STATE OF WISCONSIN
LABOR AND INDUSTRY REVIEW COMMISSION
P O BOX 8126, MADISON, WI 53708-8126 (608/266-9850)

S B R INC, Employer

UNEMPLOYMENT INSURANCE CONTRIBUTION LIABILITY DECISION
Account No. 516300, Hearing No. S9900041MD

An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission agrees with the decision of the ALJ, and it adopts the findings and conclusion in that decision as its own.

DECISION

The decision of the administrative law judge is affirmed. Accordingly, Bryan J. Sipple is personally liable for the payment of delinquent unemployment contributions of S. B. R. Inc., as more particularly set forth in the department's initial determination.

Dated and mailed November 24, 1999
sbrinc.ssd : 105 : 7  ER 451

/s/ David B. Falstad, Chairman

/s/ Pamela I. Anderson, Commissioner

/s/ James A. Rutkowski, Commissioner

MEMORANDUM OPINION

This is a so-called "personal liability" case, that is, one in which the Department of Workforce Development seeks to hold the officer of a corporation personally liable for unpaid unemployment insurance taxes of the corporation. The statute which allows the department to do so, is Wis. Stat. § 108.22(9) and, for the reasons stated below, there is no question but that the administrative law judge properly found the appellant in this case personally liable for the delinquent contributions.

Wisconsin statute § 108.22(9) states, in relevant part:

An individual who is an officer, employe, member or manager holding at least 20% of the ownership interest of a corporation or of a limited liability company subject to this chapter, and who has control or supervision of or responsibility for filing contribution reports or making payment of contributions, and who willfully fails to file such reports or to make such payments to the department, or to ensure that such reports are filed or that such payments are made, may be found personally liable for such amounts, including interest, tardy payment or filing fees, costs and other fees, in the event that after proper proceedings for the collection of such amounts, as provided in this chapter, the corporation or limited liability company is unable to pay such amounts to the department.

There thus are four requirements for imposition of personal liability: 1. 20 percent ownership interest in the corporation; 2. control or supervision of or responsibility for filing contribution reports or making contribution payments; 3. wilful failure to file such reports or to make such payments (or to ensure that reports are filed or payments are made); and 4. proper collection proceedings by the department and inability of the corporation to make the necessary payments.

The first standard is easily deposed of. Both the department's and the appellant's records, in the appellant's case his tax records, indicate that he owned between 50 and 100 percent of the corporation's shares. There is no question, therefore, but that the appellant meets the 20 percent ownership requirement.

The next criterion is control or supervision of or responsibility for making payments. Discussion of this issue must be based on federal precedent, though, since there is very little state case law on the subject. The comparable federal statute is 26 U.S.C. § 6672, which imposes personal liability upon responsible persons for the wilful failure to pay over to the government employes' withheld taxes. Several general principles may be enunciated. First, courts have generally given a broad interpretation to the term "responsible person." Denbo v. United States, 988 F.2d 1029 (10th Cir. 1993). Thus, the United States Court of Claims has held that any corporate officer with the power and authority to avoid default is a responsible party, within the meaning of section 6672. Feist v. United States, 607 F.2d 954 (Ct. Cl. 1979). Included are persons having power to control the decision-making process by which the corporation allocates funds to other creditors, and persons with ultimate authority over the corporation's expenditure of funds. Godfrey v. United States, 748 F.2d 1568, 1575 (Fed. Cir. 1984). This responsibility is a matter of status, duty, and authority, indicia of which include the holding of corporate office, control over financial affairs, authority to disburse corporate funds, stock ownership, and the ability to retain and discharge employes. Thibodeau v. United States, 828 F.2d 1499, 1503 (11th Cir. 1987). "Responsible person" status generally attaches to "high corporate officials charged with general control over corporate business affairs who participate in decisions concerning payment of creditors and disbursement of funds." Monday v. United States, 421 F.2d 1210, 1214-15 (9th Cir. 1970). Although corporate office does not per se impose a duty to collect, account for, and pay over withheld taxes, liability does attach "to those with power and responsibility within the corporate structure for seeing that the taxes withheld from various sources are remitted to the Government." Monday, 421 F.2d at 1214.

