
    372 F. 2d 513
    ROBERT WHITE v. THE UNITED STATES
    [No. 270-62.
    Decided February 17, 1967]
    
      
      Martin J. Welsh, attorney of record, for plaintiff.
    
      Leonard S. Togman, with, whom was Assistant Attorney General Mitchell Bogomn, for defendant. Lyle M. Turner and Philip R. Miller, of counsel.
    
      Before CoweN, Chief Judge, Laramoee, Dureee, Davis, ColliNS, Skelton and Nichols, Judges.
    
   Per Curiam :

This case was referred to Trial Commissioner Franklin M. Stone with directions to make findings of fact and recommendation for conclusions of law. The commissioner has done so in an opinion and report filed on September 28, 1966. Plaintiff has filed no exceptions to or brief on this report and the time for so filing pursuant to the Rules of the court has expired. On November 10, 1966, the defendant filed a motion that the court adopt Trial Commissioner Stone’s findings of fact, opinion and recommended conclusion of law as those of the court, to which plaintiff has filed no response and the time for so filing has expired. Since the court agrees with the trial commissioner’s findings, opinion and recommended conclusion of law, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in this case without oral argument. Defendant’s motion to adopt is granted, plaintiff is therefore not entitled to recover and the petition is dismissed.

OPINION oe Commissioner

Stone, Commissioner:

Plaintiff seeks in this action to recover refund of Federal employment tax penalties assessed against him by the Commissioner of Internal Revenue and paid by plaintiff, as a result of the failure of the White Plumbing Company, Inc. (hereinafter sometimes referred to as “the corporation”) to pay over to the Government certain Federal income and F.I.C.A. taxes withheld from wages paid to employees of the corporation during the last quarter of 1956 and the first two quarters of 1957. Two questions are presented for decision: (1) whether plaintiff was a “person” under a duty to “collect” and “pay over” to the Government, Federal and F.I.C.A. taxes withheld, within the meaning of sections 6671(b) and 6672 of the Internal Revenue Code of 1954, 26 U.S.C. §6672 (1958), and (2) whether plaintiff “willfully” failed to take either of the actions outlined in (1), within the meaning of section 6672 of the Internal Revenue Code of 1954, supra.

White Plumbing Company, Inc., was incorporated in the state of Ohio on May 7,1956, and ceased active operation in the latter part of July, 1957. The board of directors was made up of the three stockholders of the corporation, who owned the following proportions of stock:

Robert White (plaintiff) 50 per cent
Nicholas Paglia 25 per cent
Louis Corsi 25 per cent

During the existence of the corporation, plaintiff was president of the corporation and he was authorized by the corporation’s code of regulations to exercise, subject to the control of the board of directors and the stockholders, general supervision over the affairs of the corporation. Louis Corsi held the office of secretary-treasurer, and at the same time he was employed on a full-time basis as an attorney for the City of Cleveland, Ohio. The signatures of both plaintiff and Corsi were required on all checks drawn on the corporation’s regular commercial bank account and its payroll account.

While plaintiff devoted most of his time to outside plumbing work, he actively conducted the day to day operations of the business, which during the first few months, was run from a barn next to his home. Plaintiff’s residence address was used for receiving most business mail, except tax correspondence, including, among other items, bills and bank statements. Plaintiff came to the office daily, hired and laid off all the employees, ordered materials and supplies, opened mail from suppliers and examined bills sent in by them, set the price of jobs, negotiated all contracts with customers, prepared invoices, disbursed corporate funds by issuing checks cosigned by him and Corsi in payment of suppliers’ bills and other business expenses, and deposited the business receipts in the corporation’s bank account. Pie received a salary of $150 per week from the corporation.

Around October 1, 1956, the business was moved to a new, permanent location called the “store” and plaintiff hired Mrs. Frances Oberdick as the firm’s bookkeeper and office girl. Until this time, Corsi had performed the bookkeeping work at Ms home and prepared all county, state and Federal tax returns for the corporation. The tax notices and returns were sent directly to Corsi’s residence until some time after the business moved its operations to the new site. Tax notices and return forms received by Corsi at his home subsequent to that time were taken to the corporation’s business office and left there by him. After Mrs. Oberdick was employed, Corsi took all the bookkeeping records in his possession to the store, showed her how to use them, and thereafter Mrs. Oberdick assumed all of the routine office and bookkeeping duties previously discharged by Corsi, including the preparation and mailing of Federal income tax returns, wMch Corsi checked for correctness before instructing that they be sent to the Internal Revenue Service along with checks in payment thereof. Corsi was not paid a salary for his services. No Federal withholding tax returns were ever prepared or filed by plaintiff (which fact is qualified to the extent indicated in footnote 2 of the findings, infra), nor did he ever give any tax returns to Mrs. Ober-dick to complete.

For a short time after the corporation’s operations were moved early in October 1956, Corsi went to the business office about once every week or ten days. Thereafter, Ms visits became increasingly infrequent. While at the store, he limited Ms activities almost entirely to reviewing tax returns prepared by Mrs. Oberdick and signing blank corporate checks, which he gave to plaintiff to use in paying-financial obligations of the corporation. These presigned blank checks were completed by plaintiff or by Mrs. Ober-dick at the direction of plaintiff (and occasionally at the direction of Corsi). All checks, including those in payment of taxes, wMch' were prepared and sent out by Mrs. Ober-dick at the direction of Corsi, were written with plaintiff’s knowledge. Plaintiff paid most of the bills received and expenses incurred by the corporation with checks presigned in blank by Corsi. Suppliers who were not paid went to plaintiff for payment, and he would promise them payment as soon as possible. Plaintiff directed Mrs. Oberdick in the preparation of the payroll, signed the payroll cheeks already presigned by Corsi, and paid the employees himself.

The corporation withheld from wages paid to its employees during the third quarter of 1956 and the first two quarters of 1957, certain amounts with respect to Federal income and F.I.C.A. taxes. These amounts were reported to the Government on corporate withholding tax Forms 941, prepared and filed by Mrs. Qberdick at Corsi’s direction, for the quarters ending September 30, 1956, March 31, 1957, and June 30, 1957. The taxes for these quarters had not been paid by the due date and were still owing when the corporation ceased active operation in July 1957. During the period when plaintiff knew that these taxes were owing, and could have paid them with checks presigned by Corsi and given to him, he chose, instead, to make payments to other creditors so that he could continue to carry on the business.

I. Was plaintiff a “person” under a duty to “collect” and “pay over” income and F.I.C.A. tames withheld, within the meaning of sections 6671(b) and 6672 of the Internal Revenue Code of 1954?

Sections 6671(b) and 6672 of the Internal Revenue Code of 1954, supra, are so interrelated that they must be read and considered together in resolving the questions raised in this case.

Section 6671 (b) of the code provides:

Rubes for applicatioN of assessable bekalties
2j[.* * * * %
(b) Person Defined. — The term “person”, as used in this subchapter, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs. [26 U.S.C. 6671(b) (1958).]
Section 6672 of the code provides:
Failure to collect AND bat over tax, or attempt to EVADE OR DEFEAT TAX
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such, tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable. [26 U.S.C. 6672 (1958).]

