not demonstrated an

appreciable prejudice that would persuade the Court to dis-

allow the Government’s untimely response. In any event, as

previously stated, the factual—factual dispute involved here

does not affect the Court’s ruling on this issue.

Ballard’s next argument is that the levy upon his bank ac-

count was invalid because the IRS deprived him of his funda-

mental right to due process under the Fifth Amendment to

the United States Constitution. More specificaliy, Ballard

states that he should have been afforded a hearing before the

A.13

assessment, and that the actual] notice and demand he received

were—was inadequate.

A taxpayer in not entitled to a hearing prior to assessment

when judicial review his afforded after the assessment, Kalb v.

United States, 505 F 2nd 506 at 510, Second Circuit, 1974,

cert. denied, 421 US 979, 1975, citing Phillips v. Commissioner,

283 US 589 at 595, 1931. In Kalb, the Court rejected the argu-

ment that due process was violated when the taxpayer was not

afforded a hearing prior to the hundred percent penalty assess-

ment. The judicial review, which Ballard has received, satis-

fies the requirements of due process.

The notice and demand sent to Ballard also satisfied due

process. A notice and demand was sent to Ballard on the date

of the assessment. Printed on a standard form, Form 6335,

the notice identified the taxpayer, his mailing address, the

period involved, the balance due and the statutory basis for

the assessment, Section 6—672, IRC, 1954. The form clearly

states, statement of tax due IRS, and, please return this copy

with your payment. The for sufficiently notified Ballard of his

obligation. See Allan v. United States, 386 F. Supp. 499 and

503, Northern District of Texas. Although notice and demand

listed incorrect name of employer corporation, the notice gave

the correct dates and amounts due, thereby obligating tax-

payer under Section 6672, affirmed 514 F. 2nd 1070, Fifth Cir-

euit, 1975.

Ballard contends that Congress provided a notice and de-

mand procedure for certain types of taxes and penalties which

do not fall into the income, estate, gift and excise tax cate-

gories, for which a notice of deficiency followed by a hearing

is the prescribed procedure. Ballard states that the hundred

percent penalty assessment requires adherence to a notice and

demand procedure. Consequenily, he argues that he should

have received notice, not only prior to the collection of the

penalty, but also prior to assessment.

_ A.l¢

Section 5212(A) of the Internal Revenue Code provides for

a notice of deficiency prior to the assessment of an unpaid

tax. Section 6212(A) applies, however, to taxes imposed un-

der subtitles A and B of the code. Withholding taxes are im-

posed under subtitle C of the code. Therefore, the, quote, no-

tice provisions of Section 6212 and 6213 do not apply to the

assessment of withholding taxes, Jacobson v. Organized Crime

and Racketeering Section, 403 F. Supp. 1332 at 1336, Eastern

District of New York, 1975, affirmed 554 F. 2nd 637, Second

Circuit, 1976, cert. denied 430 US 955, 1977.

Although Ballard relies on the decision Laing v. United

States 423 US 161 1976 Laing does not further Ballard’s argu-

ment. In Laing taxpayers challenged the collection of assess-

ments imposed following jeopardy terminations. A jeopardy

termination imposed pursuant to Section 6851(A) (1) of the

Internal Revenue Code permits an accelerated termination of

a taxpayers taxable period of if the IRS determines that the

taxpayer intends to commit an act tending to prejudice or

render ineffectua] the collection of his income tax. The IRS

levied upon the taxpayer’s property without sending a notice

of deficiency as required by Section 6861 of the Code. A Sec-

tion 6861 notice is a jurisdictional prerequisite to a taxpayer’s

suit in the Tax Court. The Supreme Court held that the in-

come tax jeopardy assessment of Section 6851 was a deficiency

which triggered the notice of deficiency requirement in Section

6861.

Laing is inapplicable to the present action. The procedures

required of the Government in the collection of income tax are

not imposed on the collection of a hundred percent penalty

for failure to pay withholding taxes. The statutory sections in-

volved in Laing dealt with income taxes, not with withholding

taxes, and are therefore inapplicable to the present case. See

Jacobson, 544 F. 2nd at 639. Ballard’s due process argument

is without merit.

Ballard contends that the assessment as to the third quarter

of 1979 was not timely, because the waiver he signed on March

A‘l8

25, 1988, extending the penalty assessment period to Decem-

ber 31, 1983, was fraudulently induced. He states that he—

it was executed with the expectation that he would receive a

hearing before there was any levy upon his assets. Because he

did not receive a hearing he seeks to have the waiver nullified.

