United States v. Williams ( 2021 )

Case: 20-10433 Document: 00515926847 Page: 1 Date Filed: 07/06/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
July 6, 2021
No. 20-10433 Lyle W. Cayce
Clerk
United States of America,
Plaintiff—Appellee,
versus
Charles I. Williams, DDS, as Executor of Mary C. Williams,
Defendant—Appellant.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:17-CV-2262
Before Wiener, Elrod, and Higginson, Circuit Judges.
Stephen A. Higginson, Circuit Judge:*
Taxpayer Charles I. Williams owned and operated several dentistry
practices. Yet he allegedly did not pay taxes withheld from his employees’
paychecks to the Internal Revenue Service, and the United States filed suit.
Granting the government’s summary judgment motion, the district court
allowed the declaration of Williams’s bookkeeper, struck the declarations of
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
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No. 20-10433
his treating physicians, and denied his motion to alter or amend the
judgment. Central to this appeal is whether Williams “willfully” failed to
pay these taxes, which would allow the government to hold him personally
liable for the taxes owed. See 26 U.S.C. § 6672(a). For the reasons
articulated herein, we AFFIRM the district court and find that Williams
acted “willfully” in his failure to pay the withheld taxes.
I.
Dr. Charles I. Williams became a licensed dentist in 1967, and he
owned various dentistry practices over the course of his career. During the
years at issue in this case, 2012 to 2014, Williams was the president and sole
owner and officer of Williams Dental Associates North, P.C. (“WDA
North”) and Williams Dental Associates South, P.C. (“WDA South”).
Williams also owned and operated Williams Business Management, Inc.
(“WBM”), which handled WDA North’s and WDA South’s business
affairs.
In 2012, Williams faced a “cash flow crisis.” He reduced his salary,
refinanced his home, and brought WDA North and WDA South into Chapter
11 bankruptcy proceedings. He also left unpaid a portion of the payroll taxes
owed by WDA North, WDA South, and WBM between 2012 and 2014.
During this time, Williams signed Internal Revenue Service (“IRS”) forms
reflecting that he owed outstanding payroll taxes and indicating that in some
quarters his businesses did not turn over any payroll taxes.
During these years in which his dental practices faced financial
difficulty, Williams was also experiencing extreme personal hardship.
Between 2008 and 2011, Williams underwent heart and back surgery; lost his
son, sister, and brother-in-law; and sought treatment for an opioid use
disorder. He continued to experience serious medical issues, cared for his
ailing wife, and supported his late son’s family through 2014.
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Yet Williams continued to practice dentistry and stayed involved in
business affairs. He saw patients in 2012, 2013, and 2014. He initiated and
participated in bankruptcy proceedings for WDA North and WDA South in
2013. That same year, he also negotiated the sale of a document storage
business he had founded the previous decade.
The United States sued Williams, his late wife’s estate, and several
other defendants in federal court to collect unpaid taxes. 1 Williams does not
dispute that the dental practices owe the unpaid payroll taxes. But he
opposed the government’s motion for summary judgment on the ground that
he could not be held personally liable for the unpaid payroll taxes because he
did not willfully violate the tax laws. The district court found otherwise.
First, it denied Williams’s motion to strike the declaration of his former
bookkeeper, who testified that Williams knew that he owed the government
payroll taxes but directed her to pay other bills instead. The court then
granted the government’s motion to strike declarations from two doctors
who opined that Williams was in a “mental fog” and therefore incapable of
willfully spurning his tax obligations. Finally, the district court granted
summary judgment, concluding that Williams acted willfully in failing to turn
payroll taxes over to the IRS. The court ordered that proceeds from the sale
of Williams’s property would be applied to his personal income tax and
payroll tax liability. Williams appeals these orders as well as his unsuccessful
motion to amend the judgment under Federal Rule of Civil Procedure 59(e).
