Nakano v. United States

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Plaintiff, former vice president and CFO of National Airlines, filed suit under 26 U.S.C. 7422 against the United States for a refund of taxes erroneously assessed. The United States counterclaimed for the unpaid balance of the tax assessments. The district court granted summary judgment in favor of the government on both the claim and counterclaim. The court held that assets are "encumbered" for purposes of 26 U.S.C. 6672 only if "the taxpayer is legally obligated to use the funds for a purpose other than satisfying the preexisting employment tax liability and if that legal obligation is superior to the interest of the IRS in the funds," a test that is not met here. Therefore, the district court properly held that plaintiff willfully failed to pay over excise taxes that he was obligated to pay as a responsible person. The court also held that the Air Transportation Safety and System Stabilization Act, Pub. L. No. 107-42, section 301(a)(1), did not "allow the airlines to use the excise taxes as working capital" and does not defeat trust status for unpaid excise taxes for purposes of personal liability under section 6672. Accordingly, the court affirmed the judgment of the district court. View "Nakano v. United States" on Justia Law