Former CFO Liable for Trust Fund Recovery Penalties

S. Starling Marshall, Trial Attorney, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, D.C. for the defendant. With her were Brian J. Sullivan, Trial Attorney; Court of Federal Claims Section; G. Robson Stewart, Assistant Chief, Court of Federal Claims Section, David I. Pincus, Chief, Court of Federal Claims Section and Caroline Ciraolo, Deputy Principal Deputy Assistant Attorney General, Tax Division, United States Department of Justice.

The plaintiff, Mark V. Noffke, brought suit in the United States Court of Federal Claims to recover funds for all four quarters of 2009, after the Internal Revenue Service (IRS) determined that plaintiff was a responsible person to pay employment taxes for BOOMj.com, Inc. (BOOMj),¹ and "plaintiff paid the trust fund portion of the employment tax for one employee for the first, second, third and fourth quarters of 2009 for BOOMj." Mr. Noffke seeks the refund of the employment taxes paid, and the government has counterclaimed for the unpaid portions of the assessments. A trial was held and post-trial briefings on the legal and factual issues raised in the case were filed by both parties. After a review of the trial testimony, the exhibits entered into the record, and the submissions filed by the parties, the court makes the following findings of fact.

After serving as Chief Financial Officer of BOOMj,⁴ plaintiff testified, "I've been the chief financial officer of a company just recently that I resigned from, a company called EFactor. And presently I'm the -- the chief financial officer of a company called Flying Food Fare, Inc., which is an airline catering business based in Chicago." In sum, plaintiff testified that he has served as chief financial officer of seven different companies. Regarding BOOMj, the parties have stipulated that Mr. Noffke "became CFO and executive vice-president of BOOMj.com, Inc., an online services company aimed at baby-boomers in 2007." (internal reference omitted). Regarding the beginning of his employment, Mr. Noffke testified at trial on cross-examination:

Regarding the formation of BOOMj, plaintiff testified:

Explaining the relationship between the various entities, Mr. Noffke testified that:

The parties also have stipulated that Mr. Noffke had check signing authority on all of BOOMj's bank accounts, as well as on all BOOMj's subsidiaries' bank accounts, and Mr. Noffke testified to the same at the trial.⁹ Mr. Noffke also testified that, in addition to hand signing checks, BOOMj had a check signing machine with Mr. Noffke's signature, and that was with "what the majority of the checks were written." The parties have stipulated that Mr. McNulty did not have check signing authority on BOOMj's bank accounts.¹⁰ On cross-examination, defendant's counsel asked Mr. Noffke why he did not simply write a check to the IRS to the cover the requisite taxes, to which he responded:

The parties stipulated that "[f]rom its inception, BOOMj experienced peaks and valleys of funding and cash flow was an issue," and that "[i]n 2008, plaintiff was aware that BOOMj had not made complete and timely employment tax deposits with the United States government." Mr. Noffke sent the IRS a letter on March 9, 2009, "requesting an abatement of the penalties charged for the reasons of hardship and former disgruntle [sic] employees." In his letter to the IRS, Mr. Noffke stated that the former employees

Mr. Noffke also discussed the conversations he had with Mr. McNulty about not paying the employment tax liabilities with defendant's counsel:

In February 2010, Mr. Noffke sent a letter to President Obama requesting the president "waive any back taxes due and allow the officers clemency on any personal obligations." Mr. Noffke explained that:

The parties have stipulated that "[o]n September 20, 2010, the IRS assessed penalties against plaintiff Noffke of $91,252.54 for the first quarter, $208,618.99 for the second quarter, $179,570.87 for the third quarter, and $102,642.10 for the fourth quarter." On January 12, 2011, plaintiff paid the trust fund portion of the employment tax for one employee for the first, second, third and fourth quarters of 2009 for BOOMj, and on the same day, January 12, 2011, plaintiff filed claims for refund for all four quarters of 2009. The parties have stipulated that "[t]he IRS had not taken any action on these claims as of the date of filing the complaint in this action."

Defendant's counterclaim, discussed below, indicated that "plaintiff was assessed a trust fund recovery penalty, pursuant to Internal Revenue Code § 6672, in the amount of $15,402.37. The assessed amount corresponds to a portion of unpaid employment tax obligations of Kaching Kaching Inc. for the tax period ending on December 31, 2010." Subsequently, plaintiff paid the trust fund portion of the employment tax for one employee for the fourth quarter of 2010 for Kaching Kaching Inc., and filed a claim for refund on October 7, 2013. The defendant also indicated that the IRS has not issued a denial of the claim for refund.