1
The United States sought recovery of payroll taxes Williams owed between 2012
and 2014, as well as personal income taxes Williams and his late wife owed in 2010, 2013,
and 2014. Williams did not contest his income tax liability.
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II.
We review a district court’s evidentiary rulings for abuse of discretion
and its grant of summary judgment de novo. Munoz v. Orr, 200 F.3d 291, 300
(5th Cir. 2000). Summary judgment is proper when there is no genuine issue
of material fact and the moving party is entitled to judgment as a matter of
law. Conway v. United States, 647 F.3d 228, 232 (5th Cir. 2011). The
standard of review for a district court’s dismissal for lack of subject matter
jurisdiction is de novo. Griener v. United States, 900 F.3d 700, 703 (5th Cir.
2018). A district court’s denial of a Rule 59(e) motion to amend a judgment
is reviewed for abuse of discretion. St. Paul Mercury Ins. Co. v. Fair Grounds
Corp., 123 F.3d 336, 339 (5th Cir. 1997).
III.
The Internal Revenue Code requires employers to withhold taxes
from their employees’ wages. See 26 U.S.C. §§ 3102(a), 3402(a). Employers
hold the withheld taxes “in trust” for the United States until they are
remitted, usually on a quarterly basis. See id. § 7501(a). “When a corporate
employer fails to pay over the trust funds, § 6672(a) of the Code imposes a
penalty equal to the entire amount of the unpaid taxes on ‘any person’
required to collect, account for, or pay over the withheld taxes, who
‘willfully’ fails to do so.” Barnett v. I.R.S., 988 F.2d 1449, 1453 (5th Cir.
1993) (quoting 26 U.S.C. § 6672(a)). Personal liability for the penalty
attaches if the person is a “responsible person” who “willfully” failed to pay
over the withheld taxes. Slodov v. United States, 436 U.S. 238, 245–46 (1978);
Barnett, 988 F.2d at 1453. Once a penalty under § 6672 is assessed and the
taxpayer is found to be a responsible person, “the burden of proving lack of
willfulness is on the taxpayer.” Mazo v. United States, 591 F.2d 1151, 1155
(5th Cir. 1979). Williams does not dispute his status as a responsible person,
but contests only whether his failure to remit taxes was willful.
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“Willfulness under § 6672 requires only a voluntary, conscious, and
intentional act, not a bad motive or evil intent.” Barnett, 988 F.2d at 1457.
“A considered decision not to fulfill one’s obligation to pay the taxes owed,
evidenced by payments made to other creditors in the knowledge that the
taxes are due, is all that is required to establish willfulness.” Id. (quoting
Howard v. United States, 711 F.2d 729, 736 (5th Cir. 1983)).
Although the willfulness “determination is usually factual,”
“evidence that the responsible person had knowledge of payments to other
creditors after he was aware of the failure to pay withholding tax is sufficient
for summary judgment on the question of willfulness.” 2 Mazo, 591 F.2d at
1157. In other words, “[w]here there is undisputed evidence that the
responsible person directed payments to other creditors while knowing of the
tax deficiency, willfulness is established as a matter of law.” Conway, 647
F.3d at 234 (citing Barnett, 988 F.2d at 1457).
The district court granted summary judgment after determining that
uncontroverted evidence established willfulness as a matter of law. In
reaching this conclusion, the district court denied Williams’s motion to strike
the declaration of his former bookkeeper Brenda Beauchamp and granted the
government’s motion to exclude declarations by two of Williams’s doctors.
Williams challenges both rulings on appeal.
In her declaration, Beauchamp claimed that Williams knew of his
unpaid payroll taxes but directed her to pay other bills instead. The district
2
Other circuits agree. See, e.g., Johnson v. United States, 734 F.3d 352, 364–65 (4th
Cir. 2013); cf. Jefferson v. United States, 546 F.3d 477, 480–82 (7th Cir. 2008). While the
Tenth Circuit expressed concern that courts have “impermissibly encroached upon the
role of the jury as fact-finder by utilizing broad factual paradigms to impose liability as a
matter of law” under § 6672, it nonetheless left most of its § 6672 jurisprudence intact and
carved out only a limited reasonable cause exception. Finley v. United States, 123 F.3d 1342,
1347–48 (10th Cir. 1997) (en banc).
