control over the corporation's finances, exclusive control is not necessary. Id.
The following are factors that are appropriate to consider when determining whether an individual is a responsible person:
1. The ability to sign checks on the corporation's bank accounts;
2. The identity of the individual or individuals who signed the corporation's quarterly Form 941 tax returns during the tax quarter's in question, as well as other tax returns of the corporation;
3. The identity of the corporation's officers, directors and stockholders;
4. The identity of the individual or individuals who hired and fired employees;
5. The individual or individuals who had control of the financial affairs of the corporation on a day-to-day basis, and/or who made decisions or participated in making decision as to disbursement of funds and payments to creditors;
6. The contents of the corporate by-laws;
7. The identity of the individual or individuals in charge of the firm's financial affairs generally. Id.
The taxpayers do not dispute that under this standard they would normally qualify as responsible persons; rather, they argue that because of the lockbox arrangement with FNB, they did not have control of the HLH's finances. Accordingly, they conclude that FNB was the only responsible person.
The government argues that responsible persons cannot delegate away their statutory responsibility by agreeing to lockbox arrangements. They cite to Kalb v. United States, 505 F.2d 506 (2d Cir. 1974) for this proposition. In Kalb, plaintiffs asserted that a delinquent company's bank controlled its finances and prevented them from paying the withholding taxes even though the company had so directed. The court rejected the notion that the financing arrangement relieved the plaintiffs' statutory responsibility.
The government also points to Mortenson v. United States, 910 F. Supp. 1325 (N.D. Ill. 1995), in which the court granted the government's motion in limine excluding evidence pertaining to a financial agreement between a lender and the company. In Mortenson, the plaintiffs asserted that they were not liable because the lender refused to approve payment of taxes even though it approved payment of current operating expenses. The court held that the arrangement between the lender and company did not negate the plaintiff's status as a responsible person under the statute, and therefore held that any such evidence was irrelevant.
The taxpayers attempt to distinguish Kalb and Mortenson by noting that in these cases, the plaintiffs voluntarily entered into the financing agreement. They argue that instantly, FNB required them to enter into the lockbox agreement with FNB. Additionally, they note that unlike institutions in Kalb and Mortenson, FNB is a secured creditor. They do not, however, explain the significance of the second distinction. Whether a bank holding a lockbox agreement is a secured, unsecured creditor, or not a creditor at all, is irrelevant to the determination of who is a responsible person under the statute. With respect to the taxpayers' assertion that FNB "required" them to enter into the lockbox agreement, such was not the case. Even to the extent the taxpayers were required to enter into the agreement in order to keep HLH afloat, they could have chosen to stop operating the business. This may seem to be a harsh alternative; however, the duty to pay employment taxes that have been withheld is a statutory one, and cannot be delegated away by a financing agreement. As the government notes, to hold otherwise would force the government into becoming an unwilling partner in an enterprise of questionable finances at the whim of the taxpayers. Indeed, who knows how many floundering companies might choose the lockbox technique in order to attempt to keep operating if the law so allowed. Accordingly, we reject the reasoning of United States v. Vaccarella, 735 F. Supp. 1421 (S.D. Ind. 1990) which held that the "bank defense" could serve to do away with an individual's status as a responsible person under the statute.
The next prong that the government must prove is that the taxpayers "willfully" withheld payment of the taxes in question. Again, the taxpayers assert that because of the lockbox agreement, their actions were not willful.
A willful decision under section 6672 is defined as a "voluntary conscious and intentional decision to prefer other creditors over the Government." Greenberg, 46 F.3d at 244. "A responsible person acts willfully if he pays other creditors in preference to the IRS knowing that taxes are due. An evil motive or bad purpose is not required. Id. "It is no excuse that, as a matter of sound business judgment, the money was paid to suppliers and for wages in order to keep the corporation operating as a going concern -- the government cannot be made an unwilling partner in a floundering business." Collins v. United States, 848 F.2d 740, 741-42 (citing Thibodeau v. United States, 828 F.2d 1499, 1506 (11th Cir. 1987).
The taxpayers rely, again, on the bank defense to argue that their actions were not willful. However:
To permit corporate officers to escape liability under section 6672 by entering into agreements which prefer other creditors to the government would defeat the entire purpose of the statute . . . . Withholding taxes are held in trust. We cannot imagine that in any context a trustee could avoid his obligations be entering into an agreement by which funds entrusted to him are used to pay his other obligations.
Kalb, 505 F.2d at 510.
We agree with the reasoning in Kalb, and thus respectfully disagree with the decision in Rykoff v. United States, 40 F.3d 305 (9th Cir. 1994). In Rykoff, the court held that a responsible person did not act willfully because a bank which had loaned money to the corporation had taken control of the corporation's finances and ignored instructions to pay the taxes. The court relied, in part, on the fact that the bank had forced the resignation of the taxpayer from the corporation and that the taxpayer had a written agreement with the bank that the taxes would be paid. These distinctions notwithstanding, we believe that Rykoff is incorrectly decided. Knowing that the taxes are due and that they are not being paid is enough. Greenberg, 46 F.3d at 244.
For the foregoing reasons, the government's motion in limine to exclude evidence regarding the lockbox arrangement will be granted.
Maurice B. Cohill, Jr.
United States District Judge
AND NOW, to-wit, this 14th day of January, 1997, it is hereby ORDERED, ADJUDGED, and DECREED, that:
(1) the government's motion in limine (Doc. 34) is GRANTED;
(2) the plaintiff and third party defendants shall be precluded from proffering at trial any evidence as to the financial arrangement between First National Bank of Pennsylvania and HLH Drilling, Inc., including any evidence which tends to prove or disprove that the bank's financial arrangements with HLH Drilling, Inc. negated the liability of plaintiff and the third party defendants;
(3) contrary to this Court's earlier order, the government may now file a motion for summary judgment.
Maurice B. Cohill, Jr.
United States District Judge
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