Ballard signed the waiver because he was told that there

would be an immediate assessment if he did not sign it. He

was not promised a hearing in exchange for the waiver. The

waiver form itself does not contain any promises. Without a

written promise it is immaterial that the taxpayer expects such

a hearing. A, quote, consent is valid where no hearing is held,

even though a taxpayer expects such review, Houlberg v.

Commissioner, 54 TCM, PH, paragraph 85-497, 1985. And see

also Ravin v. Commissioner, 50 TCM, PH, paragraph 81-107,

1981, where a Revenue agent cannot a bind the Commissioner.

Without a written condition in the waiver, IRS was not

obliged to grant a hearing.

Thus, there are no grounds for invalidating Plaintiff's

March 28, 1983 waiver.

Plaintiff contends that in the past tax payments have been

made to the IRS and applied by the IR—IRS to his income

tax liabilities for 1974 and 1975 and to Mida’s withholding tax

liability for fourth quarter, 1979, when they were properly

allocable to Mida’s withholding tax liabilities for third quarter

of 1979 and first quarter of 1980, or his hundred percent pen-

alty assessment directly related thereto. Specifically, Plaintiff

directs to the Ccurt’s attention—directs the Court’s attention

to a series of monthly payments made by Foster in 1981 and

1982, all of which were allocated to Ballard’s 1974 or 1975 in-

come tax liability. Plaintiff asserts that these payments ex-

ceeded the amount due, and at least a portion of these pay-

ments should have been allocated to his hundred percent

penalty assessment.

Plaintiff also asserts that on March 2, 1981, the IRS ac-

cepted a check in the amount of $389.27 from Mida, all of

A.16

which was applied to Mida’s withholding tax liability for

fourth quarter of 1979, which had already been fully paid.

Plaintiff further asserts that this payment should have been

applied against Mida’s withholding taxes for third quarter of

1979, thereby reducing his obligation on his hundred percent

penalty assessment.

In response, the IRS asserts that neither Ballard’s 1974 and

1975 income tax liabilities nor Mida’s fourth quarter of 1979

withholding tax liabilities were, in fact, overpaid, because of

the penalties and interest applicable to these liabilities. The

Court is unable to determine from the record in this case which

party is correct and the conclusions reached. However, a dis-

puted issue of fact is not involved since the record reflects,

albeit in an—in an incomprehensible manner, the exact status

of all tax obligations, receipts, and the allegation—allocation

of such receipts. At oral argument on the pending motions,

counsel proffered to the Court that the accounting computa-

tions could be made without participation by the Court. Ac-

cordingly, the Court will reserve its decision as to whether the

Plaintiff did, in fact, overpay his 1974 and 1975 income taxes,

and whether Mida’s withholding tax for fourth quarter of

1979 was overpaid.

The IRS further asserts that the Plaintiff’s attempts to ob-

tain proper credit for tax payments made, and to establish his

entitlement for refunds as a result of these improper credits,

are not timely. Section 6511 of the Code provides that a claim

for refund or credit of any tax on which the taxpayer is re-

quired to file a return shall be filed by the taxpayer within

three years from the time the return was filed, or two years

from the time the tax was paid, whichever of such periods ex-

pired the later. The Government’s position is that the tax

periods involved and the dates of payment set forth above

were beyond the period of limitations, since the claims for re-

fund on which this action is based were filed on September

16, 1985. However, the Court finds that the focus of its atten-

tion is more properly the payment on August 5, 1985, of

A.17

$8,584.54, which is the subject of the claim for refund. This

payment was clearly within the period of limitations, and even

if certain prior tax payments were erroneously credited to the

wrong account, this would not affect Ballard’s entitlement for

any refund as a result of which the IRS has been overpaid.

Accordingly the Court finds that Ballard’s entitlement to a

refund is not barred by limitations. Whether any refunds is

appropriate under the circumstances of this case must await

the preparation and submission of an accounting by the

parties.

The Court finds no genuine issue as to any material fact.

The Court grants the Government’s motion to permit an un-

timely response to Plaintiff's supplemental request for admis-

sions of fact and genuineness of documents. The Court will re-

serve the entry of any order on the Plaintiff's and Defendant’s

motions for summary judgment until the Government’s liabil-

ity to Ballard, if any, is agreed upon by the parties or is estab-

lished by further proceedings.

Counsel, I will enter a marginal order on the one motion I

have ruled on.

A.18

In The United States District Court for the

District of Maryland

Civil No. B-86-1314

Michael E. Ballard

Vv.

United States of America

ORDER AND FINAL JUDGMENT

Presently pending in the above-captioned case are plaintiff’s

motion for summary judgment (Paper 12) and defendant’s

motion for summary judgment (Paper 14). The issues raised

by the motions have been fully briefed, and the Court has had

the benefit of oral argument presented on behalf of the parties

at a hearing held on August 21, 1987.

