Responsible person.

In Steven Lindsey, 10th Cir., 10/7/02, the Tenth Circuit upheld a determination that an individual was a Sec. 6672 responsible person for an unpaid employment tax liability, despite the fact that he had no check-signing authority for the employer corporation.

The taxpayer was a founder and 50% shareholder of TFS, which leased truck drivers to Clearwater, another company with the same owners. He was president of Clearwater and vice president of TFS.

TFS operated rent-free using Clearwater's facilities and had no financial obligations other than for payroll and employment taxes. The taxpayer had substantial financial control over TFS because he authorized all employee lease payments from Clearwater to TFS; he could sign Clearwater checks, but not TFS checks.

Financial problems led Clearwater to stop paying TFS amounts to cover the truck drivers' wages and the employment taxes; thus, TFS failed to pay its employment taxes. The taxpayer contended that, because he lacked authority to write checks on TFS's bank account, he was not responsible for willfully failing to pay employment taxes.

According to the Tenth Circuit, the issue was whether check-signing authority on a corporate account is a necessary predicate for demonstrating both personal responsibility and willfulness. The court concluded that authority to sign checks is only one of several factors in determining personal responsibility. The crux is whether the person had effective power to pay the taxes (i.e., whether he or she had actual authority or ability to pay the taxes owed, in light of his or her status within the corporation). The officer need not personally write checks, as long as he or she has significant authority and control over the corporation's finances.