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Schiffmann v. United States

United States Court of Appeals, First Circuit

January 29, 2016

RICHARD SCHIFFMANN, Plaintiff/Counterclaim Defendant, Appellant,
v.
UNITED STATES OF AMERICA, Defendant/Counterclaim Plaintiff, Appellee,
v.
STEPHEN CUMMINGS, Counterclaim Defendant, Appellant

Page 520

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND. Hon. Mary M. Lisi, U.S. District Judge.

David R. Sullivan, with whom Murtha Cullina LLP was on brief, for appellants.

Douglas C. Rennie, Attorney, Tax Division, U.S. Department of Justice, with whom Caroline D. Ciraolo, Acting Assistant Attorney General, Joan I. Oppenheimer, Attorney, Tax Division, and Peter F. Neronha, United States Attorney, were on brief, for appellee.

Before Lynch, Selya and Kayatta, Circuit Judges.

OPINION

Page 521

SELYA, Circuit Judge.

The obligation of a corporate employer to pay payroll taxes is familiar. The Internal Revenue Code requires employers to withhold federal income taxes from employees' wages and to hold such taxes in trust for the United States. See 26 U.S.C. § § 3102, 3402, 7501. As a result, such taxes are often referred to as trust fund taxes. See id. § 7501. If they are not paid to the government when and as required, the Internal Revenue Service (IRS) may look past the corporate form and hold officers of the corporation personally liable under certain circumstances. See id. § 6672(a).

The court below, in sequential summary judgment rulings, concluded that the appellants, Richard Schiffmann and Stephen Cummings, were responsible persons who

Page 522

had wilfully caused ICOA, Inc. (ICOA) to shirk its payroll tax obligations.[1] The appellants challenge this conclusion. After careful consideration, we affirm.

I. BACKGROUND

The raw facts are largely undisputed. ICOA is a Rhode Island corporation, whose subsidiaries provide wireless internet services in public spaces (such as airports and marinas).[2] As far back as 2002, ICOA began struggling to stay current on federal trust fund tax obligations.

Schiffmann became ICOA's president in October of 2004 and retained that title after becoming its chief executive officer (CEO) in April of 2005. Cummings (previously a consultant to the company) became ICOA's chief financial officer (CFO) in October of 2005. At the latest, the appellants discovered the full extent of ICOA's outstanding trust fund tax liabilities shortly after Cummings became CFO. They nonetheless signed checks to pay other creditors, but did not pay the government. The funds backing these checks came primarily from cash infusions raised by Schiffmann and ICOA's board chairman, George Strouthopoulos (Schiffmann's predecessor as CEO). On November 18, 2005, the ICOA board of directors (which then consisted of at least four members) met to discuss, among other things, the outstanding trust fund tax liabilities. By resolution, the board granted check-signing authority to ICOA's officers on a schedule depending on debt amount and officer rank. Schiffmann, as CEO, was given singular signing authority for checks up to $100,000; Cummings, as CFO, was given singular signing authority for checks up to $75,000. Matters went downhill from there: the trust fund tax arrearage was not paid, new trust fund taxes accumulated, the company's financial decline continued, and the board fired Schiffmann and Cummings in June of 2006.

Failing to receive payment following notice and demand, the IRS made trust fund recovery penalty assessments against, inter alia, Schiffmann and Cummings.[3] The IRS proceeded to seize what funds it could find. For his part, Schiffmann filed an unsuccessful refund and abatement request. He then repaired to the federal district court and sought both to recover the sums previously seized from him and to nullify the assessments. See 26 U.S.C. § 7422.

The government counterclaimed against Schiffmann, Cummings, and others,[4] seeking to recover the remainder of the overdue

Page 523

taxes and penalties. In response, Cummings counterclaimed against the government, seeking to nullify the assessments against him.

In due course, the government moved for summary judgment on its counterclaims. The motion was accompanied by the required statement of material facts not in dispute. See D.R.I. R. 56(a)(2). Schiffmann and Cummings opposed summary judgment, but neither of them submitted a counterstatement of disputed facts. See id. R. 56(a)(3). The district court entered summary judgment for the ...


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