On February 6, 2014, plaintiff filed the above captioned case in the United States Court of Federal Claims and sought a "refund of the claimed overpaid federal taxes in the amount of $1,541.69 plus interest,"¹⁶ as well as a determination by the court "that Plaintiff is not a responsible person within the meaning of 26 USC § 6672(a)." On June 6, 2014, defendant filed an answer and a counterclaim seeking "judgment against plaintiff in the amount $102,642, plus assessed interest, minus amounts credited by the IRS against plaintiff's § 6672 assessment for the tax periods ending on March 31, 2009, June 30, 2009, September 30, 2009, and December 31, 2009, plus interest and costs allowed by law." On August 7, 2014, plaintiff filed an amended complaint, and in addition to seeking a "refund of the claimed overpaid federal taxes in the amount of $1,541.69 plus interest with respect to the four quarters of trust fund recovery penalty with respect to Boomj.com," plaintiff sought a "refund of the claimed overpaid federal taxes in the amount of $303.40 plus interest with respect to the trust fund recovery penalty with respect to KaChing KaChing for the fourth quarter of 2010." Prior to trial, the parties resolved their dispute regarding the 2010 fourth quarter tax liabilities for Kaching Kaching, Inc.

As noted above, Mr. Noffke has paid the "trust fund portion of the employment tax for one employee for the first, second, third and fourth quarters of 2009 for BOOMj." Generally, "payment of the assessed taxes in full is a prerequisite to bringing a refund claim." Ledford v. United States, 297 F.3d 1378, 1382 (Fed. Cir. 2002) (citing Flora v. United States, 362 U.S. 145, 177, re h 'g denied, 362 U.S. 972 (1960); Rocovich v. United States, 933 F.2d 991, 993-94 (Fed. Cir. 1991)); see also Shore v. United States, 9 F.3d 1524, 1527 (Fed. Cir. 1993) ("The Flora [ v. United States, 362 U.S. 145] full payment rule requires that taxpayers prepay the tax principal before the Court of Federal Claims will have subject matter jurisdiction over their tax refund action under § 1491."). The Federal Circuit in Diversified Group echoed this sentiment, noting that "[i]n Flora, the Supreme Court determined that § 1346(a)'s jurisdictional grant includes a 'full payment requirement,' which demands -- as a jurisdictional prerequisite -- full payment of the tax or penalty before a party could sue for a refund." Diversified Grp. Inc. v. United States, 841 F.3d at 981 (quoting Flora v. United States, 362 U.S. at 177). There is, however, an exception to this rule for divisible taxes, such as those levied under 26 U.S.C. § 6672 (2012). See 26 U.S.C. § 6331(i)(2)(B) (2012) (defining divisible taxes to include "the penalty imposed by section 6672"). Under this exception, "a taxpayer assessed under section 6672 need only pay the divisible amount of the penalty assessment attributable to a single individual's withholding before instituting a refund action." Boynton v. United States, 566 F.2d 50, 52 (9th Cir. 1977); see also Steele v. United States, 280 F.2d 89, 91 (8th Cir. 1960).¹⁷ The rationale for this exception is that "section 6672 assessments represent a cumulation of separable assessments for each employee from whom taxes were withheld." Boynton v. United States, 566 F.2d at 52. Thus, in the past, courts have permitted 26 U.S.C. § 6672 refund cases to proceed when the taxpayer has prepaid the IRS an amount equal to one employee's withholding for one quarter. See Godfrey v. United States, 748 F.2d 1568, 1573 (Fed. Cir. 1984) (noting that the United States Claims Court had allowed the case to proceed after each plaintiff paid $150.00 to the IRS, "the amount in excess of income and FICA taxes withheld from one employee");¹⁸see also Kennedy v. United States, 95 Fed. Cl. 197, 200 (2010) (noting plaintiff had prepaid $476.15 to the IRS, "representing the portion of the assessment relating to one employee for the fourth quarter of 2000"). Furthermore, defendant has not challenged the propriety of Mr. Noffke seeking a refund after only paying a portion of the taxes owed. In light of the decisions allowing partial payment for a case regarding 26 U.S.C. § 6672, the court believes it is proper for the court to consider Mr. Noffke's claim on the merits. As defendant has not raised any other jurisdictional challenges to Mr. Noffke's suit, the court addresses the merits of plaintiff's tax refund claim.

26 U.S.C. § 6672

The Tax Code at 26 U.S.C. § 6672(a) states, in part:

As explained by the Federal Circuit in Godfrey v. United States:

Both elements require a fact-specific inquiry by the court. In considering if the plaintiff was a responsible person, the court in Waterhouse v. United States stated, "the court focuses its factual inquiry into whether the plaintiff had the 'power to compel or prohibit the allocation of corporate funds.'" Waterhouse v. United States, 122 Fed. Cl. at 283 (quoting Godfrey v. United States, 748 F.2d at 1576). In addition, regarding the willfulness requirement, in Gann v. United States, the court stated "[t]he separate requirement that a responsible individual also have acted willfully in failing to withhold and/or remit the tax also presents a fact-intensive inquiry, calling for 'proof of a voluntary, intentional, and conscious decision not to collect and remit taxes thought to be owing.'" Gann v. United States, 121 Fed. Cl. 482, 489 (2015) (quoting Godfrey v. United States, 748 F.2d at 1577). Therefore, "[b]oth the responsible person analysis and the assessment of willfulness are fact-based determinations unique to the circumstances of each case." Jenkins v. United States, 101 Fed. Cl. at 131.