The purpose of the section is to permit the taxing authority to reach those responsible for the corporation’s failure to pay the taxes which are owing. Dillard v. Patterson, 326 F. 2d 302 (5th Cir. 1963); United States v. Graham, 309 F. 2d 210 (9th Cir. 1962). Accordingly, the section is generally understood to encompass all those officers who are so connected with a corporation as to have the responsibility and authority to avoid the default which constitutes a violation of the particular Internal Revenue Code section or sections involved, even though liability may thus be enforced on more than one person. See Linda Scott v. United States, 173 Ct. Cl. 650, 354 F. 2d 292, 296 (1965), citing Scherer v. United States, 228 F. Supp. 168, 170 (D. Idaho 1963).

In reaching a determination with respect to the person or persons upon whom to impose responsibility and liability for the failure to pay taxes, the courts tend to disregard the mechanical functions of the various corporate officers and instead emphasize where the ultimate authority for the decision not to pay the tax lies. For this reason, as the Government points out in its brief, a responsible person is most frequently defined as a person who has “the final word as to what bills or creditors should or should not be paid and when.” To that effect, see, e.g., United States v. Graham, supra; Bloom v. United States, 272 F. 2d 215 (9th Cir. 1959), cert. denied, 363 U.S. 803 (1960); Sherwood v. United States, 16 A.F.T.R. 2d 5422 (E.D.N.Y. 1965); Neale v. United States, 13 A.F.T.R. 2d 1721 (D. Kan. 1964) ; Kolberg v. United States, 13 A.F.T.R. 2d 1615 (D. Ariz. 1964); Schweitzer v. United States, 193 F. Supp. 309 (D. Nebr. 1961).

In the instant case it is clear that plaintiff had the ultimate authority to decide which creditors to pay and when. His signature (as well as Corsi’s) was required on all corporate checks. Although Corsi may have directed Mrs. Oberdick to write out a few checks signed in blank by plaintiff in payment of suppliers’ bills, most, if not all, of such checks were written by plaintiff or Mrs. Oberdick at plaintiff’s direction. Testimony was presented that plaintiff and Corsi generally discussed bills received for the purpose of determining the order in which they should be paid, particularly during the first few months of the corporation’s existence. However, it is clear from the record that plaintiff paid most of the bills received, and expenses incurred, by the corporation with checks presigned in blank by Corsi, and that from time to time plaintiff paid many of these bills without clearing them with Corsi.

Since the courts are looking for the person who could have seen to it that the taxes were paid, sometimes they just speak more generally about general policy-making authority or fiscal control, instead of pointing more explicitly to authority to direct payment of creditors. Thus, in United States v. Strebler, 313 F. 2d 402 (8th Cir. 1963), the court decided that the corporation’s president was the person responsible for collecting and paying over taxes withheld because he had the authority to act, and did act, as fiscal manager of that company’s affairs, and exercised authority over the general policy, affairs, and finances of the corporation.

Both approaches would seem to amount to the same thing— a search for a person with ultimate authority over expenditures of funds since such a person can fairly be said to be responsible for the corporation’s failure to pay over its taxes. In Bloom v. United States, supra, the court tied the two together in holding the president of the corporation involved there to be the responsible person, since he was in charge of the entire operation, made the final decisions, and decided what creditors were, or were not, to be paid.

It is apparent from the facts in this case that plaintiff, as chief executive officer and general manager, exercised general supervision over the affairs of the corporation and was the source of the final policy and fiscal decisions. As noted heretofore, he set the prices, negotiated the contracts, billed the customers, hired, laid off and paid the employees, ordered the materials and supplies, paid the creditors and signed all corporate checks.

Plaintiff contends that he was not the person responsible for the payment of taxes to the Government because Corsi was the responsible person, or at least because Corsi had too much authority in this area to leave plaintiff responsible. Though not explicitly stated, plaintiff might be implying that there can only be one responsible person charged with the duty of paying taxes. He points to the fact that he did not prepare the company tax returns or keep the books and records. However, the courts have not required a person to perform these functions in order to be the responsible person. In Neale v. United States, supra, the court instructed the jury that if a person has knowledge that taxes were not being paid by the corporation and has the final word as to what bills to pay or not to pay, then he is a responsible person, regardless of whether he does the actual mechanical work of keeping records, preparing returns, or writing checks.

It has also been stated that as long as a person has the ultimate authority to determine what bills to pay, he may be the responsible person, even though he is not the actual disbursing oficer who mechanically receives and pays out corporate funds. Kolberg v. United States, supra; Bloom v. United States, supra.

In United States v. Graham, supra, the court held that a retrial was necessary, where the trial court had decided the taxpayer was not a responsible person on the narrow ground that he did not actually collect, receive, or prepare tax returns or pay taxes. Citing Wilson v. United States, 250 F. 2d 312, 316 (9th Cir. 1957), the court stated that “The question is simply whether the board of directors ‘had the final word as to what bills should or should not be paid and when’ ”, and concluded that “It would make little sense to confine liability to those performing the mere mechanical functions of collection and payment when such functions are performed simply in accordance with the executive judgment of others whose duty it is to decide for the corporation in this area.” (309 F. 2d at 212.)

In Bloom v. United States, supra, the plaintiff, who was the president and chief executive officer of the corporation, was unsuccessful in persuading the court that he was not the responsible officer because of the following circumstances:

He rarely went into the corporation’s principal office; subordinates were in charge of the principal office, exercised the functions of general manager and were authorized to sign checks for the corporation; and he relied upon the corporation’s bookkeeper and accountant insofar as the financial records and tax returns were concerned. The court instead relied upon other testimony establishing that he oversaw the entire operation and made the final decisions concerning the payment of creditors.

An even stronger case is Schweitzer v. United States, supra, where the plaintiff taxpayer, as president, chief executive officer, majority shareholder and chairman of the board, was found to be the responsible person, despite his minimal contacts with the operation of the business. There the taxpayer devoted all his time to another business, and left the active management of the corporation to another officer who prepared all reports and all tax returns, signed practically all the checks, directed payments of bills, and supervised employees. The taxpayer visited the office no more than once a week and occasionally conferred by phone with the officer in charge. Nevertheless, the court held the taxpayer was a person under a duty to collect and pay over the taxes because, as president and chief executive officer, he had authority under the articles of incorporation to determine what bills would and would not be paid and had authority to direct the payment of the taxes.

Similarly, in Belcher v. United States, 6 A.F.T.R. 2d 5495 (W.D. Va. 1960), delegation of authority by the president of the corporation did not relieve him from the penalty. Plaintiff there was the outside man who devoted all his time to the production and selling side of the business, and delegated all the clerical work to the bookkeeper, including the duty of preparing all the corporate tax returns, making up payroll and deducting withholding and F.I.C.A. taxes, preparing checks for the plaintiff’s signature, and buying for the company store.

The aforementioned cases go much further than is necessary to find plaintiff in the instant case the responsible party. In contrast to the minimal functions carried on in some of the above-cited cases, the plaintiff personally exercised the powers and duties specified in finding 8, infra, and was the de facto chief disbursing officer.

