McCray v. United States

Michael McCray (plaintiff), Louis Scott, Andrew Martin, and Leonard Raines (defendants) were equal co-owners of Shannon Advertising (Shannon). Scott was chairman of Shannon’s board and was a Shannon vice-president. Scott was not directly responsible for Shannon’s payment of federal taxes. By June 1982, Scott knew that Shannon had not turned over withholding taxes to the Internal Revenue Service (IRS). Thereafter, McCray used corporate funds to pay other Shannon creditors instead of paying the IRS. Pursuant to Internal Revenue Code (code) § 6672, the IRS imposed penalties against Scott, McCray, Martin, and Raines, each for the full amount of Shannon’s delinquency. McCray paid $750 and sued the United States (defendant) for a refund. The United States filed a counterclaim against McCray, joining Scott, Martin, and Raines. McCray and the United States stipulated to the dismissal of McCray’s claim; the United States and Martin agreed that Martin was jointly and severally liable for 100 percent of the penalty; and the district court granted summary judgment against Scott and Raines for the full penalty amount. Scott appealed, arguing that (1) as a matter of law, he was not responsible for willfully failing to pay the withholding taxes, and (2) he should be credited for the penalty payments that others made instead of being ordered to pay the full penalty. The United States responded that Scott’s knowledge about Shannon’s tax delinquency and his role in Shannon’s paying other creditors instead of the IRS established Scott’s liability. The United States also explained that it was the IRS’s policy to seek full payment from all jointly and severally liable responsible parties but to later abate the total liability by the aggregate amounts paid by each responsible party once the statute of limitations for a refund suit expired or a refund suit was finally adjudicated. As of the determination of Scott’s appeal, McCray, Martin, and Raines reached a binding settlement with the IRS or had a final adjudication against him.