The burden of proof for these two elements, whether a plaintiff was a responsible person and whether a plaintiff additionally willfully failed to make and pay the requisite withholdings, rests with the plaintiff. As explained by a Judge of the United States Court of Federal Claims:

In addition, in a tax refund case, there is also a presumption of the correctness of the findings of the Commissioner of Internal Revenue. See United States v. Fior D'Italia, Inc., 536 U.S. 238, 243 (2002) ("An 'assessment' amounts to an IRS determination that a taxpayer owes the Federal Government a certain amount of unpaid taxes. It is well established in the tax law that an assessment is entitled to a legal presumption of correctness -- a presumption that can help the Government prove its case against a taxpayer in court."); Conway v. United States, 326 F.3d 1268, 1278 (Fed. Cir.) ("The ruling of the Commissioner of Internal Revenue enjoys a presumption of correctness and a taxpayer bears the burden of proving it to be wrong." (quoting Transamerica Corp. v. United States, 902 F.2d 1540, 1543 (Fed. Cir. 1990)), re h 'g denied (Fed. Cir. 2003); see also Stobie Creek Inv. LLC v. United States, 608 F.3d 1366, 1381 (Fed. Cir. 2010); Bubble Room, Inc. v. United States, 159 F.3d 553, 561 (Fed. Cir. 1998) ("In a tax refund case, the ruling of the Commissioner of Internal Revenue is presumed correct."), reh'g denied, en banc suggestion declined (Fed. Cir. 1999); Lima Surgical Assocs., Inc. v. United States, 944 F.2d 885, 888 (Fed. Cir. 1991) ("[D]eterminations of the Commissioner of Internal Revenue are presumptively correct."); Widtfeldt v. United States, 122 Fed. Cl. 158, 163 (2015), aff 'd, 2016 WL 5929834 (Fed. Cir. Oct. 12, 2016); Diamond v. United States, 115 Fed. Cl. 516, 524 (2014) (quoting Danville Plywood Corp. v. United States, 899 F.2d 3, 7 (Fed. Cir. 1990) (citing Welch v. Helvering, 290 U.S. 111, 115 (1933) ("In a tax refund suit, 'the ruling of the [IRS] Commissioner enjoys a presumption of correctness and a taxpayer bears the burden of proving it to be wrong.'") (alternation in original); Deseret Mgmt. Corp. v. United States, 112 Fed. Cl. 438, 447 (2013) ("In a refund suit, the assessment made by the IRS is presumed to be correct, placing an obligation on the taxpayer to come forward with evidence to rebut a presumption of correctness."); Ghandour v. United States, 36 Fed. Cl. 53, 59 (1996) (quoting Whiteside v. United States, 26 Cl. Ct. 564, 566 (1992) (In a responsible person inquiry, "[a]s in any tax refund case, there is a 'strong presumption of the correctness of the findings' of the Commissioner.").

The taxpayer has the burden of rebutting the presumption of correctness, but also "the taxpayer has the burden of establishing entitlement to the specific refund amount claimed." Bubble Room, Inc. v. United States, 159 F.3d at 561; see also United States v. Janis, 428 U.S. 433, 440-41 (1976) ("In a refund suit the taxpayer bears the burden of proving the amount he is entitled to recover." (citing Lewis v. Reynolds, 284 U.S. 281, modified, 284 U.S. 599 (1932)); Helvering v. Taylor, 293 U.S. at 515 ("Unquestionably the burden of proof is on the taxpayer to show that the Commissioner's determination is invalid."); Welch v. Helvering, 290 U.S. 111, 115 (1933) ("The Commissioner of Internal Revenue['s] . . . ruling has the support of a presumption of correctness, and the petitioner has the burden of proving it to be wrong." (citing Wickwire v. Reinecke, 275 U.S. 101 (1927)); Charron v. United States, 200 F.3d 785, 792 (Fed. Cir. 1999) ("Since the [plaintiffs] were seeking refunds of taxes they had paid, they have the burden of proving they are entitled to the amount sought."); Danville Plywood Corp. v. United States, 899 F.2d 3, 7-8 (Fed. Cir. 1990); Barenholtz v. United States, 784 F.2d 375, 381 (Fed. Cir. 1986); Widtfeldt v. United States, 122 Fed. Cl. at 163 (quoting Gingerich v. United States, 77 Fed. Cl. 231, 240 (2007) ("A 'plaintiff who is claiming a tax refund must prove [its] case by a preponderance of the evidence.'")); Christman v. United States, 110 Fed. Cl. 1, 5 (2013) ("In refund suits, there is no doubt that the plaintiff bears the burden of proof as to his or her entitlement to a tax refund." (citing Young & Rubicam, Inc. v. United States, 187 Ct. Cl. 635, 638, 410 F.2d 1233, 1238 (1969))); Okerlund v. United States, 53 Fed. Cl. 341, 356 (2002) ("As a general rule, the burden of proof is on the taxpayer in tax refund cases." (citing Welch v. Helvering, 290 U.S. at 115)), recons. denied, 2003 WL 1547563 (Fed. Cl. Feb. 14, 2003), aff'd, 365 F.3d 1044 (Fed. Cir. 2004).