The cases hold not only that it is unnecessary for an individual to have the sole authority over all corporate affairs, but also that more than one individual may be a responsible person. In Scott v. United States, supra, where the taxpayer, who was a director and secretary-treasurer of the corporation, was held to be a responsible person, the court said:

It is inconsequential that exclusive control over all corporate affairs was not vested in him, or that the corporation’s president retained a considerable measure of decision-making discretion. Section 2707(d) [now-6672] is not so phrased or designed as to exclude one corporate officer from its sanction merely because it might also be held to extend to another. Realistically read, the subsection encompasses all those who are so connected with a corporation as to have the responsibility and authority to avoid the default which constitutes a violation of § 2707(a) [now 6672], even though liability may thus be imposed on more than one person. [354 F. 2d at 296.]

Similar statements can be found in United States v. Graham, supra, and Kolberg v. United States, supra.

In Scherer v. United States, supra, two corporate officers were found to be responsible officers and liable for the penalty. One was secretary-treasurer, and the other was president. The court relied upon the fact that both were active members of the board of directors with whom the ultimate authority of the corporation rested, that the board followed any advice given by them, and that in reality they were running the corporation. The court stated that whether or not the board had or had not delegated control of the payment of the tax debt to these two officers and directors of the corporation, they actually controlled the matter of payment or nonpayment of the tax generally, and were therefore responsible.

Considering the foregoing and the entire record, it is concluded that any responsibility Corsi may have in regard to collecting and paying over the income and F.I.C.A. taxes withheld would not prevent plaintiff from being held liable for the penalty as a responsible person under the statute. To counter the effect of the cases cited by defendant hi support of its position that plaintiff was a “responsible person,” plaintiff cites Bellah v. Patterson, 197 F. Supp. 522 (N.D. Ala. 1961) ; Carroll v. United States, 5 A.F.T.R. 2d 523 (E.D. Wash. 1960); and Wiggins v. United States, 188 F. Supp. 374 (E.D. Tenn. 1960).

As defendant notes, Bellah v. Patterson, supra, is miscited by the plaintiff. There the court held only that plaintiff’s failure to act as to the unpaid taxes was not willful, and it did not reach the question of whether plaintiff was a responsible person.

However, there are several cases which indicate that the president of a corporation can relieve himself of the responsibility for paying over withheld income and F.I.C.A. taxes by delegating his authority. In Wiggins v. United States, supra, the taxpayer, president-treasurer of the corporation, had delegated to the bookkeeper all the duties of keeping up with the bills and obligations of the corporation and depended upon him for the payment of all these obligations. In addition to finding the requisite willfulness absent, the court stated that “having delegated to the bookkeeper the duties of keeping up with obligations and the payment thereof, it is quite doubtful that he is a ‘person’ under the provisions of this statute.” (188 F. Supp. at 376.)

In Carroll v. United States, supra, the court found that the president was not an officer who was under a duty to collect and pay over withholding and F.I.C.A. taxes to the United States, since he was an “outside” man and had nothing to do with the books of the corporation, which duties had been delegated to others.

In Cushman v. Wood, 149 F. Supp. 644 (D. Ariz. 1956), the court found that the plaintiffs, husband and wife, who were president and vice president, respectively, of a corporation, were not responsible persons where they were not disbursing officers, and the tax returns were prepared by the accountant and presented to the general manager together with a check.

While the three cases discussed above, i.e. Wiggins, Carroll, and Cushman, may be somewhat in conflict with the spirit of the previously cited cases as to the extent to which the chief executive officer of a corporation can relieve himself of responsibility for paying taxes owed, by delegating such duty, it is not necessary to choose between these two lines of cases, since the said three cases are factually distinguishable from the instant case.

In Wiggins, the taxpayer had delegated to the bookkeeper the ultimate control over the payment of creditors and no longer exercised that control himself. In contrast, White, the plaintiff here, still personally controlled the payment of creditors.

In Carroll, the taxpayer had completely delegated all financial duties to others and was concerned with only the construction aspect of the business. The court found that each of the officers had specific duties and plaintiff was an outside man in charge of construction jobs only. In contrast, White maintained many financial duties: He examined and paid corporate bills, signed all the corporation’s checks, deposited corporate receipts, and directed the preparation of the payroll.

Finally, Cushman was a case where the plaintiffs had delegated the ultimate control of corporate management to others and did not participate in any way in the nonpayment action. White, on the other hand, actively controlled the corporation at all times and had it within his power to have the tax returns sent in along with checks presigned and given to him by Corsi; but he chose not to do so.

Two other factors might be mentioned which have been emphasized by the courts in deciding whether an individual is a person responsible for collecting and paying over the tax: (1) ultimate authority over employees pay, Flan v. United States, 326 F. 2d 356 (7th Cir. 1964); Ponkey v. Campbell, 9 A.F.T.R. 2d 780 (N.D. Tex. 1961); and (2) authority to sign checks Kaufman v. Scanlon, 245 F. Supp. 352 (E.D.N.Y. 1965); Lowe v. United States, 12 A.F.T.R. 2d 5978 (S.D. Tex. 1963).

In Flan v. United States, supra, the court found plaintiff was a responsible officer of the Oakton corporation where he “had ultimate authority over paying the salaries of Oakton employees as well as Oakton’s other activities.” (326 F. 2d 358.)

Tn Ponkey v. Campbell, supra, the court instructed the jury that if the plaintiff was not authorized to handle the payroll and pay the wages of the employees, he was not a “responsible person.”

The plaintiff found liable for the penalty in Kaufman v. Scanlon, supra, was a person placed in the corporation to safeguard the investment of a lending institution and directed to countersign checks. The court reasoned that since he was authorized to countersign checks, he could have prevented diversion of corporate funds from tax payment had he so desired.

Under the views of Flan, Ponkey, and Kaufman, mentioned above, plaintiff in the instant case would be a responsible person, since he directed the preparation of the payroll, signed all checks, and paid the employees.

The courts often rely on a combination of the factors discussed so far in determining whether an individual is a responsible person within the meaning of the sections of the Internal Revenue Code of 1954 involved here. In Scott v. United States, supra, the only Court of Claims precedent on this issue, the court mentioned two factors which are particularly applicable in this case: (1) the authority to draw checks on the corporate bank account, and (2) the authority to make decisions respecting financial difficulties arising in the ordinary course of the business.

In sum, the authority, powers and duties exercised by plaintiff in the instant case and recounted in the findings herein are more than sufficient to constitute him a responsible person within the meaning of the statute.

II. Did plaintiff “willfully” fail to pay over to the Government Federal income and F.I.C.A. taxes within the meaning of section 667% of the Internad Revenue Code of 1951?

Having found that plaintiff was a person required to collect and pay over the taxes, the remaining question is whether his failure to pay over such taxes was “willful.”

The Government contends that “willfully,” as used in section 6672, supra, means a deliberate choice voluntarily, consciously and intentionally made to pay other creditors instead of paying the Government, and that it is not necessary that there be present an intent to defraud or to deprive the United States of tbe taxes due, nor need bad motives or wicked design be proved in order to constitute willfulness. Tbe cases cited by tbe Government amply support tbis contention. See, e.g., Scott v. United States, Dillard v. Patterson, Flan v. United States, Bloom v. United States, Sherwood v. United States, Kolberg v. United States, Neale v. United States, Ponkey v. Campbell, all supra; also see Horwitz v. United States, 236 F. Supp. 812 (1964), aff'd. per curiam, 339 F. 2d 877 (2d Cir. 1965); United States v. Childress, 13 A.F.T.R. 2d 1690 (M.D. Fla. 1964); Tiffany v. United States, 228 F. Supp. 700 (D.N.J. 1963).

Plaintiff does not refute tbe above contention. Instead be asserts that tbis rule does not apply bere because (1) plaintiff has not been shown to be the disbursing officer, and (2) it took two signatures on each check and one of those signatures bad to be Corsi’s. The first contention must fail in light of the fact that the record considered as a whole shows that plaintiff was the chief disbursing officer. The second contention is true, but does not make plaintiff’s action any less willful. The only issue is whether he voluntarily and knowingly preferred other creditors over the Government, and it is irrelevant whether Corsi was also a party to this willful conduct or shared responsibility.

The cases cited by plaintiff are also in accord with the Government’s definition of willfulness. As indicated herein-before, in Wiggins v. United States, supra, the taxpayer had delegated to a bookkeeper the duties of paying creditors and other obligations, and depended upon the bookkeeper to carry out these duties. Therefore, the court found that the taxpayer had not acted willfully since the evidence failed to prove that the plaintiff knew about the obligation to the Government at the time other creditors were being paid. To the same effect is Schweitzer v. United States, supra, and Bellah v. Patterson, supra.

Belcher v. United States, supra, involved two brothers who held the offices of president and vice president. The vice president, who was totally inactive because he spent all his time running another corporation, was found not to be a responsible person. The president was determined to be a “responsible person” but his failure to collect and pay over the taxes was found to 'be not willful. He relied upon the bookkeeper to perform all the clerical duties, including preparing the tax returns, and deducting and paying the taxes in question. The bookkeeper not only failed to pay the taxes, but he concealed this failure from the plaintiff in that case.

In Levy v. United States, 140 F. Supp. 834 (W.D. La. 1956), the manager-bookkeeper had failed to follow the taxpayer’s instructions as to payment of the withholding taxes. The court held that the requisite willfulness was absent, since the plaintiff did not know that the taxes in question were due and unpaid, and that mere negligence in failing to ascertain the facts is not enough to constitute willfulness.

The facts mentioned and cases cited by plaintiff indicate a contention on his part that he did not act willfully because he was unaware of the tax obligation. Contrary to this contention, however, it has been found that plaintiff voluntarily, consciously, and intentionally made a deliberate choice to pay other creditors instead of paying these taxes to the Government, and that he willfully accorded certain creditors preferential treatment when he paid their bills instead of paying or maintaining a reserve of funds with which to pay taxes owing the Government.

Since it has been found that the evidence will not justify a finding that plaintiff intended to defraud or deprive the Government of the taxes in question, plaintiff could have cited the definition of willfulness found in Cushman v. Wood, supra. In contrast to the cases cited by defendant, this case held that in the context of section 6672, supra, “willfulness” is used to characterize purpose or motive, as distinguished from knowledge and intention, and that the basic elements of willfulness are evil motive, lack of justification, bad purpose, or something done without reasonable cause. However, this definition has been rejected by nearly every case in which said issue has been considered. See, e.g., Dillard v. Patterson, supra, Flan v. United States, supra, Bloom v. United States, supra, as well as the only Court of Claims case to consider the issue, i.e., Scott v. United States, supra.

The only part of the Cushman decision that has any support elsewhere is the indication that willfulness requires action without reasonable cause. In Kellems v. United States, 97 F. Supp. 681 (D. Conn. 1951), the plaintiffs intentionally and deliberately refused to withhold and pay over the income taxes accruing against their employees on the ground that they believed the Withholding Act was unconstitutional and void. The court stated that willfulness means without reasonable cause, and found that the plaintiffs did not have reasonable cause for noncompliance because they did not do as much to verify their opinions that the Act was unconstitutional as reasonably prudent men would have done.

In Gray Line Co. v. Granquist, 287 F. 2d 390 (9th Cir. 1956), cert. denied, 353 U.S. 911 (1957), the court held that the penalty does not lie where the failure to pay was conscious and intentional but motivated by reasonable cause. The reasonable cause in that case was reliance on advice of counsel that taxes were not due.

In Frazier v. United States, 304 F. 2d 528 (5th Cir. 1962), the court indicated that it was of the opinion that “without reasonable cause” as used in the Grandquist and Kellems cases is part of the test for willfulness, but the actual holding of the court was stated in the following words:

For the present we need only hold that in a civil case where a responsible officer paid employees their net wages at a time when the corporation had insufficient funds to cover the taxes thereon and, when such funds became available, preferred subsequent creditors over the United States, knowing at all times his obligation to pay such taxes, his failure to pay was “without reasonable cause” and. “willful” within the meaning of section 6672. [304 F. 2d at 530]

The Cushman, Kellems, Gray Line Co., and Frazier cases, mentioned above, are the only ones found in conducting research of the question of “willfulness” that require action without reasonable cause. If lack of reasonable cause is a part of the test for willfulness, it is limited to such unusual situations as existed in the Gray Line and Kellems cases, and is of no help to the plaintiff here.

On the basis of the foregoing and the entire record, it is concluded that plaintiff was a person under a duty to collect and pay over the disputed taxes, and willfully, i.e., voluntarily, consciously and intentionally, failed to do so. Therefore, judgment should be entered for the defendant and plaintiff’s petition dismissed.

FINDINGS of Fact

1. White Plumbing Company, Inc. (hereinafter sometimes referred to as “the Corporation”) was incorporated in the State of Ohio on May 7, 1956, and its Articles of Incorporation were approved by the Secretary of the State of Ohio on June 5, 1956. The corporation was organized to engage in plumbing contracting and remained in existence until the latter part of July 1957, at which time it ceased active operation.

2. (a) The incorporators and stockholders of the corporation, and their respective proportions of stock ownership, were as follows:

Eobert White 50 per cent
Nicholas Paglia 25 per cent
Louis Corsi 25 per cent

The Board of Directors was composed of the above-named stockholders.

(b) The corporation’s officers were Eobert White, president; George Stewart, vice president; and Louis Corsi, secretary-treasurer. The aforementioned men held their offices at all times during the existence of the corporation, except that Mr. Stewart was not elected to his office until July 28, 1956.

3. Mr. Paglia and all of the corporate officers, with the exception of Mr. Corsi, were plumbers by trade. Paglia also owned a construction company. Corsi was an attorney employed in a full-time capacity by the City of Cleveland, Ohio. It was originally intended that the corporation be owned equally by Messrs. White and Paglia. The latter, however, after seeing his attorney and family friend, Corsi, professionally for the purpose of having a corporation formed, decided that it would be desirable to have a representative in the company to protect his interest, consisting of his capital investment and a $5,000 advance to the corporation, and to see that the corporation was started properly. In order to accomplisli the foregoing objectives, 25 per cent of the stock that was to have gone to Paglia was turned over to Corsi.

4. The corporation withheld from wages paid to its employees during the third quarter of 1956, and the first two quarters of 1957, certain amounts with respect to Federal income and F.I.C.A. taxes. These amounts were reported to the Government on corporate withholding tax Forms 941 filed for the quarters ending September 30, 1956, March 31, 1957 and June 30, 1957, all of which forms were prepared by Mrs. Frances Oberdick, the corporation’s bookkeeper, at the direction of Mr. Corsi. All of the taxes shown on these three forms were not paid. During the three aforesaid quarterly periods, the corporation failed to pay over to the Government withholding taxes in the amounts of $618.56, $831.28 and $697.72, respectively. As a result, the Commissioner of Internal Eevenue charged plaintiff as being an officer responsible for the collection, accounting, and payment of Federal withholding taxes of the White Plumbing Company, Inc., and, pursuant to the provisions of section 6672 of the Internal Eevenue Code of 1954, 26 U.S.C. 6672 (1958), assessed 100 per cent employment tax penalties against plaintiff in the above-stated amounts for the three quarterly periods involved herein. Those amounts, totaling $2,147.26, together with assessed interest, were paid in full by plaintiff as of May 15, 1961.

5. Plaintiff filed with the District Director of Internal Eevenue at Cleveland, Ohio, three separate claims, all dated June 12, 1961, for refund of the tax penalties he paid relating to the three quarterly periods here in issue. The District Director sent to plaintiff a notice of disallowance as to each of these claims, all of which notices were dated December 22, 1961.

6. Thereafter, on September 11, 1962, plaintiff filed his petition herein, seeking to recover the aforesaid penalties assessed against and paid by hZZation to pay over to the Government the above-mentioned sums of Federal income and F.I.C.A. taxes withheld from wages of the corporation’s employees.

7. On May 9, 1956, the corporation opened a regular commercial bank account with the Berea Office of the National City Bank of Cleveland, which account was maintained until October 7, 1957. On May 24, 1956, another bank account, designated as a “payroll account” was opened by the corporation with the same branch office of said bank, which account was closed on July 27, 1956. The signatures of both plaintiff and Louis Corsi were required on all withdrawal checks drawn on these two accounts.

8. Plaintiff was employed by the corporation on a full-time basis and he received a salary of $150 per week during the entire period of time the corporation actively existed. While plaintiff devoted most of his time to outside plumbing work, he actively managed the day to day operations of the business and was responsible for the work performed by the corporation. I-Ie came to the corporation’s place of business every work day and, among other things, hired, laid-off and paid all employees, ordered required materials and supplies and made returns when necessary, opened mail from suppliers and examined bills sent in by them, negotiated with the firm’s customers, estimated, determined, and set the price of the jobs, and entered into contracts on behalf of the corporation, prepared invoices, disbursed corporate funds by issuing checks cosigned by him and Mr. Corsi in payment of suppliers’ bills and other business expenses, and deposited the business receipts in the corporation’s bank accounts. Plaintiff also purchased tools and equipment required in carrying on the business. In July 1956, he bought a truck for the corporation. The insurance on this vehicle was written in plaintiff’s name and the premiums were paid for with corporation funds.

9. In the early days of the corporation’s existence and continuously until about October 1, 1956, the business operations were carried on from a barn on plaintiff’s residential property located at 574 Fair Street, Berea, Ohio. All of the assets of the corporation, e.g. trucks, supplies and tools, as well as billing and payroll records, were kept at plaintiff’s home.

10. In September 1956, plaintiff decided that the corporation needed a more suitable place for storing materials and maintaining a business office. Thereupon, he entered into and executed a lease on behalf of the corporation for the rental of a store, selected by him, located at 25 S. Bocky River Drive, Berea, Ohio. The lease provided for a monthly rental of $300 and became effective October 1, 1956. Thereafter, all corporate business was transacted at and from this new location. Shortly after the corporation moved to the above premises, plaintiff hired Mrs. Frances Oberdick as the firm’s office girl and bookkeeper, and he determined her salary.

11. At the time the corporation was organized, plaintiff, Mr. Paglia and Mr. Corsi, after some discussion, designated the latter’s residence address, 3811 West 133rd Street, Cleveland, Ohio, as the corporation’s business office address because no other address was available. The corporation used this address as a business address for some purposes from the time of incorporation until at least October 1, 1956, when the store was leased. During this same period of time, plaintiff’s residence address was used for receiving, among other items of mail, bills, bank statements, and for insurance purposes. Corsi’s residence address was used to receive other corporate mail, primarily all county, state and Federal tax notice, statements, return forms and correspondence.

12. Mr. Corsi set up the original corporate records which he always kept at his home. Until Mrs. Oberdick was employed shortly after the corporation moved to its new location on or about October 1, 1956, Corsi performed necessary bookkeeping work, maintained bookkeeping records (mainly consisting of loose papers) at bis home, and prepared all county, state and Federal tax returns for the corporation. The record does not disclose how it came about that Corsi undertook the responsibility for performing the bookkeeping and tax work, but it is clear that he assumed and personally discharged these duties from the time the business was incorporated until shortly after the corporation took possession of the store premises. All corporate tax returns filed between the time the business was incorporated and October 1, 1956, were prepared by Corsi on the basis of records maintained by both he and plaintiff. It was Corsi’s practice during this particular period of time to obtain a blank check presigned by plaintiff, fill it out after he had completed a particular return, and mail in the return, together with a check in the required amount, from his home. Consequently, plaintiff did not know the exact amount of the check sent in with the return at least at the time it was mailed; however, the corporation checkbook was kept at the corporation business where plaintiff had access to it, and it is reasonable to assume that all checks in payment of taxes were entered in the checkbook at a later date and that plaintiff eventually learned the amounts of these checks.

13. After the corporation moved to its new business location and employed Mrs. Oberdick in October 1956, Mr. Corsi took the bookkeeping records in his possession to the store, integrated them with a set of bookkeeping records which he prepared for Mrs. Oberdick, and showed her how to keep them up. Thereafter, Mrs. Oberdick assumed and performed all of the routine office and bookkeeping duties previously discharged by Corsi, including the preparation and mailing of Federal income tax returns which Corsi checked for correctness before instructing that they be sent to the Internal Revenue Service, together with checks in payment of the taxes shown on the returns to be due the Government. No Federal withholding tax returns were ever prepared or filed by plaintiff, nor did he ever give any tax returns to Mrs. Oberdick to complete. Checks used to pay Federal with-bolding taxes sent in by Corsi before Mrs. Oberdick started preparing these tax returns were presigned in blank by plaintiff. Contrary to plaintiff’s contention, the record does not contain acceptable evidence that clearly shows plaintiff did not sign checks drawn in payment of Federal taxes or see any completed tax returns, after Mrs. Oberdick prepared the returns and wrote out the checks to accompany them. The evidence shows that Corsi saw all tax return forms prepared by Mrs. Oberdick, but the record does not disclose that Corsi saw all checks prepared by Mrs. Oberdick in payment of Federal taxes and indicates that such checks were signed in blank by Corsi.

14. For a short period after the corporation rented the store, effective October 1, 1956, Mr. Corsi went to the company’s offices there about once every week or ten days in the evening or over a weekend. His visits to the store became less frequent after October 1956, not only because it was inconvenient for him to make the long trip out to the new location, but also because he started building a house during the latter part of that month and he spent most of his evenings and weekends working on this project until it was completed the last of June 1957. Mrs. Oberdick was not an experienced bookkeeper and she telephoned Corsi from time to time when a bookkeeping problem arose that she did not understand; but he did not supervise her day to day activities. Corsi never received a salary from the corporation for the services he rendered on its behalf.

15. Sometime during the month of October 1956, due to the infrequency of Mr. Corsi’s visits to the store, he started signing blank corporate checks which he gave to plaintiff to use in paying the financial obligations of the corporation. Corsi periodically signed from 15 to 20 checks at a time. Sometimes this was done when he was at the store. In other instances, plaintiff brought blank checks to Corsi’s residence or to the new home he was building and the checks were signed there. Thereafter, these checks were drawn, i.e., written out or completed, by plaintiff, or by Mrs. Oberdick at the direction of either plaintiff or Corsi. Some of the checks written by Mrs. Oberdick at Corsi’s direction were presigned in blank by plaintiff, and some of them were signed by him after they had been signed by Corsi and prepared by Mrs. Oberdick.

16. All checks, including those in payment of corporate taxes, prepared and sent out by Mrs. Oberdick at the direction of Mr. Corsi, were written with plaintiff’s knowledge, even though he may have presigned them in blank and may not have known the exact amount of some of these checks at the time they were sent out. According to acceptable testimony presented by Corsi, during the period from October 1956 to January 1957, inclusive, he may have occasionally signed a check which had been prepared by plaintiff or Mrs. Oberdick, but after January 1957, he signed only blank checks.

17. While it appears that Mr. Corsi may have directed Mrs. Oberdick to write out a few checks, which had been presigned in blank by plaintiff or were subsequently signed by him after they were completed by Mrs. Oberdick in payment of suppliers’ bills, most, if not all, of such checks were either written by plaintiff or by Mrs. Oberdick at his direction. When suppliers were not paid, they looked to plaintiff and on these occasions he would promise to pay them at the earliest possible time.

18. It appears that plaintiff and Mr. Corsi generally discussed bills received for the purpose of determining the order in which they should be paid, particularly during the first few months of the corporation’s existence. Throughout the corporation’s existence, it made regular monthly payments to its suppliers in order that the business could continue to operate. But it is clear that plaintiff paid most of the bills received, and expenses incurred, by the corporation with checks presigned in blank by Corsi, and it may be reasonably assumed from the evidence of record that from time to time plaintiff paid many of these bills without specifically clearing them with Corsi.

19. Mrs. Oberdick prepared the payroll at plaintiff’s direction and with information supplied by him. After Mrs. Oberdick made out the payroll checks on blanks presigned by Mr. Corsi, she turned them over to plaintiff who signed the checks and paid the employees.

20. Mrs. Oberdick prepared contracts and billed customers at plaintiff’s direction. Bank deposits were usually made by Mrs. Oberdick and sometimes by plaintiff. None were ever made by Mr. Corsi.

21. On or about October 1, 1956, tire business office address of the corporation was changed to the new business site at 25 S. Rocky River Drive, Berea, Ohio, and all business correspondence was supposed to be sent to that address. The District Director’s Office of the Internal Revenue Service at Cleveland, Ohio, continued to send tax statements, return forms, or correspondence to the corporation at its old business address, i.e., Mr. Corsi’s residence, until as late as March 1957. The Federal withholding tax returns for the third quarter of 1956, which Corsi received at his residence, and all tax mail received by him after October 1, 1956, was taken to the store where the old address on return forms was stricken therefrom and the new address noted thereon. The Internal Revenue Service started mailing Forms 17-WE, Statements of Tax Due on Employer’s Quarterly Federal Tax Returns, to the corporation at its new business address sometime in March 1957. (See finding 26, infra.)

22. Sometime after the corporation moved its headquarters and business operations to the new location on or about October 1, 1956, Mr. Corsi took the Federal withholding tax return form for the third quarter of 1956 to the store and left it there. Mrs. Oberdick prepared the return and, in accordance with her usual practice, placed it in a folder which was kept for Corsi in an office file cabinet located in the business office. Thereafter, Corsi came to the office, reviewed the return with her, found the figures correct, signed the return and left word that it be mailed in with a check. The evidence discloses that Mrs. Oberdick failed to mail the return and it was subsequently found in Corsi’s folder in the office file. He did not attach a check to this particular return, nor sign a blank check and give it to the office girl to complete and send in with the return. However, considering the entire record, it may be inferred that blank checks presigned by Corsi were in plaintiff’s possession, or available at the office, and that Corsi reasonably assumed that one of these checks would be used to make the tax payment which the return showed was due.

23. One evening in the latter part of January 1957, Mr. Corsi went to the corporation’s store for the purpose of checking the Federal withholding tax return for the fourth quarter of 1956, and seeing to it that the return for that quarterly period was sent in. Plaintiff asked Corsi why the corporation had not received a withholding tax statement from the Internal Bevenue Service for the third quarter of 1956, and the latter was at a loss to explain this fact because in October of that year he checked the report for said period, which had been prepared by Mrs. Oberdick, and was under the impression it had been filed because he had left instructions with Mrs. Oberdick that the report be mailed in with a check. During the course of the same evening, Corsi found the completed original copy of the report for the third quarterly period of 1956 in his folder in the office file cabinet. While plaintiff knew that a statement for this particular quarter was supposed to have been sent to the corporation, he did not know whether this had been done or not. However, he admittedly was aware that the tax due for that quarter amounting to about $2,000, had not been paid as of that time. Corsi advised plaintiff that he planned to personally take the tax returns for both the third and fourth quarters to the Internal Bevenue Service in Cleveland in an effort to persuade the Service to drop the penalty and interest, which would ordinarily be assessed with respect to the withholding taxes due for the third quarter of 1956, by reason of the corporation’s failure to timely make the payment owed for this particular quarter. According to plaintiff, Corsi took with him to the Internal Bevenue Service office, certain bills owed to the corporation by C. O. Fisher Company and, subsequently, Corsi told plaintiff that the service was going to drop the penalty and collect sufficient money from said company to satisfy the withholding tax due for the third quarter of 1956. Corsi did not take a check presigned by plaintiff to pay the tax due for the quarter in question, and this fact was known to plaintiff. It appears that plaintiff simply took it for granted that the tax due for the third quarter of 1956 would be satisfied by action on the part of the Internal Revenue Service in collecting moneys due in bills owed the corporation by the C. O. Fisher Company. However, plaintiff did not check on this matter further and contends that he did not know that the tax for this quarter had not been satisfied until early in July 1957, when a representative of the Collector’s Office of the Internal Revenue Service came out to the store to collect delinquent withholding taxes owed by the corporation and placed a lien on all of the assets of the business.

24. On February 1 or 2, 1957, Mr. Corsi took the withholding tax reports for the third and fourth quarters of 1956 to the west side branch of the Internal Revenue Service in Cleveland and left them there. The record does not disclose what was said or done at that time, but it is clear that the tax due for the third quarter of 1956 was not paid. It is assumed that the tax due for the fourth quarter of 1956 was paid at this or some other time because that quarter is not in issue in this case.

25. A Form 17, Statement of Tax Due Under Federal Unemployment Tax Act, dated March 15, 1957, and showing a balance of assessed tax and interest due in the amount of $109.56 as of March 11, 1957, was sent to “White Plumbing Co.” at 3831 W. 133rd Street, Cleveland, Ohio, which was Mr. Corsi’s residence address. It appears that in accordance with his usual practice, Corsi took this notice to the store and left it there with Mrs. Oberdick.

26. (a) A Form 17-WE Statement of Tax Due on Employers Quarterly Federal Tax Return, dated March 8, 1957, was mailed to the White Plumbing Co., Inc., 25 S. Rocky River Drive, Berea, Ohio, by the District Director of Internal Revenue at Cleveland, Ohio. This form covered the period up to February 28, 1957, and showed that tax, penalty, and interest assessments in the respective amounts of $2,880.93, $576.19, and $60.93, had been made against the corporation on February 25, 1957, and that a total balance of $3,581.05 was then due. The record does not disclose what action was taken with respect to this statement.

(b) The District Director sent a similar form statement, dated June 28, 1957, covering the period up to June 21, 1957, which showed that assessments of tax and interest in the respective amounts of $956.45 and $9.33 had been made against the corporation on June 17, 1957, and that a total balance of $965.78 was then due. The record contains a photostatic copy of a Form 941, Employers Quarterly Federal Tax Keturn, dated April 29, 1957, and signed by Louis V. Corsi, which covers the second quarterly period of 1957, ending March 31, 1957, and shows a total tax due in the amount of $956.45. The record does not disclose what happened to the return after Corsi signed it, but it is apparent from the above-mentioned statement of June 28, 1957, that as of that date, the amount of tax shown on said return to be due had not been paid. Considering the entire record, it is reasonable to assume that in accordance with the usual practice followed with respect to the handling of these tax returns, Mrs. Oberdick prepared this particular form and that, thereafter, Corsi reviewed and signed it, and left instructions for the return to be sent in, together with a check. It appears from the record that Corsi apparently assumed that his instructions would be carried out in due course and that as a result of a conversation he subsequently had with plaintiff, Corsi was led to believe that this particular tax obligation had been satisfied.

(c) Although it is not entirely clear, it appears that while Mr. Corsi saw or was aware of the tax statements described in (a) and (b), above, as well as the statement mentioned in finding 25, supra, and apparently had one or more discussions with plaintiff about them, he at no time made a check of the corporation’s records or checkbook to determine whether these tax obligations had been satisfied. Corsi presented credible testimony, disputed by plaintiff, that early in July 1957, plaintiff came to Corsi’s house at which time they discussed the tax obligations of the corporation and that plaintiff led him to believe that the corporation’s tax bill for the third quarter of 1956 was the only one which had not been paid.

(d) As best plaintiff’s testimony can be interpreted, he attempts to give the impression that as late as July 1957, he was unaware of the fact that the balances stated in the tax statements mentioned in (a) and (b), above, had not been fully paid; that at the above time he finally learned that the withholding tax payment for the third quarterly period of 1956 had not been paid; and that he thought that this was the extent of the corporation’s tax obligations. Considering the entire record, the foregoing facts are not supported by credible testimony or a preponderance of the evidence. On the contrary, it is found that plaintiff was aware, or should have been aware, of the fact that the corporation had received the two quarterly Federal withholding statements dated March 8 and June 28, 1957 (mentioned in (a) and (b), above), and well knew, or should have known, within a reasonably short period of time after the corporation’s Federal withholding taxes for the first and second quarters of 1957, as well as for the third quarter of 1956, became due, that the taxes for said quarters had not been paid in full by the due date and were still owing as late as the early part of July 1957.

27. Prior to the time the corporation involved in the instant case was incorporated, plaintiff had been engaged in a partnership with his father, Kenneth White, doing business as the White Plumbing Company, and also as the White Plumbing Supply Company. This partnership was discontinued in April 1956. Thereafter, Kenneth White operated a plumbing supply business in New Castle, Pennsylvania, known as Lawrence Supply Company (hereinafter referred to as the “Lawrence Company”), which sold material to the corporation.

28. The corporation became delinquent in its account with the Lawrence Company in the fall of 1956. Despite the corporation’s indebtedness, sales continued on a credit basis until March 1957, when the corporation’s debt to plaintiff’s father reached approximately $8,000. At that point, Kenneth White ceased extending credit to the corporation. Thereafter, and until May of 1957, the Lawrence Company continued to make some sales of material to the corporation on a cash basis.

29. Between March 1957 and July 15, 1957, the corporation made payments in excess of $3,000 to plaintiff’s father and reduced its indebtedness to him to approximately $4,800. The checks used in making these payments were signed by both plaintiff and Corsi. While the evidence does not show who actually wrote out these checks and directed that they be completed, the record discloses that all checks drawn during this period of time were signed in blank by Corsi, and it may be reasonably concluded that they were written by either plaintiff or Mrs. Oberdick on blank checks previously signed by Corsi.

30. Shortly after a representative of the Collector’s Office of the Internal Eevenue Service came to the store early in July 1957, to collect delinquent taxes and talked with plaintiff, the latter came out to Mr. Corsi’s new home at which time Corsi signed some blank checks for plaintiff. Plaintiff disputes credible testimony presented by Corsi to the effect that on this occasion they had a discussion concerning delinquent taxes owed to the Government; that plaintiff gave the impression that some payments had been made on the taxes due and only the tax for the third quarter of 1956 had not been paid; and that plaintiff stated that he had an opportunity to dispose of some of the corporation’s inventory at cost, that his father was going to take over the store so that the corporation would not be obligated on the lease transfer, and that when this had been done he would have sufficient money to start cleaning up this tax obligation and “see daylight ahead”.

31. In order to reduce the balance of approximately $4,800 owed by the corporation to the Lawrence Company, i.e., plaintiff’s father (Kenneth White), plaintiff and his father entered into an agreement for the corporation to resell part of its inventory to the latter. Pursuant to this agreement, plaintiff, on July 15, 1957, sold and transferred to his father certain material valued at $2,812.53, which represented the same price as the material was originally sold to the corporation. The record as to the manner in which plaintiff’s father paid for this material is not clear. Plaintiff testified that his father “got paid his money”; that “he [his father] paid us for the material that he rebought back from us”, and that at this time “there was more or less of an exchange check”. In any event, as a result of this transaction, the corporation’s indebtedness to plaintiff’s father was reduced in the amount of $2,812.53. While Mr. Corsi undoubtedly knew that the corporation owed money to plaintiff’s father for materials and supplies and that plaintiff intended to sell some of the corporation’s inventory to his father, the record does not support plaintiff’s testimony that Corsi approved the terms of the sale nor the inference indirectly made by plaintiff on the basis of his testimony that Corsi knew that the purpose of this transaction was solely to reduce the amount of the corporation’s indebtedness to plaintiff’s father. On the contrary, the record indicates that Corsi did not participate in the decision to use this sale as a vehicle to partially satisfy the corporation’s financial obligations to plaintiff’s father, and that Corsi was given the impression by plaintiff that the sale would result in the corporation obtaining sufficient money to satisfy its outstanding Federal tax obligations.

32. During the period from December 31, 1956 to July 29, 1957, the corporation made payments to the taxpayer’s father totaling at least $12,548.76.

33. On July 15, 1957, plaintiff’s father, Kenneth White, discontinued his business known as the Lawrence Supply Company, and moved to Berea, Ohio, where he and his son resumed the operation of the plumbing supply company (the White Plumbing Supply Company), This business was operated out of the business property at 25 S. Rocky River Drive, Berea, Ohio, which the corporation had been using up to that date, and it also used as a business address the then home address of the plaintiff, Robert White. On this same above-mentioned date, the corporation was relieved of its obligations under the lease which had been executed for the property at 25 S. Rocky River Drive, Berea, Ohio, with Kenneth White assuming the obligations with respect to the lease. The plumbing supply company, which was active throughout the latter half of 1957, filed Forms 941 for the third and fourth quarters of 1957, with respect to income and F.I.C.A. taxes which it withheld from its employees’ wages.

34. During the seven-month period between January and July 1957, the corporation made payments on its obligations to Oberdick and White Trenching Company, and other suppliers, in amounts substantially in excess of the Federal withholding taxes due the Government.

35. During the period in issue, the corporation had sufficient funds on hand with which to pay the entire amount of the Federal withholding taxes due the Government. In support of his objection to the foregoing finding, plaintiff explained that “at all times [he] anticipated Corsi had arranged for income to be available to pay the Federal taxes from outstanding obligations on which Corsi was supposed to file liens”, and, further, that “The Internal Revenue Office was collecting on the corporate accounts receivable and [plaintiff] did not know whether or not the Revenue office had collected money sufficient to pay these accounts.” Considering the entire record as a whole, it is concluded that plaintiff’s explanation is based upon a distortion of the testimony and that it must be rejected as being inconsistent with the facts established by the evidence, including certain admissions by plaintiff. Plaintiff’s testimony to the effect that in early July 1957, the only taxes he knew had not been paid were those due for the third quarter of 1956, is inconsistent with his aforestated explanation, contrary to the evidence 'and incredible. The record shows, for example, among other things, that as early as January 1957, and as late as the first part of July of that year, plaintiff knew that the taxes due for the above quarter had not been paid; that in the latter part of January 1957, plaintiff knew that Corsi had taken only the accounts of C. O. Fisher to the Internal Revenue Service; that early in July 1957, a representative of the Collection Office of the Internal Revenue Service had first come to the store and placed a lien on all of the corporation’s accounts and other assets in an effort to obtain payment of the delinquent taxes due for the third quarterly period of 1956; that plaintiff had access to the corporation checkbook maintained at the store and obviously knew that the corporation had not directly paid the taxes for the other quarterly periods in issue; that plaintiff regularly saw to it that customers were billed and would have known if these accounts had been turned over to, and collected by, the Internal Revenue Service, particularly considering the fact that plaintiff knew that said Service had not placed liens on the corporation’s accounts until early in July 1957; and that the record indicates that on one or more occasions during the first several months of 1957, plaintiff and Corsi discussed the matter of placing liens in effect to enforce payment of certain accounts and that early in July 1957, plaintiff knew this had not been done and that such action could not be taken because by this time, the Internal Revenue Service had already placed liens on the corporation’s assets.

36. In January 1957, Mr. Corsi first became aware that the Federal withholding taxes due for the third quarter of 1956 had not been paid and he was advised by plaintiff early in July 1957, that these taxes still had not been paid in full. The record does not disclose that Corsi ever learned that taxes for the first and second quarter of 1957 had not been paid, or the extent of the corporation’s tax liability, until sometime subsequent to July 15, 1957, when the corporation ceased actual business operations. Corsi admittedly could have been more diligent and seen to it that the taxes were paid, providing plaintiff signed a check for them and there was sufficient corporate funds on hand to do so. But it is clear that Corsi became increasingly indifferent with respect to the financial affairs of the corporation, particularly after the business was moved to its new location and Mrs. Oberdick was employed early in October 1956, and limited his activities almost exclusively to signing blank checks and reviewing tax returns prepared by Mrs. Oberdick; that plaintiff was aware of the foregoing facts and that the Federal withholding taxes for the first two quarters of 1957, as well as the third quarter of 1956, had not been timely paid in full; and that plaintiff actually became the chief and responsible disbursing officer and employee of the corporation. Undoubtedly, plaintiff could have seen to it that Federal tax returns were sent in along with checks which had been presigned and given to him by Corsi; but he made the choice of making payments to other creditors instead of paying taxes owed to the Government in order to maintain supplies and materials on hand with which to carry on the business operations of the corporation.

Ultimate FINDINGS

37. On the basis of the foregoing facts and all the evidence of record, it is concluded that plaintiff was a responsible officer and employee of the White Plumbing Company. Plaintiff well knew that Federal withholding taxes were due the Government at times during the period in issue when he used withheld or collected taxes to pay operating expenses of the corporation. Therefore, the conclusion is inescapable that plaintiff voluntarily, consciously, and intentionally made a deliberate choice to pay other creditors instead of paying these taxes to the Government. While the evidence will not justify a finding that plaintiff intended to defraud or deprive the Government of the taxes in question, it is clear that plaintiff willfully accorded certain creditors preferential treatment when he paid their bills instead of paying, or maintaining, a reserve of funds on hand with which to pay taxes then due and owing the Government, and that he “willfully” failed to pay the taxes then due.

CONCLUSION 03? Law

Upon the foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiff is not entitled to recover and the petition is dismissed. 
      
       The opinion, findings of fact and recommended conclusion of law are submitted under the order of reference and Rule 57(a).
     
      
       In view of this fact, it should be understood that unless otherwise specifically stated, references hereinafter to these sections in the singular mean both sections considered as a whole.
     
      
       Plaintiff does not dispute these facts, however, defendant’s attorney made a general statement during the trial to the effect that the withholding taxes in question were originally assessed against both plaintiff and Corsi; that each of them paid one-half of the total withholding tax that was due; that Corsi subsequently filed a claim with the Internal Revenue Service for refund of the taxes he had paid, on the grounds that he was not a “responsible party” within the meaning of the statute, which claim was allowed after being passed upon by the Appellate Division of the Service; and that as a result of the refund to Corsi, plaintiff was assessed an amount equal to the refund given to Corsi, which amount plaintiff paid in full. The aforementioned statement was not corroborated by sworn testimony or other evidence, and the record does not disclose any other details concerning this matter. It appears that the parties are in agreement that since Corsi’s claim for abatement of his taxes was allowed, the taxes involved herein cannot now be assessed against him, and that if plaintiff is successful in his efforts to recover here, there is no other responsible person to whom defendant may look for payment of the withholding taxes in issue.
     
      
       This fact is qualified to the extent that it appears a representative of the Internal Revenue Service prepared a return for the third quarter of 1957, covering a period of employment of about two weeks in that period which plaintiff signed.
     