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court properly concluded that Williams did not articulate any valid basis for
excluding this testimony. For the most part, Williams generally asserted that
the Beauchamp declaration contained hearsay and unsupported lay
testimony. But “[e]videntiary objections must be specific.” United States v.
Avants, 367 F.3d 433, 445 (5th Cir. 2004); see also Tucker v. SAS Inst., Inc.,
462 F. Supp. 2d 715, 722 (N.D. Tex. 2006) (“Federal Rule of Evidence
103(a)(1) requires an objecting party to make specific objections detailing the
specific evidence the party wishes to have stricken and stating the specific
grounds upon which each piece of evidence should be stricken.”).
Williams’s one particularized objection to Beauchamp’s declaration—that
she testified about activity by Williams beyond her personal knowledge—is
likewise unfounded. Williams evidently interprets Beauchamp’s testimony
as describing events that she could not have observed firsthand because they
took place after she left Williams’s employment. But that is not the only, or
even the most natural, reading of her declaration. The challenged testimony
more likely refers to events that occurred while Beauchamp still worked for
Williams. The district court therefore did not abuse its discretion in
declining to strike Beauchamp’s declaration.
The district court did exclude declarations by two of Williams’s
doctors, Dr. Maese and Dr. Nace, because Williams had not filed expert
reports for them under Federal Rule of Civil Procedure 26. Although a
party’s treating physicians typically do not need to disclose a written expert
report before testifying, some courts have held that this exception does not
apply to “opinions that the treating physician arrives at after treatment, for
the purposes of litigation.” LaShip, LLC v. Hayward Baker, Inc., 296 F.R.D.
475, 480 (E.D. La. 2013); accord Meyers v. Nat’l R.R. Passenger Corp., 619 F.3d
729, 735 (7th Cir. 2010). We need not decide this question, which remains
unsettled in this circuit. As discussed below, even considering the
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declarations of Dr. Maese and Dr. Nace, Williams has not put forward
evidence disputing that he acted willfully as a matter of law.
The district court correctly concluded that Williams acted willfully as
a matter of law because the United States put forth uncontroverted evidence
that Williams directed payments to other creditors despite knowing that he
owed unpaid payroll taxes. The government established that Williams knew
of his outstanding payroll tax obligations through Williams’s deposition
statements that he recalled having payroll tax issues in 2012, 2013, and 2014
and IRS forms bearing his signature that reported a balance due on withheld
payroll taxes. The record also shows that, although Williams was aware that
he owed payroll taxes, he drew a salary, paid employees and vendors, and
directed the payment of rent and other bills instead of his IRS debt. By
“paying private creditors in preference to the government” while he
“actually knew the taxes were unpaid,” Williams acted willfully as a matter
of law. See Mazo, 591 F.2d at 1156.
Williams nonetheless argues that he did not act willfully for two
reasons. First, he contends that he was incapable of acting willfully because
he was “not in his right mind” during the years in question. Williams points
to the declarations of his two doctors, who both opined that Williams did not
act willfully in failing to pay payroll taxes under § 6672. To substantiate this
assertion, Dr. Maese stated that from 2010 to 2014, medical issues
“incapacitated” Williams, who was “in a ‘mental fog’ rendering him
incapable of maintaining his medical license” and running his dental
practices. Dr. Nace echoed Williams’s own conclusion that he was “too
distraught” to carry on his businesses. Williams also cites the deposition
testimony of his longtime administrative assistant Kathleen Bryant, who
stated that Williams “wasn’t there” mentally in 2010, and his accountant
John Parma, who acknowledged that no one “in their right mind” would
overreport income on their tax return to the extent Williams had done.