In sum, to rebut the presumption of the Commissioner's correctness, "the taxpayer must come forward with enough evidence to support a finding contrary to the Commissioner's determination." Bubble Room, Inc. v. United States, 159 F.3d at 561. Stated otherwise, to overcome the presumption, the taxpayer has the burden of presenting "substantial evidence as to the wrongfulness of the Commissioner's determination." KFOX, Inc. v. United States, 206 Ct. Cl. 143, 151-152, 510 F.2d 1365, 1369 (1975); Arrington v. United States, 34 Fed. Cl. 144, 147 (1995), aff 'd, 108 F.3d 1393 (Fed. Cir. 1997). The burden imposed on a plaintiff is both the burden of going forward and the burden of persuasion. Thus, a plaintiff first must come forward with enough evidence to support a finding contrary to the Commissioner's determination. See Transamerica Corp. v. United States, 902 F.2d at 1543; Danville Plywood Corp. v. United States, 899 F.2d at 7-8; Arrington v. United States, 34 Fed. Cl. at 147. Even after satisfying the burden of going forward, a plaintiff must still carry the ultimate burden of proof. See Transamerica Corp. v. United States, 902 F.2d at 1543; Danville Plywood Corp. v. United States, 899 F.2d at 8.

Responsible Person

The court first examines, in the context of 28 U.S.C. § 6672, if Mr. Noffke is a responsible person. Defendant argues that "Noffke is a Responsible Person at BOOMj under Section 6672," whereas plaintiff argues that "Mark Noffke was not a responsible person for purposes of imposing the trust fund recovery penalty for Boomj's unpaid employment taxes for the Periods in Issue."

As indicated by the Federal Circuit, "[t]he cases which have been decided under § 6672 generally refer to the 'person required to collect, truthfully account for, and pay over any tax imposed by this title' by the shorthand phrase 'responsible person.'" Godfrey v. United States, 748 F.2d at 1574 n.4 (quoting Slodov v. United States, 436 U.S. at 246 n.7). As recently explained by a Judge of the United States Court of Federal Claims, "[u]nder § 6672, an individual is considered a responsible person 'if he retains sufficient control of corporate finances that he can allocate corporate funds to pay the corporation's other debts in preference to the corporation's . . . tax obligations.'" Waterhouse v. United States, 122 Fed. Cl. at 283 (quoting Brinskele v. United States, 88 Fed. Cl. at 346). As indicated in Jenkins v. United States, it is a "bedrock principle that the determination of whether a person is responsible 'is a matter of substance not form and is determined by the coincidence of status, duty and authority' -- with the duty to ensure that taxes are paid flowing from authority that enables one to do so." Jenkins v. United States, 101 Fed. Cl. at 131 (quoting Cook v. United States, 52 Fed. Cl. 62, 68 (2002)). The Jenkins court elaborated that:

As noted above, the responsible person inquiry is a fact-specific one. See Waterhouse v. United States, 122 Fed. Cl. at 283; Gann v. United States, 121 Fed. Cl. at 489. Turning to the facts of the above captioned case, plaintiff was the Chief Financial Officer and Executive Vice President of BOOMj. Mr. Noffke himself testified that he was "secretary-treasurer at a point in time" of BOOMj and the other various entities. Mr. Noffke also testified that "[i]nitially I owned a million shares of BoomJ as the private company."²⁰ The parties have stipulated, and Mr. Noffke confirmed during his trial testimony, that he had check signing authority on all of BOOMj's bank accounts and its subsidiaries' bank accounts. As noted above, the parties stipulated in advance of trial that "Plaintiff opened and closed bank accounts, merchant credit card holding accounts, credit cards and other financial accounts on behalf of BOOMj" and that "Plaintiff had the ability with respect to its banks to direct electronic transfers from BOOMj and its subsidiaries' bank accounts." The parties also stipulated that "Plaintiff negotiated settlements with creditors and former employees on behalf of BOOMj." As indicated in the joint exhibits, in 2009 alone, more than 20 wire transfers between accounts worth hundreds of thousands of dollars were executed by Mr. Noffke. Plaintiff argues that, despite this authority, "Mr. Noffke had to obtain permission from Robert McNulty to write a check or order a wire transfer." Mr. Noffke also had hiring and firing authority within the accounting department, and testified that the "[t]he accounting department reported up through me." Testimony at trial revealed that Mr. Noffke supervised twenty four employees at BOOMj.