The Court rendered an oral opinion on June 1, 1988, but

reserved ruling on the issue as to the amount of tax refund,

if any, that is owed the plaintiff by the defendant. The Court

urged the parties to confer on the issue and advise the Court

whether further proceedings were necessary. On July 5, 1988,

the parties notified the Court by letter that they had resolved

the remaining issue in the case and that judgment may be en-

tered for the defendant on the refund claim.

In accordance with the Court’s oral opinion and rulings

rendered on June 1, 1988, IT IS, this 12th day of July, 1988,

by the United States District Court for the District of Mary-

land,

A.19

ORDERED:

(1) That plaintiff’s Motion for Summary Judgment (Paper

12) BE, and the same hereby IS, DENIED;

(2) That defendant’s Motion for Summary Judgment

(Paper 14) BE, and the same hereby IS, GRANTED;

(3) That judgment BE, and the same hereby IS, EN-

TERED in favor of the United States of America against

Michael E. Ballard; and

(4) That the Clerk shall mail a copy of this Order forth-

with to counsel of record.

Wa ter E. Brack, Jr.

United States District Judge

STATUTES

§ 6203. Method of assessment

The assessment shall be made by recording the liability of

the taxpayer in the office of the Secretary in accordance with

rules or regulations prescribed by the Secretary. Upon request

of the taxpayer, the Secretary shall furnish the taxpayer a copy

of the record of the assessment.

§ 6671. Rules for application of assessable penarties

(a) Penalty assessed as tax.—The penalties and liabilities

provided by this subchapter shall be paid upon notice and de-

mand by the Secretary, and shall be assessed and collected in

the same manner as taxes. Except as otherwise provided, any

reference in this title to “tax” imposed by this title shall be

deemed also to refer to the penalties and liabilities provided

by this subchapter.

A.20

(b) Person defined.—The term “person”, as used in this

subchapter, includes an officer or employee of a corporation,

or a member or employee of a partnership, who as such officer,

employee, or member is under a duty to perform the act in

respect of which the violation occurs.

§ 6672. Failure to collect and pay over tax, or attempt to

evade or defeat tax

(a) General rule.—Any person required to collect, truth-

fully account for, and pay over any tax imposed by this title

who willfully fails to collec: such tax, or truthfully account for

and pay over such tax, or willfully attempts in any manner to

evade or defeat any such tax or the payment thereof, shall, in

addition to other penalties provided by law, be liable to a

penalty equal to the total amount of the tax evaded, or not

collected, or not accounted for and paid over. No penalty shall

be imposed under section 6653 for any offense to which this

section is applicable.

(b) Extension of period of collection where bond is filed.—

(1) In general.—If, within 30 days after the day on

which notice and demand of any penalty under subsec-

tion (a) is made against any person, such person—

(A) pays an amount which is not less than the

minimum amount required to commence a proceed-

ing in court with respect to his liability for such

penalty,

(B) files a claim for refund of the amount so paid,

and

(C) furnishes a bond which meets the require-

ments of paragraph (3),

no Jevy or proceeding in court for the collection of the re-

mainder of such penalty shall be made, begun, or prose-

cuted until a final resolution of a proceeding begun as pro-

A.21>

vided in paragraph (2). Notwithstanding the provisions

of section 7421 (a), the beginning of such proceeding or

levy during the time such prohibition is in force may be

enjoined by a proceeding in the proper court.

(2) Suit must be brought to determine liability for

penalty.—If, within 30 days after the day on which his

claim for refund with respect to any penalty under sub-

section (a) is denied, the person described in paragraph

(1) fails to begin a proceeding in the appropriate United

States district court (or in the Court of claims) for the

determination of his liability for such penalty, paragraph

(1) shall cease to apply with respect to such penalty, ef-

fective on the day following the close of the 30-day period

referred to in this paragraph.

(3) Bond.—The bond referred to in paragraph (1)

shall be in such form and with such sureties as the Secre-

tary may by regulations prescribe and shall be in an

amount equal to 114 times the amount of excess of the

penalty assessed over the payment described in paragraph

(1).

(4) Suspension of running of period of limitations on

collection.—The running of the period of limitations pro-

vided in section 6502 on the collection by levy or by a

proceeding in court in respect of any penalty described in

paragraph (1) shall be suspended for the period during

which the Secretary is prohibited from collecting by levy

or a proceeding in court.

(5) Jeopardy collection.—If the Secretary makes a

finding that the collection of the penalty is in jeopardy,

nothing in this subsection shall prevent the immediate col-

lection of such penalty.