Appeal from the United States District Court for the Middle District of Pennsylvania. (D.C. Civil Action No. 92-cv-00642). District Judge: Honorable Sylvia H. Rambo
Present: Hutchinson and Nygaard, Circuit Judges, and Ludwig, District Judge*fn*
HUTCHINSON, Circuit Judge.
Appellant, Mark Z. Greenberg ("Greenberg"), appeals an order of the United States District Court for the Middle District of Pennsylvania granting summary judgment in favor of appellee, United States of America ("United States"), on Greenberg's claim for a partial refund of an amount Greenberg paid on an Internal Revenue Service ("IRS") penalty assessment, and on the United States' counterclaim to reduce the balance of the assessment to judgment. In doing so, the district court upheld IRS's assessment of a 100% "penalty" against Greenberg under section 6672 of the Internal Revenue Code of 1954 (the "Code"), 26 U.S.C.A. § 6672 (West Supp. 1994), after finding that Greenberg was a "responsible person" who had "willfully" failed to pay over to IRS federal employment taxes owed by his employer, Turning Basin, Inc. ("Turning Basin" or the "Company"). We will affirm.
I. Factual & Procedural History
Turning Basin was a holding company which acquired other companies through leveraged buyouts. Greenberg, a certified public accountant since 1973, served initially as an outside accountant for Turning Basin while employed by Alan Moskowitz & Company. In late 1979, Greenberg accepted the position of in-house controller at Turning Basin. Soon after joining Turning Basin, Greenberg became its treasurer and assistant secretary and signed at least one corporate document, a loan guarantee, in this capacity. Greenberg also served as a member of Turning Basin's Board of Directors and in 1981 he received 40,000 shares of Turning Basin stock. Throughout Greenberg's tenure with Turning Basin, Arthur Tuchinsky ("Tuchinsky") was Chairman of its Board of Directors, as well as its Chief Executive Officer and controlling shareholder.
As controller of Turning Basin, Greenberg supervised a staff of one accountant and two bookkeepers and was responsible for the hiring and firing of employees within his department. Although Greenberg acknowledged he exercised this authority, he contended that decisions on hiring and firing were ultimately determined by Tuchinsky. Greenberg also testified that Tuchinsky set the salaries of all of Turning Basin's employees and officers.
As controller, Greenberg was also responsible for preparing financial statements and reports on the Company's subsidiaries. These statements and reports were included in quarterly or semi-annual reports to Turning Basin's stockholders. Greenberg coordinated Turning Basin's annual audits with its outside accounting firm and his department was responsible for overseeing payment of Turning Basin's creditors and reconciling the Company's checking account. He was an authorized signatory on all of Turning Basin's bank accounts and signed checks on all of them. Turning Basin's corporate checkbooks were first kept in Greenberg's office and later in the bookkeepers' office. Greenberg had access to these checkbooks at all times. At his deposition, Greenberg stated that although he had constant access to the Company's checkbooks and was an authorized signatory, he only wrote checks when directed to do so by Tuchinsky. Greenberg also testified that he was not authorized to raise cash on behalf of the Company or make wire transfers for Turning Basin without specific permission from Tuchinsky.
Sometime in 1981, Turning Basin began having cash-flow problems. Greenberg then became responsible for reviewing the accounts payable with Tuchinsky and assisting Tuchinsky in determining which creditors should be paid first. Once Greenberg and Tuchinsky decided who would be paid, Greenberg would sign checks to pay them. Whenever a check was returned for insufficient funds, the bank or creditor would contact either Greenberg or Tuchinsky in order to resolve the matter. According to Greenberg's deposition testimony, he and Tuchinsky would again discuss which current bills were most urgent and Tuchinsky would decide who to pay and where to find the money to pay them. Greenberg testified that he never refused to pay anyone that Tuchinsky told him to pay, nor did he ever pay any creditor Tuchinsky told him not to pay.
Greenberg was also responsible for preparing and filing Turning Basin's federal tax returns, including its federal employment tax returns on Forms 940 and 941. By 1981, Turning Basin was delinquent in remitting the withholding taxes to IRS. Greenberg was aware of the tax delinquency from the time it began. He testified that he discussed the tax delinquencies with Tuchinsky and repeatedly recommended that the taxes be paid. Greenberg testified that Tuchinsky assured him the taxes would get paid, and that Greenberg had believed these assurances. He admitted, however, that on at least one occasion Tuchinsky informed him that they must pay more urgent bills right away in order to keep the business going and would pay the taxes later.
Greenberg therefore continued to write checks to Turning Basin's employees and other creditors despite the existing withholding tax delinquencies. Because Tuchinsky was responsible for placing money in Turning Basin's checking accounts, Greenberg did not write a check to IRS for the withholding tax delinquencies because he knew there would be no funds in the account to cover the check. Greenberg also believed that if he did issue a check to IRS without Tuchinsky's approval, he would have been fired immediately. He acknowledged that he could have authorized wire transfers of cash from the subsidiary corporations' accounts to Turning Basin's accounts without Tuchinsky's instructions but did not do so because he felt it was beyond his authority.
Eventually, Tuchinsky told Greenberg to write checks to cover the withholding tax delinquencies. Greenberg did so, and when the checks were returned for insufficient funds, Greenberg confronted Tuchinsky. When he realized the tax liability would not be paid, Greenberg resigned as an officer and director of Turning Basin.
On February 9, 1987, the IRS entered an assessment under 26 U.S.C.A. § 6672(a) against Greenberg for Turning Basin's delinquent withholding taxes. Greenberg paid $4,024.26 toward the assessment and on May 13, 1992 filed a complaint in the United States District Court for the Middle District of Pennsylvania seeking a refund. The United States filed an answer on October 6, 1992 along with a counterclaim seeking $14,456.52 plus interest which it claimed Greenberg still owed under the penalty provision.
On June 1, 1993, the United States filed a motion for summary judgment, which the district court granted on December 3, 1993. On February 4, 1994, the court entered an order amending the judgment to reflect Greenberg's additional payment of $2,335.13, making the balance due $23,881.68. The ...