A regular visitor to a restaurant who performed occasional chores that included writing some checks and even signing a few was not a "responsible person" liable for the business's unpaid payroll taxes, the Tax Court held.
Facts: Beginning in 2006, Charles D. Shaffran Sr. visited Sunset Charlie's, a beachside restaurant in Miramar Beach, Fla., two or three days a week for several hours. While there, he mostly socialized but sometimes acted as a "gofer," running errands for the owner, Paul Roberts, and Shaffran's son, Carlos D. Shaffran, a manager. The elder Shaffran also occasionally trained bartenders and received deliveries. For some of the restaurant's expenses, he made payments with checks he wrote out and Roberts or Carlos Shaffran signed. These checks included some made out to himself, in partial repayment of a $6,500 loan he and his wife had made to the business. In one two-week period during 2006 while Roberts and Carlos Shaffran were unavailable, Charles Shaffran also signed four checks, which the bank honored even though he was not an authorized signatory.
However, Charles Shaffran was not an employee, officer, or director of the business and was not involved in preparing or reviewing its financial records and returns. He had no role in hiring or firing employees or involvement in payroll transactions.
The restaurant struggled financially, and in 2008 it was evicted from its building and ceased business. It also failed to pay creditors on time and failed to pay payroll taxes to the IRS for one quarter of 2006, all of 2007, and one quarter of 2008.
In 2011, an IRS revenue officer investigated Sunset Charlie's for nonpayment of employment taxes. The manager of the building where it had operated mistakenly identified Charles Shaffran as the restaurant's bookkeeper, and the revenue officer mistook him as the signer of checks that had actually been signed by his son. In June that year, the IRS issued trust fund recovery penalties against Charles Shaffran and assessed liabilities totaling nearly $69,000. In August, the IRS issued a notice of federal tax lien and intent to levy, which Shaffran appealed. A Collection Due Process appeal sustained the penalties, and Shaffran petitioned the Tax Court, before which he appeared pro se.
Issues: Sec. 6672 prescribes a penalty equal to the total amount of employment or income taxes withheld but not remitted imposed on any person required to "collect, truthfully account for, and pay over" the tax but who willfully fails to do so. Such a "responsible person" can include an officer or employee under a duty to collect, account for, or pay over the withheld tax.
The IRS contended Shaffran was a responsible person because he acted as a "de facto officer" by signing the four checks and writing out others for his son's or the owner's signatures. Shaffran denied being a responsible person because he was not an owner or manager of the restaurant and lacked authority to sign checks or determine the priority of payment to its creditors.
Holding: Noting that the "essential question is whether the person had sufficient control over corporate affairs to avoid nonpayment of the employment taxes," the Tax Court determined that Shaffran lacked such control and thus was not a responsible person for purposes of the trust fund recovery penalty.
The four checks he signed were less than 1% of the checks the business issued during that quarter. Two of the four he executed only on Roberts' instruction, and the other two he signed in unusual circumstances. The fact that he wrote some checks that were signed by his son only confirmed the elder Shaffran's lack of authority to disburse funds, the court said.
- Shaffran, T.C. Memo. 2017-35
—By Paul Bonner, a JofA senior editor.