Davis v. United States
United States Court of Appeals for the Ninth Circuit
961 F.2d 867 (1992)
- Written by Steven Pacht, JD
Facts
Dan Davis (plaintiff) was the president and principal shareholder of ITAC Corporation. ITAC failed to pay to the Internal Revenue Service (IRS) trust-fund taxes that ITAC withheld from employee wages for late 1981 and the first two quarters of 1982. Davis discovered ITAC’s delinquency in July 1982. However, Davis thereafter used new ITAC revenues to pay commercial creditors rather than pay ITAC’s IRS delinquency. None of the preferred creditors held legal priority over the IRS. Pursuant to Internal Revenue Code (code) § 6672, the IRS penalized Davis as a person responsible for ITAC’s willful delinquency. Davis challenged the penalty by suing the United States (defendant), but the jury ruled against Davis. Davis appealed, arguing that his use of after-acquired funds to pay non-IRS creditors did not manifest willfulness because he did not know about ITAC’s delinquency until after the fact and he deferred IRS payments to keep ITAC alive and increase ITAC’s ability to eventually satisfy its trust-fund-tax debt. Accordingly, Davis contended that he fell within an exception to § 6672 liability that the United States Supreme Court recognized in Slodov v. United States for new management. The United States responded that Slodov was inapplicable and should not be extended to existing managers like Davis.
Rule of Law
Issue
Holding and Reasoning (Tang, J.)
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