More importantly, third-party defendant controlled the financial affairs of the corporation and directed plaintiff as to which creditors should be paid and when. In short, third-party defendant had the "final word" as to the allocation of funds to other creditors in preference of his withholding obligations.
Although third-party defendant is a responsible person for purposes of § 6672, he cannot be held liable for the one hundred percent penalty unless he willfully preferred other creditors over the Internal Revenue Service. Willfulness under § 6672 requires only that "the failure to pay result from a voluntary, conscious and intentional payment to others before the government. It is not necessary that there be present an intent to defraud or to deprive the United States of taxes due, nor need bad motives or wicked design be proved in order to constitute willfulness." Bolding, 565 F.2d at 672 (citation omitted); see also Goebert, 412 F. Supp. at 361. A considered decision not to fulfill one's obligations to pay taxes owed, evidenced by payments to other creditors in the knowledge that the taxes are due, is all that is required to establish willfulness. Howard, 711 F.2d at 736.
More than mere negligence is required for willfulness; a person is not willful if as a result of negligence he is unaware of the default in withholding taxes. Gephart, 818 F.2d 469, 475 (citation omitted); Goebert, 412 F. Supp. at 361. However, willful conduct does include a reckless disregard for obvious or known risks. Bolding, 565 F.2d at 672. Further, a responsible person cannot escape his obligation to ensure that the withholding taxes are remitted to the government by delegating this responsibility to another. Hornsby v. Internal Revenue Service, 588 F.2d 952, 953 (5th Cir. 1979).
In this case, third-party defendant cannot be heard to say that his failure to pay or direct plaintiff to pay the withholding taxes was not willful. Third-party defendant bears the burden of proving an absence of willfulness; a burden which he has not met. Third-party defendant was the sole shareholder and president of a small plumbing business with four employees. He alone supervised these employees and dealt directly with creditors. Third-party defendant drafted all job estimates and customer bills and instructed his wife as to the hours worked by his employees and the rate at which they were to be paid. Most importantly, however, third-party defendant instructed his wife as to what creditors should be paid and when. Third-party defendant, therefore, knew what funds were coming into the corporation and what funds were leaving the corporation. In a position of such authority, and control over his business, third-party defendant could hardly have functioned without an overall view of the plumbing business' financial condition.
CONCLUSIONS OF LAW
1. I have jurisdiction over the subject matter of this litigation pursuant to 28 U.S.C. §§ 1340, 1346.
2. The plaintiff was not a responsible person during the period from the second quarter of 1980 through the third quarter of 1982 because she did not have significant control over the decision making process by which Sadowski Plumbing's funds were allocated.
3. Third-party defendant Conrad Sadowski was a responsible person within the meaning of 26 U.S.C. § 6672 because he decided which creditors of the corporation would be paid in preference over the corporation's withholding obligations.
4. Third-party defendant Conrad Sadowski acted willfully by voluntarily, consciously and intentionally paying and directing his ex-wife to pay creditors, while the corporation's withholding taxes remained unpaid. His acts constitute reckless disregard for obvious or known risks because of his failure to investigate or determine whether withholding taxes had been paid.
5. Judgment will be entered in favor of the plaintiff on plaintiff's claim and against defendant on defendant's counterclaim. Judgment will be entered against third-party defendant and for third-party plaintiff on the third-party claim.
Upon consideration of the evidence produced at the non-jury trial held before me on December 23, 1987, and for the reasons set forth in the accompanying findings of fact, discussion and conclusions of law, IT IS ORDERED that
1. Judgment is entered in favor of plaintiff and against defendant in the amount of $ 9,111.90, plus interest, on plaintiff's refund claim.
2. Judgment is entered in favor of plaintiff and against defendant on the defendant's counterclaim.
3. Judgment is entered in favor of third-party plaintiff and against third-party defendant in the amount of $ 6,861.83, plus interest.
IT IS SO ORDERED.