Lack of control does not except owners from trust fund recovery penalty.

• Author: Beavers, James A.

The owners of a company who had delegated payroll functions to a separate payroll company they owned but did not operate were liable for trust fund recovery penalties because they were responsible persons both before and after the withholding taxes that were the basis of the penalties accrued.

Background

In 1992, James and Gayle Oppliger formed Double O, a trucking business, and served as the sole owners and primary officers of the company. In 1997, the Oppligers formed LFC, a payroll company for Double O. The Oppligers were the sole members of LFC. All of Double O's employees except Gayle became LFC employees after the Oppligers established LFC. LFC provided payroll services only to Double O.

In 1996, the Oppligers hired Mary Kerkman to perform accounting and bookkeeping services for the companies. The Oppligers delegated to Kerkman the tasks of filing employment tax returns and paying payroll taxes. Kerkman provided the Oppligers with weekly reports that informed them of the companies' financial situations. Kerkman committed suicide on April 3, 2002. After her death, the Oppligers learned that Kerkman had embezzled $10,000 from the companies.

On April 4, 2002, the day after Kerkman's death, an IRS revenue officer visited the companies' offices and asked the Oppligers why they had not appeared at a meeting with her. The IRS officer informed them that LFC had not paid employment taxes to the government for 13 consecutive quarters, and Double O had not paid employment taxes for 17 quarters. The Oppligers stated that they did not know about the meeting and later claimed that the revenue officer's visit was when they first learned that Double O and LFC had not been paying their employment tax liabilities.

The Oppligers subsequently sold the assets of Double O on September 1,2002. Between April 4, 2002, and September 1, 2002, LFC paid over $2 million to its employees and over $3 million to third-party creditors. Under Sec. 6672, the IRS assessed trust fund recovery penalties against the Oppligers for LFC's unpaid taxes of approximately $2.36 million and Double O's unpaid taxes of approximately $27,000. The Oppligers each paid $15,015 toward LFC's tax obligations.

The Oppligers then filed claims for refund with the IRS, which the IRS denied. The Oppligers brought suit in district court, requesting a refund of the employment taxes paid and a ruling that they were not liable for the trust fund recovery penalties. The district court granted the IRS...