Mr. Noffke's responsibilities are consistent with the representations made on the IRS Form 4180, titled: "Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes," the form signed by Mr. Noffke indicated yes to all of the following questions: "Determine financial policy for the business?" "Direct or authorize payments of bills/creditors?" "Open or close bank accounts for the business?" "Sign or counter-sign checks?" "Authorize payroll?" "Authorize or make Federal Tax Deposits?" and "Hire/Fire?" Form 4180 also asked: "During the time the delinquent taxes were increasing, or at any time thereafter, were any financial obligations of the business paid?" and the answer was "[s]tandard operational expenses to keep company in business," which the form stated were authorized by Mr. Noffke. In light the of the foregoing, defendant argues, "because Noffke admits to having broad authority in the company, coupled with corroborating testimonial and documentary evidence, this Court should find that he is a responsible person under § 6672."

Plaintiff concedes that "there is no dispute that Mr. Noffke did sign checks and wire transfer authorizations." Plaintiff responds that "the focus of the Government's case is on Mr. Noffke's ability to sign checks and his title as chief financial officer," which plaintiff states is insufficient for him to be a responsible person, arguing "[u]nder the Godfrey case, the mechanical duties of signing checks and preparing tax returns are not determinative of liability under Section 6672 -- the power to control the decision-making over the allocation of funds is the test." (citing Godfrey v. United States, 748 F.2d at 1575). Plaintiff continues:

Regarding Form 4180, plaintiff argues that "[n]o representative of the IRS ever conducted an interview with Mr. Noffke regarding his potential personal liability for the trust fund recovery penalty with respect to Boomj,"²¹ and that "Mr. Noffke received a fully completed Form 4180 that Joanne Stiff had prepared for him." Therefore, plaintiff tries to claim that "Mr. Noffke testified that he did not understand the purpose or import of the Form 4180 that he signed." Plaintiff further argues that "Mr. Noffke testified that he did not comprehend the purpose of the Form 4180. He stated that he thought only the person whose name was shown next to the question was the person identified as responsive to the question." Plaintiff, concludes that "[t]herefore, with an affirmative answer Mr. Noffke implicated himself, in some cases unintentionally." Crucially, although, plaintiff signed the Form 4180, on which, as noted by the defendant, "[j]ust above Noffke's signature is language which states that the individual declares that the information provided is 'true, correct, and complete.'" Furthermore, plaintiff's numerous years as a certified public accountant should have alerted him to the nature of the IRS form he was signing. Moreover, even when attempting to minimize his involvement with the preparation of Form 4180, plaintiff did not argue that the information was incorrect, only that the information was incomplete. After walking through the form with plaintiff's counsel, plaintiff had the following exchange on cross-examination:

The plaintiff uses the term "ultimate authority" a minimum of eighteen times in his post-trial filings. The court believes the language employed by plaintiff regarding the "ultimate authority" is not helpful. In Godfrey, the Federal Circuit stated that "[t]he inquiry required by the statute is 'a search for a person with ultimate authority over expenditure of funds since such a person can fairly be said to be responsible for the corporation's failure to pay over its taxes.'" Godfrey v. United States, 748 F.2d at 1575 (quoting White v. United States, 178 Ct. Cl. 765, 372 F.2d 513, 516 (1967)) (emphasis added). As referenced above, however, Judge Allegra in Salzillo reminds that:

Principally, plaintiff relies on the decision of Salzillo v. United States, 66 Fed. Cl. 23, in which the court found Mr. Salzillo not to be a responsible person, id. at 36, to support the position that Mr. Noffke was not a responsible person because of the role he described for Mr. McNulty and that Mr. McNulty testified to at trial. Plaintiff argues:

The court agrees with plaintiff that there are some parallels between the above captioned case and the Salzillo case. In both instances the companies' limited funds resulted in the officers making decisions about who to pay or who not to pay and when. Plaintiff in the case currently before the court argues in its post-trial brief, "Robert McNulty knew the rules, knew that he called all the shots at Boomj, that he had to approve all payments, that he instituted that requirement to be able to manage the limited cash resources in a start-up company like Boomj and that he and he alone had the vision, the experience and the skill to make a company like Boomj successful." In both cases, the creditors, and not the IRS, were paid. In both cases, Mr. Salzillo and Mr. Noffke, the individuals determined to be responsible people by the IRS, repeatedly raised the issue of non-payment to the IRS with their superiors, but the liabilities still remained unpaid. Mr. Noffke testified that the employment tax liabilities "were presented again to -- to Bob McNulty to make that call whether to make those payments or not." At trial in the above captioned case, Mr. Noffke also testified that he urged Mr. McNulty to pay the taxes, explaining during questioning with his attorney:

There remains crucial differences, however, between the plaintiff in the above captioned case and the plaintiff in Salzillo. As explained by Judge Allegra in Salzillo:

Moreover, the record reflects that Mr. Noffke has continued to work for Mr. McNulty after BOOMj ceased operations. According to the joint stipulations of fact, "Mr. McNulty set up an arrangement whereby a subsidiary of BOOMj, called Kaching Kaching, Inc. ('KCKC') purchased certain assets of BOOMj for 20.8% of the shares of common stock of KCKC" and Mr. Noffke became the Chief Financial Officer of Kaching Kaching, Inc. while Mr. McNulty became the Chief Executive Officer. As indicated above, Kaching Kaching, Inc. also failed to pay the employment tax liabilities for the tax period ending on December 31, 2010, and the IRS assessed plaintiff with a trust fund recovery penalty for that failure. Despite that failure, Mr. Noffke continued to work for Mr. McNulty, most recently as the Chief Executive Officer of a company called Serendipity Cafe. In fact, Mr. Noffke has repeatedly continued to work for Mr. McNulty, despite the fact that plaintiff also claimed that he felt physically threatened by McNulty when they worked together at BOOMj. Jeffrey Aaronson, another BOOMj employee described McNulty's management approach as "[m]anagement by bullying."²³ Joanne Stiff labelled McNulty's management style as "not very good."²⁴. Although not dispositive regarding plaintiff's status as a responsible person for BOOMj, the court is left to question the statements made at trial about the total control Mr. McNulty supposedly exercised or the feeling of being threatened by Mr. McNulty Mr. Noffke really felt, given that Mr. Noffke continued to accept new assignments from, and continued to work for, Mr. McNulty, including at the time of trial.

Plaintiff also quotes extensively from Judge Allegra's opinion in Salzillo to provide additional case support for the argument that plaintiff is not a responsible person. For example, plaintiff quotes this entire paragraph from the Salzillo decision:

The facts of the cases cited in Salzillo, however, are not closely related to Mr. Noffke's situation. In Barrett, the United States Court of Claims explained that the Barrett plaintiff "had no responsibility for making up the payroll. She had no authority over payment of the salaries of company employees. Creditors did not ask for her when inquiring about being paid. She had no responsibility for the preparation of tax returns for the company, nor did she sign any such returns. Plaintiff did not negotiate company contracts, bill customers, order supplies or hire and fire employees." Barrett v. United States, 217 Ct. Cl. 617, 626, 580 F.2d 449, 453 (1978). In the above captioned case, Mr. Noffke ran the accounting department, supervising twenty four employees, and held hiring and firing authority. Furthermore, Mr. Noffke negotiated settlements with creditors and former employees on behalf of BOOMj. In Bauer, the Court of Claims identified the Bauer plaintiff as "an outsider with respect to the financial and fiscal affairs of the company. He did not meet with representatives of the bank which was principally concerned with MATI's [Management and Technology, Inc.] financial condition." Bauer v. United States, 211 Ct. Cl. 276, 543 F.2d 142, 149 (1976). Mr. Noffke, by contrast was intimately familiar with the financial affairs of the company, responsible for public reporting duties and helping to negotiate the sale of Local Ad Link, BOOMj's most profitable subsidiary.

In De Alto, the United States Court of Federal Claims concluded that the De Alto plaintiff was not a responsible person because

In Williams, the United States Claims Court noted that:

The court does not believe, as found in Heimark v. United States, that Mr. Noffke's responsibilities were ministerial. The Heimark court explained that the Heimark

Willfulness

A individual being a responsible person, however, is insufficient to trigger liability under 26 U.S.C. § 6672. As indicated above, the United States Court of Appeals for the Federal Circuit indicated that "a person is subject to a 100 percent penalty if he satisfies two separate statutory requirements. First, he must be under a duty to 'perform the act in respect of which the violation occurs,' (§ 6671(b)) and that duty is 'to collect, truthfully account for, and pay over' any taxes (§ 6672). Such a person is a 'responsible person.'" Godfrey v. United States, 748 F.2d at 1574 (footnote omitted). The Federal Circuit continued: "Second, the 'responsible person' must have 'willfully' failed to collect, truthfully account for, and pay over, or have 'willfully' evaded or defeated the tax or tax payment," and "both statutory requirements must be present for the 100 percent penalty to be imposed." Id. (citing McCarty v. United States, 194 Ct. Cl. 42, 437 F.2d at 967). Having determined that Mr. Noffke is a "responsible person," the court turns to the second requirement, the willfulness requirement. Although defendant argues that "Noffke willfully failed to pay BOOMj's employment taxes," plaintiff has not made arguments specific to the willfulness element of 26 U.S.C. § 6672.