Presumptions in this area are allowable. The court of claims has enunciated the rebuttable presumption that a corporation founder, chief stockholder, president, and member of the corporation's board of directors is a responsible person under section 6672. Feist, 607 F.2d at 960. The same court has noted that, since a corporation acts through its officers, absent evidence to the contrary a person who occupies the offices of vice president, secretary, and treasurer, and who has the authority to make corporate disbursements, also has the duty to carry out what the law requires of the corporation, here the payment of withholding taxes. Bolding v. United States, 565 F.2d 663, 670 (Ct. Cl. 1977).

An otherwise-responsible person likewise may not avoid liability simply by delegating the responsibility away from him or herself. Responsible persons have a fiduciary duty to properly account for proper management of funds; such a fiduciary cannot dissolve him or herself from liability by disregarding that duty and leaving it to someone else to perform. Hornsby v. Internal Revenue Service, 588 F.2d 952, 953 (5th Cir. 1979). Even the claim that a corporate officer or director is "merely a figurehead" is without legal significance and does not relieve the individual of the responsibilities of his or her corporate offices. Burroughs v. Fields, 546 F.2d 215, 217 (7th Cir. 1976).

Given these principles, there is no question but that the appellant is a responsible person within the meaning of the statute. He was the president of the corporation. In addition, he oversaw some of the bills the corporation would pay, such as rent and utilities. He testified that his payroll services did not pay the day-to-day bills. The appellant also testified, occasionally his payroll service would send in required contributions, in instances when the appellant was not in the area when the contributions were due. The most reasonable inference from this testimony is that the appellant himself was responsible for sending in required contributions when he was in the area. Further, notwithstanding any of the above, the appellant has pointed to no reasonable "division of labor" such that ultimate responsibility for making the necessary payments would fall to someone other than himself. To the extent that the appellant argues the payroll services were responsible for the necessary payments, his only way of avoiding liability would be to argue that he had "hid his head in the sand" and thus was unaware of the services' failures to make the payments. This is not allowed and, indeed, the appellant cannot even claim he was unaware that the contribution payments were not always made. For these reasons, there is no question but that the appellant meets the second criterion for assessment of personal liability.

The next criterion is "wilful" failure to make the payments or to ensure that the payments are made. In a civil context such as this proceeding, such willfulness requires only a conscious, voluntary decision on the actor's part. It is also accepted, though, that willfulness includes the "reckless disregard" of obvious or known risks. This notion of willfulness as reckless disregard is found in several areas of the law, including the Age Discrimination in Employment Act and Fair Labor Standards Act, federal tax law and the law of negligence in Wisconsin. Federal tax law provides the most closely analogous situation to the state law personal liability provisions. Section 6672 of Title 26 of the United States Code imposes personal liability upon a corporation's responsible persons for their wilful failure to collect or pay over to the government taxes withheld from employes' wages. In the present case the appellant conceded outright that he was aware "from time to time" during the time period in question that quarterly tax payments were not being made. Even "hands off" management, though, can still result in a finding of willfulness. This is because one may not avoid a finding of willfulness simply by delegating responsibility for payment to others. Hornsby v. Internal Revenue Service, 588 F.2d 952, 953 (5th Cir. 1979). Simply put, one may not delegate his responsibility away, especially if he is the president of a corporation. The appellant either knew or should have known that the tax payments were not being made, and the Wisconsin Supreme Court allows imputation of knowledge to the appellant in this circumstance. See Kohl v. F.J.A. Christiansen Roofing Co., 95 Wis. 2d 27, 289 N.W. 2d 329 (1980).

The other aspect of willfulness is that there were funds available to pay the delinquent contributions in question. Here, there clearly were. The employe received a salary in all years in question, and paid out hundreds of thousands of dollars to subcontractors, and in payment of other bills. For these reasons, the record fully supports a finding of willfulness on the appellant's failure to make the requisite payments. The final factor to be considered is whether the department first properly proceeded against the corporation for collection of the contributions. The record indicates that it did. The department's witness was Larry Jerdee, who currently is the supervisor of tax collections. He testified, with documentation in the record supporting his testimony, that the department made numerous telephone and in-person contacts with the appellant, attempted to establish various installment arrangements for payment of the contributions, issued levies against the corporation, and also docketed warrants against the corporation for the contributions not paid. This is sufficient to satisfy the statutory requirement that the department have proceeded against the corporation and the corporation is unable to pay the amounts due.

For the above reasons, the record fully supports the administrative law judge's finding of personal liability against the appellant. The commission therefore has affirmed the appeal tribunal decision.

cc: BRYAN J SIPPLE

ATTORNEY MICHAEL MATHIS
ENFORCEMENTS SECTION

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