Rev. Rul. 54-158
Rev. Rul. 54-158; 1954-1 C.B. 247
- LanguageEnglish
- Tax Analysts Electronic Citationnot available
Advice is requested whether the 100 percent penalty provided in section 2707(a) of the Internal Revenue Code should be assessed in a case where money withheld from employees as taxes, in lieu of being paid over to the Government, was knowingly and intentionally used to pay the operating expenses of a business, or for other purposes.
Section 2707 of the Code is applicable to withholding of income tax at the source, taxes under the Federal Unemployment Tax Act, and taxes under the Federal Insurance Contributions Act, and provides in part as follows:
(a) Any person who willfully fails to pay, collect, or truthfully account for and pay over the tax imposed by section 2707(a), 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 of the amount of the tax evaded, or not paid, collected, or accounted for and paid over, to be assessed and collected in the same manner as taxes are assessed and collected. * * *.
*
(d) The term `person' as used in this section 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.
The question as to what constitutes willful, or `willfully' as used in section 2707(a) of the Code was considered in Matter of Alex D. Haynes (a bankrupt), 88 Fed Supp. 379; Paddock et al. v. Siemoneit et al. , 218 S.W.(2d) 428; and Kellems et al. v. United States , 97 Fed.Supp 681. The bankrupt in the Haynes case, supra , was one of the organizers, also a stockholder, director, president, and manager of a corporation which was kept going by virtue of certain loans from outside sources, but at no time did it have sufficient funds to meet its current obligations. The corporation was insolvent and certain withholding taxes, taxes under the Federal Insurance Contributions Act, and taxes under the Federal Unemployment Tax Act were not paid. The bankrupt, also, was one of the officers of the corporation whose duty it was to collect, where collection was necessary, and pay the taxes to the United States. With reference to the application of section 2700(a) of the Code to the facts in that case, the court said:
* * * We are well aware of the many meanings that the courts have placed on the word `willful'. Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 367, 87 L.Ed. 418 Ct. D. 1571, C.B. 1943, 1038 . In this case the court said it `is a word of many meanings, its construction often being influenced by its contents'. It is our judgment that as the word is used in this statute section 2707(a) it does not mean wicked design but rather that the person acts knowingly and intentionally. It would seem therefore that if the officer of the corporation had in his hands or under his control the funds that had been set apart for the purpose of paying the tax and appropriated such funds for some other purpose that he acts `willfully'.
The liability of an officer of an insolvent corporation for the civil penalty provided in section 2707(a) of the Code for failure to pay over taxes withheld from wages of employees of the corporation was involved in Paddock et al. v. Siemoneit et al., supra . In that case the court determined as a fact that Siemoneit was the disbursing officer of the corporation and that it was his decision that the taxes would not be paid when due. The court found that Siemoneit in failing to cause the corporation to pay over the taxes had no fraudulent motive or intent or purpose to defraud the Government of its revenue, but that he deliberately and intentionally failed to cause payment of the taxes when they were due. The court, citing Murray R. Spies v. United States , 317 U.S. 492, Ct. D. 1571, C.B. 1943, 1038, and United States v. Harry Murdock , 290 U.S. 389, Ct. D. 771, C.B. XIII-1, 144 (1934), stated in part as follows:
Section 2707(a) provides that the penalty imposed therein shall be `assessed and collected in the same manner as taxes are assessed and collected'. Thus it is clear that the statute intended a civil, not a criminal, sanction. The imposition of civil as well as criminal sanctions for the same act or omission is permissible; and one sanction which has long been recognized as civil, rather than criminal, in spite of its possible severity, is the payment of fixed or variable sums of money. * * *.
In United States v. Illinois Central Railroad Company , 303 U.S. 239, 58 S.Ct. 533, 82 L.Ed. 773, suit was brought to recover a civil penalty for violation of a Federal statute requiring the periodical unloading of livestock in transit. The Supreme Court there rejected the argument that `willful' included an evil motive or bad purpose and approved its definition as the attitude of a person `who, having a free will or choice, either intentionally disregards the statute or is plainly indifferent to its requirements.' * * *
*
In the light of the decisions of the Supreme Court of the United States, and even though we agree that penalty statutes should generally be construed in favor of the taxpayer, we have concluded that the district court's finding that the respondent intentionally and deliberately failed to pay the taxes when due was sufficient to make him liable for the civil penalty under section 2707(a). Respondent admittedly knew that the taxes were due. There was no contention that the statute was inapplicable to the taxpayer * * * Nor does the proof show that the corporation could not have paid the taxes when they were due. The proof merely shows that it was inconvenient for the corporation to pay the taxes at that time, and that it was thought that the corporation would have a better chance to operate profitably if it postponed the payment of its tax obligation and used the funds for its own purposes instead of paying them over to the Government as the law requires. The choice was knowing, deliberate and intentional, and with full realization that the law was being violated. In our opinion this is the kind of case which section 2707(a) was intended to cover.
In the Kellems case, supra , which involved a failure to comply with the withholding provisions of the income tax laws, the court found that the taxpayer had acted without reasonable cause and stated in part:
The `government' * * * has taken the position throughout, and still adheres to the position, that an intentional and deliberate non-compliance, which concededly existed here, was enough to bring the penalty statute into play. I overruled this contention * * * and still hold, that the word willful in the penalty statute means `without reasonable cause,' that is to say, `capricious' * * *.
The difference between the meaning of the word `willful' as used in a statute imposing civil penalties (such as subsection (a) of section 2707 of the Code, sura ) and as used in statutes imposing criminal penalties of fine or imprisonment, or both, (such as subsections (b) and (c) of section 2707) can be seen from the decision of the Supreme Court of the United States in the case of United States v. Murdock, supra . In that case the Supreme Court in considering interalia , section 256 of the Revenue Act of 1926 and section 148 of the Revenue Act of 1928, requiring the making of returns showing payments to others, and section 1114(a) of the Revenue Act of 1926 (now section 2707(b) of the Internal Revenue Code), which imposes criminal penalties for willful failure to make such returns, stated in part as follows:
The word willfully often denotes an act which is intentional, or knowing, or voluntary, as distinguished from accidental. But when used in a criminal statute it generally means an act done with a bad purpose ( Felton v. United States , 96 U.S. 699; Potter v. United States , 155 U.S. 438; Spurr v. United States , 174 U.S. 728); without justifiable excuse ( Felton v. United States , supra; Williams v. People , 26 Colo. 272; People v. Jewell , 138 Mich. 620; St. Louis, Iron Mountain & S. Ry. Co. v. Batesville & W. .tel. Co. , 80 Ark. 499; Clay v. State , 52 Tex. Cr. R., 555); stubbornly, obstinately, perversely, ( Wales v. Miner , 89 Ind. 118, 127; Lunch v. Commonwealth , 131 Va. 762; Claus v. Chicago Gt. W. Ry. Co. , 136 Iowa 7; State v. Harwell , 129 N.C. 550). * * *
This court has held that where directions as to the method of conducting a business are embodied in a Revenue Act to prevent loss of taxes, and the Act declares a willful failure to observe the directions a penal offense, an evil motive is a constituent element of the crime. * * * Felton v. United States , supra, * * *.
In view of the foregoing, it is held that the 100 percent penalty provided in section 2707(a) of the Code should be assessed in a case where money withheld from employees as taxes, in lieu of being paid over to the Government, was knowingly and intentionally used to pay the operating expenses of a business, or for other purposes.
- LanguageEnglish
- Tax Analysts Electronic Citationnot available