As noted in Farkas v. United States "as the text makes clear, section 6672 includes a scienter element requiring that the responsible person must have 'willfully' failed to make the requisite withholding." Farkas v. United States, 57 Fed. Cl. at 140 (emphasis in original). Indeed, 26 U.S.C. § 6672(a), specifically mentions the word willfully twice:

The Court of Federal Claims in Kobus explained that:

As noted above, "[t]he separate requirement that a responsible individual also have acted willfully in failing to withhold and/or remit the tax also presents a fact-intensive inquiry, calling for 'proof of a voluntary, intentional, and conscious decision not to collect and remit taxes thought to be owing.'" Gann v. United States, 121 Fed. Cl. at 489 (quoting Godfrey v. United States, 748 F.2d at 1577). As previously indicated, although plaintiff states willfulness is a question presented in this case in his submissions to the court, plaintiff does not separately address the willfulness requirement. Notably, plaintiff begins its post-trial brief: "The only issue in this case is whether plaintiff, Mark V. Noffke, was a responsible person within the meaning of 26 U.S.C. § 6672(a), the trust fund recovery penalty, of Boomj.com, Inc. during each of the four quarters of 2009." (internal citations omitted). Additionally, the only reference to willfulness in the plaintiff's reply brief is to argue: "Awareness goes to willfulness, not responsibility."

The parties have stipulated that "BOOMj failed to deposit its employment tax withholdings in the first, second, third and fourth quarters of 2009. Plaintiff was aware at the time of the delinquencies of BOOMj's failure to meet its employment tax obligations." In addition, the trial testimony demonstrated that Mr. Noffke had actual knowledge of outstanding liabilities. Mr. Noffke himself testified that "notices come from the IRS notifying you of the deficiencies," and that BOOMj generated weekly reports identifying liabilities, including the tax payment requirements and deficiencies. Moreover, Mr. Noffke confirmed with both plaintiff's counsel and defendant's counsel during trial his knowledge of those liabilities. With defendant's counsel, Mr. Noffke discussed the conversations about not paying the employment tax liabilities with Mr. McNulty:

Would that be a bill that Mr. McNulty would give priority to?

In addition, as the parties have stipulated, "Plaintiff signed a Form 4180 interview form regarding his role at BOOMj and his knowledge of the unpaid liabilities on May 18, 2010. Although discussed above, most notable about the Form 4180, is the question: "During the time the delinquent taxes were increasing, or at any time thereafter, were any financial obligations of the business paid," to which the answer was yes, with the explanation "Standard operational expenses to keep company in business." In response to the question: "Who authorized them to be paid?" the Form 4180 stated: "Mark Noffke." Defendant argues that, "[a]s Noffke was intimately aware of the unpaid tax liabilities to the IRS, and had the ability to sign a check or wire funds to the IRS to satisfy that debt but did not do so, he has acted willfully under § 6672, and this Court should rule accordingly."²⁵ Considering all the evidence introduced at trial, including the exhibits and the testimony, the court agrees with defendant and concludes that Mr. Noffke willfully failed to pay the obligated employment taxes. Based on the record before the court, the court finds that plaintiff knowingly chose not to pay over the withholding taxes. See Kobus v. United States, 103 Fed. Cl. at 588 ("[A] person acts willfully if he has actual knowledge of a past or present withholding-tax deficiency and he voluntarily chooses not to pay the United States. More specifically, a person acts willfully as a matter of law if, after he has actual knowledge of a tax deficiency, he uses unencumbered funds to pay other creditors instead of the United States." (footnote and citation omitted)). As plaintiff is both a responsible person and willfully failed to pay the required taxes, plaintiff is liable under 26 U.S.C. § 6672.

IT IS SO ORDERED.

MARIAN BLANK HORN

² The court notes that, although the parties have stipulated that Mr. Noffke has been a certified public accountant since 1980, during the trial, Mr. Noffke testified that he has been a certified public accountant "since 1981," and, as of 2016, that he had been in the accounting business for "a little bit more" than thirty years," which is inconsistent with his testimony that he has "been in the accounting industry since 1977." Although the fact that Mr. Noffke is a certified public accountant is relevant to the court's determination, as are his years of experience, neither the precise year he was certified as a public accountant, nor the exact number of years he has been involved in the accounting industry are important.

³ Although not discussed at trial, the parties also have stipulated that "Plaintiff has an accounting bachelors' degree and has taken post-graduate management courses at Northwestern University [sic] and Emory University's business schools."

⁴ As discussed further below, after BOOMj ceased operations in 2009, a subsidiary of BOOMj, Kaching Kaching, Inc., purchased certain assets of BOOMj for 20.8% of the shares of common stock of Kaching Kaching, Inc., and plaintiff became the Chief Financial Officer of Kaching Kaching, Inc.

⁵ Mr. Noffke subsequently testified that "[t]he reverse merger took place sometime during the period of -- of 2007."

⁶ The name of the entity is iSupply.

⁷ Despite parting from BOOMj nine years before the trial, Mr. Pursglove and Mr. McNulty continue to have a strained relationship. In response to a question about Mr. McNulty's honesty, Mr. Pursglove stated that "He [Mr. McNulty] wouldn't know how to spell it, No. 1, and he wouldn't know honesty if it was staring him in the face, and he wouldn't know it was honesty if St. Peter himself was delivering it to him." Mr. McNulty, for his part, testified regarding Mr. Pursglove:

⁹ Mr. Noffke indicated that for a time, he may have been the only individual with check signing authority at BOOMj. He testified: "I don't recall who else may have been added. I might have just been the sole one at a point in time. So I really don't recall. . . ."