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None of this testimony creates a genuine issue of material fact as to
willfulness under § 6672. Williams does not refute the government’s
evidence that he was aware of his outstanding payroll tax obligations or that
his payments to other creditors instead of the IRS were “voluntary,
conscious, and intentional act[s].” Barnett, 988 F.2d at 1457. The excluded
declarations indicate that Williams experienced personal and professional
hardships around the time he failed to pay his taxes. Yet at the same time
Williams supposedly lacked the mental capacity to act willfully, he saw dental
patients, initiated bankruptcy proceedings, and sold a company. Neither the
declarations nor the depositions therefore defeat a finding of willfulness as a
matter of law. See Cappetta v. United States, No. 04-C-4583, 2006 WL 51163,
at *5 (N.D. Ill. Jan. 9, 2006) (finding defendant willful as a matter of law
despite defendant’s “serious health problems” because he had “not
presented evidence that his illness was so incapacitating that it prevented him
from issuing checks”).
Second, Williams claims that he is not to blame for the failure to pay
taxes because he had turned over his businesses’ tax duties to Beauchamp
and Parma. But the fact that he “delegated the jobs of withholding and
paying employees’ taxes and generally paying creditors is beside [the] point.”
Barnett, 988 F.2d at 1455. Williams remained responsible for the collection
and payment of payroll taxes under § 6672—a finding he did not contest in
front of the district court. In the face of the government’s evidence that
Williams knew of the unpaid payroll taxes yet decided to pay private creditors
instead of the IRS, he cannot overcome summary judgment on the question
of willfulness.
IV.
Williams’s remaining arguments on appeal lack merit. First, he
contends that the IRS should have applied seized social security payments to
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his personal income tax liability instead of the unpaid payroll taxes. Williams
first asserted this argument as a counterclaim against the Government
through his amended answer at the district court. The district court
dismissed Williams’s counterclaim on the ground that it lacked subject
matter jurisdiction to adjudicate it. 3
The district court’s dismissal of Williams’s counterclaim was proper.
A taxpayer must first file an administrative claim for a refund with the IRS.
26 U.S.C. § 7422(a). Williams does not assert that he filed an administrative
claim for a refund or otherwise attempted to contest the IRS’s application of
certain social security payments to Williams’s trust fund recovery penalties.
Williams’s appeal of his Rule 59(e) motion to amend the judgment
fares no better. In that motion, he objected to the distribution of the proceeds
of property sold to satisfy his tax obligations. He argued that half of the
money generated from the sale must be returned to his late wife’s estate
because she retained a community property interest in those proceeds and
was not liable for Williams’s unpaid taxes. “A motion to alter or amend the
judgment under Rule 59(e) ‘must clearly establish either a manifest error of
law or fact or must present newly discovered evidence.’” Marseilles
Homeowners Condo. Ass’n Inc. v. Fid. Nat’l Ins. Co., 542 F.3d 1053, 1058 (5th
Cir. 2008) (per curiam) (quoting Simon v. United States, 891 F.2d 1154, 1159
(5th Cir. 1990)). Because “Rule 59(e) ‘motions cannot be used to raise
arguments that could, and should, have been made before the judgment
issued,’” id. (quoting Simon, 891 F.2d at 1159), the district court did not
3
The district court also acknowledged but did not exercise its power to sua sponte
strike Williams’s counterclaim pursuant to Federal Rule of Civil Procedure 15 for failure to
seek leave of court to file an amended answer.
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abuse its discretion in determining that Williams failed to meet this standard,
see Fair Grounds Corp., 123 F.3d at 339.
V.
For the foregoing reasons, we AFFIRM the district court and find
that Williams acted “willfully” in his failure to pay withheld payroll taxes,
and he is thus personally liable for the trust fund recovery penalties under §
6672(a).
10