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11th Circuit Holds that “My Boss Told Me Not to Pay” Is Not a Defense to Trust Fund Penalties, Even Where the Boss Is a Government Agency by LACEY STRACHAN

The general rule is that under IRC Section 6672(a), a person “required to collect, truthfully account for, and pay over any tax…who willfully fails to collect such tax, or truthfully account for and pay over such tax” (known as trust fund taxes) is liable for a penalty equal to the total amount of the tax not paid over—even if that person was directed by a superior to not pay the tax.[i]  In Myers v. United States, Docket No 1:16-cv-01792 (11th Cir. May 6, 2019)[ii], the Eleventh Circuit addressed the narrow question of whether there is an exception to that general rule where the order to not pay the taxes came from a government agency.  Holding that the rule applies the same, the Eleventh Circuit affirmed the lower court’s decision rejecting the defense of “my boss told me not to pay,” where the boss in question was the U.S. Small Business Administration (“SBA”), a government agency.

The plaintiff in Myers v. United States was the CFO and co-president of two newspaper publishing companies, which were both owned by a parent company that had been licensed by the SBA as a Small Business Investment Company.  The SBA is an agency of the federal government that helps small businesses in the U.S. to start, build, and grow, by providing loans, loan guarantees, contracts, counseling sessions, and other forms of assistance.[iii]  As a Small business Investment Company, the parent company could issue debentures guaranteed by the SBA, and in turn, the SBA had the power to place the parent company into receivership.

In 2008, after violating the terms of its Small Business Investment Company license, the SBA filed suit in the Southern District of New York to place the parent company into receivership.  The Southern District of New York took “exclusive jurisdiction” of the parent company and all of its assets—including the two newspaper publishing subsidiaries—and appointed the SBA as the parent company’s receiver.  As receiver, the SBA was given “all powers, authorities, rights and privileges…[enjoyed] by the general partners, managers, officers and directors” of the company.

The following year, while the parent company was under the control of the SBA, the newspaper publishing companies failed to pay the required payroll taxes to the IRS, which are trust fund taxes under Section 6672(a).  As CFO and co-president, Myers had signature authority on the companies’ bank accounts, knew the payroll taxes were due, and approved payments to other vendors instead of paying the taxes over to the IRS.  As a result, the IRS assessed the trust fund tax penalties against Myers.  Myers argued that he should not be liable for the penalties because he was told by the SBA—a federal government agency—to prioritize other vendors over the trust fund taxes; however, the Eleventh Circuit held that Section 6672(a) “applies with equal force when a government agency receiver tells a taxpayer not to pay trust fund taxes.”

[i] See, e.g., Thosteson v. United States, 331 F.3d 1294, 1300 (11th Cir. 2003) (“Acting, or rather failing to act, under orders from his superior does not negate [a defendant’s] culpability under the statute.”); Brounstein v. United States, 979 F.2d 952, 955 [71 AFTR 2d 93-1714] (3d. Cir. 1992) (“Instructions from a superior not to pay taxes do[es] not… take a person otherwise responsible under section 6672(a) out of that category.”).

[ii] Myers v. United States, Docket No 1:16-cv-01792 (11th Cir. May 6, 2019), available at http://media.ca11.uscourts.gov/opinions/pub/files/201811403.pdf.

[iii] U.S. Small Business Administration, https://www.sba.gov/about-sba/organization.

LACEY STRACHAN – For more information please contact Lacey Strachan at Strachan@taxlitigator.com. Ms. Strachan is a principal at the law firm of Hochman Salkin Toscher Perez P.C. and represents clients throughout the United States and elsewhere in complex civil tax litigation and criminal tax prosecutions (jury and non-jury).  Ms. Strachan has experience in a wide range of civil and criminal tax cases, including cases involving technical valuation issues, issues of first impression, and sensitive examinations where substantial civil penalty issues or possible assertions of fraudulent conduct may arise. 

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