¹⁰ At trial, Mr. McNulty was asked is "there a reason that you were not a signer on the BoomJ checking account?" and Mr. McNulty replied: "No, not particularly." Mr. McNulty further explained: "I mean, I didn't control it from writing the check, but I controlled it from discussing issues with Mark [Noffke] and directing them who should get paid and who shouldn't get paid."

¹¹ The parties have stipulated that "Plaintiff and Mr. McNulty authorized payroll at BOOMj."

¹² Regarding Ms. Stiff, Mr. Noffke testified that "she actually did the payroll, was responsible for the filing of the payroll taxes, the reporting of the payroll taxes, the actual entry of some of the accounts payable, and the supervision of some of the accounts payable functions, the actual generation of the check, printing or preparing a check." Moreover, the parties have stipulated that "plaintiff hired Joanne Stiff to manage BOOMj's accounts payable, payroll, bank reconciliations and other functions."

¹³ The joint exhibits include an IRS Form 433-B, which reflects that Mr. Noffke was "Responsible for Depositing Payroll Taxes."

¹⁴ OmniReliant was an investor in BOOMj. After BOOMj experienced financial difficulties, Local Ad Link was sold to a subsidiary of OmniReliant.

¹⁵ Although not an issue currently before this court, Kaching Kaching, Inc. also failed to pay the employment tax liabilities for the tax period ending on December 31, 2010, and the IRS assessed Mr. Noffke with a trust fund recovery penalty for that failure. As indicated below, prior to trial, the parties resolved their dispute regarding the 2010 fourth quarter tax liabilities for Kaching Kaching, Inc.

¹⁶ Although plaintiff sought a refund in the amount of "$1,541.69 plus interest," in plaintiff's "Statement for Refund Claim," included as an exhibit to the complaint, plaintiff claimed "[t]he Taxpayer has paid $1,533, representing the withholding for one employee for each Quarter."

¹⁷ The genesis of the exception is dicta in Flora v. United States stating that "excise tax assessments may be divisible into a tax on each transaction or event, so that the full-payment rule would probably require no more than payment of a small amount." Flora v. United States, 362 U.S. at 175 n.38; see also Steele v. United States, 280 F.2d at 90 (citing Flora v. United States, 362 U.S. at 171 n.37, 175 n.38).

¹⁸ Although the Federal Circuit considered the issue of the "divisibility exception" to Flora's full payment rule, and noted that "divisibility remains a 'narrow exception,'" Diversified Grp. Inc. v. United States, 841 F.3d at 982, in that case, the Federal Circuit addressed the issue of the divisibility exception in the context of the IRS conducting a penalty audit, pursuant to 26 U.S.C. § 6707, for the failure to register a tax shelter under 26 U.S.C. § 6111, and did not address 26 U.S.C. § 6672. See Diversified Grp. Inc. v. United States, 841 F.3d at 985 (determining the penalty assessed pursuant to 26 U.S.C. § 6707 is not divisible). A seminal case decided by the Federal Circuit regarding 26 U.S.C. § 6672, Godfrey v. United States, 748 F.2d 1568, did not address if partial payment was a jurisdictional bar to deciding the case, but reached a decision on the merits, despite plaintiff having paid the taxes only "withheld from one employee." Id. at 1573.

¹⁹ The Tax Code at 26 U.S.C. § 6103(e)(9) provides that:

²⁰ Plaintiff indicated, however, that "[w]hile that is true, Mr. Noffke lost all of those shares after he pledged them as collateral for a loan that Boomj incurred and defaulted."

²¹ Citing to Ms. Stiff's testimony at trial, plaintiff also notes that Ms. Stiff did not provide Mr. Noffke with a Privacy Act notice or a copy of IRS Notice 784, which is titled "Could You be Personally Liable for Certain Unpaid Federal Taxes?" Defendant does not challenge plaintiff's statement that no one from the IRS conducted an interview with Mr. Noffke regarding Form 4180.

²² Plaintiff cites no authority for the proposition that payment to the IRS of taxes owed by BOOMj would be considered embezzlement by Mr. Noffke.

²³ The following exchange between plaintiff's counsel and Mr. Aaronson occurred regarding Mr. McNulty:

²⁵ In addition, as a long time Chief Financial Officer and certified public accountant, Mr. Noffke was aware of both of the requirements of 26 U.S.C. § 6672 and the ability of the government to recover the nonpayment of employment taxes. In fact, Mr. Noffke previously had been responsible for paying payroll taxes as Chief Financial Officer of National Storm Management. Mr. Noffke also testified at trial on cross-examination: