United States v. Williams

Case: 20-10433     Document: 00515926847          Page: 1    Date Filed: 07/06/2021

              United States Court of Appeals
                   for the Fifth Circuit                             United States Court of Appeals
                                                                              Fifth Circuit

                                                                         July 6, 2021
                                   No. 20-10433                        Lyle W. Cayce

   United States of America,



   Charles I. Williams, DDS, as Executor of Mary C. Williams,


                  Appeal from the United States District Court
                      for the Northern District of Texas
                           USDC No. 3:17-CV-2262

   Before Wiener, Elrod, and Higginson, Circuit Judges.
   Stephen A. Higginson, Circuit Judge:*
          Taxpayer Charles I. Williams owned and operated several dentistry
   practices. Yet he allegedly did not pay taxes withheld from his employees’
   paychecks to the Internal Revenue Service, and the United States filed suit.
   Granting the government’s summary judgment motion, the district court
   allowed the declaration of Williams’s bookkeeper, struck the declarations of

            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
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                                      No. 20-10433

   his treating physicians, and denied his motion to alter or amend the
   judgment. Central to this appeal is whether Williams “willfully” failed to
   pay these taxes, which would allow the government to hold him personally
   liable for the taxes owed. See 26 U.S.C. § 6672(a). For the reasons
   articulated herein, we AFFIRM the district court and find that Williams
   acted “willfully” in his failure to pay the withheld taxes.
              Dr. Charles I. Williams became a licensed dentist in 1967, and he
   owned various dentistry practices over the course of his career. During the
   years at issue in this case, 2012 to 2014, Williams was the president and sole
   owner and officer of Williams Dental Associates North, P.C. (“WDA
   North”) and Williams Dental Associates South, P.C. (“WDA South”).
   Williams also owned and operated Williams Business Management, Inc.
   (“WBM”), which handled WDA North’s and WDA South’s business
              In 2012, Williams faced a “cash flow crisis.” He reduced his salary,
   refinanced his home, and brought WDA North and WDA South into Chapter
   11 bankruptcy proceedings. He also left unpaid a portion of the payroll taxes
   owed by WDA North, WDA South, and WBM between 2012 and 2014.
   During this time, Williams signed Internal Revenue Service (“IRS”) forms
   reflecting that he owed outstanding payroll taxes and indicating that in some
   quarters his businesses did not turn over any payroll taxes.
              During these years in which his dental practices faced financial
   difficulty, Williams was also experiencing extreme personal hardship.
   Between 2008 and 2011, Williams underwent heart and back surgery; lost his
   son, sister, and brother-in-law; and sought treatment for an opioid use
   disorder. He continued to experience serious medical issues, cared for his
   ailing wife, and supported his late son’s family through 2014.

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                                        No. 20-10433

           Yet Williams continued to practice dentistry and stayed involved in
   business affairs. He saw patients in 2012, 2013, and 2014. He initiated and
   participated in bankruptcy proceedings for WDA North and WDA South in
   2013. That same year, he also negotiated the sale of a document storage
   business he had founded the previous decade.
           The United States sued Williams, his late wife’s estate, and several
   other defendants in federal court to collect unpaid taxes. 1 Williams does not
   dispute that the dental practices owe the unpaid payroll taxes. But he
   opposed the government’s motion for summary judgment on the ground that
   he could not be held personally liable for the unpaid payroll taxes because he
   did not willfully violate the tax laws. The district court found otherwise.
   First, it denied Williams’s motion to strike the declaration of his former
   bookkeeper, who testified that Williams knew that he owed the government
   payroll taxes but directed her to pay other bills instead. The court then
   granted the government’s motion to strike declarations from two doctors
   who opined that Williams was in a “mental fog” and therefore incapable of
   willfully spurning his tax obligations. Finally, the district court granted
   summary judgment, concluding that Williams acted willfully in failing to turn
   payroll taxes over to the IRS. The court ordered that proceeds from the sale
   of Williams’s property would be applied to his personal income tax and
   payroll tax liability. Williams appeals these orders as well as his unsuccessful
   motion to amend the judgment under Federal Rule of Civil Procedure 59(e).

           The United States sought recovery of payroll taxes Williams owed between 2012
   and 2014, as well as personal income taxes Williams and his late wife owed in 2010, 2013,
   and 2014. Williams did not contest his income tax liability.

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          We review a district court’s evidentiary rulings for abuse of discretion
   and its grant of summary judgment de novo. Munoz v. Orr, 

200 F.3d 291

, 300
   (5th Cir. 2000). Summary judgment is proper when there is no genuine issue
   of material fact and the moving party is entitled to judgment as a matter of
   law. Conway v. United States, 

647 F.3d 228

, 232 (5th Cir. 2011). The
   standard of review for a district court’s dismissal for lack of subject matter
   jurisdiction is de novo. Griener v. United States, 

900 F.3d 700

, 703 (5th Cir.
   2018). A district court’s denial of a Rule 59(e) motion to amend a judgment
   is reviewed for abuse of discretion. St. Paul Mercury Ins. Co. v. Fair Grounds

123 F.3d 336

, 339 (5th Cir. 1997).
          The Internal Revenue Code requires employers to withhold taxes
   from their employees’ wages. See 26 U.S.C. §§ 3102(a), 3402(a). Employers
   hold the withheld taxes “in trust” for the United States until they are
   remitted, usually on a quarterly basis. See id. § 7501(a). “When a corporate
   employer fails to pay over the trust funds, § 6672(a) of the Code imposes a
   penalty equal to the entire amount of the unpaid taxes on ‘any person’
   required to collect, account for, or pay over the withheld taxes, who
   ‘willfully’ fails to do so.” Barnett v. I.R.S., 

988 F.2d 1449

, 1453 (5th Cir.
   1993) (quoting 26 U.S.C. § 6672(a)). Personal liability for the penalty
   attaches if the person is a “responsible person” who “willfully” failed to pay
   over the withheld taxes. Slodov v. United States, 

436 U.S. 238

, 245–46 (1978);

988 F.2d at 1453

. Once a penalty under § 6672 is assessed and the
   taxpayer is found to be a responsible person, “the burden of proving lack of
   willfulness is on the taxpayer.” Mazo v. United States, 

591 F.2d 1151

, 1155
   (5th Cir. 1979). Williams does not dispute his status as a responsible person,
   but contests only whether his failure to remit taxes was willful.

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           “Willfulness under § 6672 requires only a voluntary, conscious, and
   intentional act, not a bad motive or evil intent.” Barnett, 

988 F.2d at 1457

   “A considered decision not to fulfill one’s obligation to pay the taxes owed,
   evidenced by payments made to other creditors in the knowledge that the
   taxes are due, is all that is required to establish willfulness.” 


   Howard v. United States, 

711 F.2d 729

, 736 (5th Cir. 1983)).
           Although the willfulness “determination is usually factual,”
   “evidence that the responsible person had knowledge of payments to other
   creditors after he was aware of the failure to pay withholding tax is sufficient
   for summary judgment on the question of willfulness.” 2 Mazo, 

591 F.2d at

. In other words, “[w]here there is undisputed evidence that the
   responsible person directed payments to other creditors while knowing of the
   tax deficiency, willfulness is established as a matter of law.” Conway, 

F.3d at 234

 (citing Barnett, 

988 F.2d at 1457

           The district court granted summary judgment after determining that
   uncontroverted evidence established willfulness as a matter of law. In
   reaching this conclusion, the district court denied Williams’s motion to strike
   the declaration of his former bookkeeper Brenda Beauchamp and granted the
   government’s motion to exclude declarations by two of Williams’s doctors.
   Williams challenges both rulings on appeal.
           In her declaration, Beauchamp claimed that Williams knew of his
   unpaid payroll taxes but directed her to pay other bills instead. The district

             Other circuits agree. See, e.g., Johnson v. United States, 

734 F.3d 352

, 364–65 (4th
   Cir. 2013); cf. Jefferson v. United States, 

546 F.3d 477

, 480–82 (7th Cir. 2008). While the
   Tenth Circuit expressed concern that courts have “impermissibly encroached upon the
   role of the jury as fact-finder by utilizing broad factual paradigms to impose liability as a
   matter of law” under § 6672, it nonetheless left most of its § 6672 jurisprudence intact and
   carved out only a limited reasonable cause exception. Finley v. United States, 

123 F.3d 1342

   1347–48 (10th Cir. 1997) (en banc).

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                                    No. 20-10433

   court properly concluded that Williams did not articulate any valid basis for
   excluding this testimony. For the most part, Williams generally asserted that
   the Beauchamp declaration contained hearsay and unsupported lay
   testimony. But “[e]videntiary objections must be specific.” United States v.

367 F.3d 433

, 445 (5th Cir. 2004); see also Tucker v. SAS Inst., Inc.,

462 F. Supp. 2d 715

, 722 (N.D. Tex. 2006) (“Federal Rule of Evidence
   103(a)(1) requires an objecting party to make specific objections detailing the
   specific evidence the party wishes to have stricken and stating the specific
   grounds upon which each piece of evidence should be stricken.”).
   Williams’s one particularized objection to Beauchamp’s declaration—that
   she testified about activity by Williams beyond her personal knowledge—is
   likewise unfounded. Williams evidently interprets Beauchamp’s testimony
   as describing events that she could not have observed firsthand because they
   took place after she left Williams’s employment. But that is not the only, or
   even the most natural, reading of her declaration. The challenged testimony
   more likely refers to events that occurred while Beauchamp still worked for
   Williams.   The district court therefore did not abuse its discretion in
   declining to strike Beauchamp’s declaration.
          The district court did exclude declarations by two of Williams’s
   doctors, Dr. Maese and Dr. Nace, because Williams had not filed expert
   reports for them under Federal Rule of Civil Procedure 26. Although a
   party’s treating physicians typically do not need to disclose a written expert
   report before testifying, some courts have held that this exception does not
   apply to “opinions that the treating physician arrives at after treatment, for
   the purposes of litigation.” LaShip, LLC v. Hayward Baker, Inc., 

296 F.R.D.

, 480 (E.D. La. 2013); accord Meyers v. Nat’l R.R. Passenger Corp., 

619 F.3d

, 735 (7th Cir. 2010). We need not decide this question, which remains
   unsettled in this circuit.    As discussed below, even considering the

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                                    No. 20-10433

   declarations of Dr. Maese and Dr. Nace, Williams has not put forward
   evidence disputing that he acted willfully as a matter of law.
          The district court correctly concluded that Williams acted willfully as
   a matter of law because the United States put forth uncontroverted evidence
   that Williams directed payments to other creditors despite knowing that he
   owed unpaid payroll taxes. The government established that Williams knew
   of his outstanding payroll tax obligations through Williams’s deposition
   statements that he recalled having payroll tax issues in 2012, 2013, and 2014
   and IRS forms bearing his signature that reported a balance due on withheld
   payroll taxes. The record also shows that, although Williams was aware that
   he owed payroll taxes, he drew a salary, paid employees and vendors, and
   directed the payment of rent and other bills instead of his IRS debt. By
   “paying private creditors in preference to the government” while he
   “actually knew the taxes were unpaid,” Williams acted willfully as a matter
   of law. See Mazo, 

591 F.2d at 1156

          Williams nonetheless argues that he did not act willfully for two
   reasons. First, he contends that he was incapable of acting willfully because
   he was “not in his right mind” during the years in question. Williams points
   to the declarations of his two doctors, who both opined that Williams did not
   act willfully in failing to pay payroll taxes under § 6672. To substantiate this
   assertion, Dr. Maese stated that from 2010 to 2014, medical issues
   “incapacitated” Williams, who was “in a ‘mental fog’ rendering him
   incapable of maintaining his medical license” and running his dental
   practices. Dr. Nace echoed Williams’s own conclusion that he was “too
   distraught” to carry on his businesses. Williams also cites the deposition
   testimony of his longtime administrative assistant Kathleen Bryant, who
   stated that Williams “wasn’t there” mentally in 2010, and his accountant
   John Parma, who acknowledged that no one “in their right mind” would
   overreport income on their tax return to the extent Williams had done.

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                                    No. 20-10433

          None of this testimony creates a genuine issue of material fact as to
   willfulness under § 6672.     Williams does not refute the government’s
   evidence that he was aware of his outstanding payroll tax obligations or that
   his payments to other creditors instead of the IRS were “voluntary,
   conscious, and intentional act[s].” Barnett, 

988 F.2d at 1457

. The excluded
   declarations indicate that Williams experienced personal and professional
   hardships around the time he failed to pay his taxes. Yet at the same time
   Williams supposedly lacked the mental capacity to act willfully, he saw dental
   patients, initiated bankruptcy proceedings, and sold a company. Neither the
   declarations nor the depositions therefore defeat a finding of willfulness as a
   matter of law. See Cappetta v. United States, No. 04-C-4583, 

2006 WL 51163

   at *5 (N.D. Ill. Jan. 9, 2006) (finding defendant willful as a matter of law
   despite defendant’s “serious health problems” because he had “not
   presented evidence that his illness was so incapacitating that it prevented him
   from issuing checks”).
          Second, Williams claims that he is not to blame for the failure to pay
   taxes because he had turned over his businesses’ tax duties to Beauchamp
   and Parma. But the fact that he “delegated the jobs of withholding and
   paying employees’ taxes and generally paying creditors is beside [the] point.”

988 F.2d at 1455

. Williams remained responsible for the collection
   and payment of payroll taxes under § 6672—a finding he did not contest in
   front of the district court. In the face of the government’s evidence that
   Williams knew of the unpaid payroll taxes yet decided to pay private creditors
   instead of the IRS, he cannot overcome summary judgment on the question
   of willfulness.
          Williams’s remaining arguments on appeal lack merit. First, he
   contends that the IRS should have applied seized social security payments to

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                                          No. 20-10433

   his personal income tax liability instead of the unpaid payroll taxes. Williams
   first asserted this argument as a counterclaim against the Government
   through his amended answer at the district court.                   The district court
   dismissed Williams’s counterclaim on the ground that it lacked subject
   matter jurisdiction to adjudicate it. 3
           The district court’s dismissal of Williams’s counterclaim was proper.
   A taxpayer must first file an administrative claim for a refund with the IRS.
   26 U.S.C. § 7422(a). Williams does not assert that he filed an administrative
   claim for a refund or otherwise attempted to contest the IRS’s application of
   certain social security payments to Williams’s trust fund recovery penalties.
           Williams’s appeal of his Rule 59(e) motion to amend the judgment
   fares no better. In that motion, he objected to the distribution of the proceeds
   of property sold to satisfy his tax obligations. He argued that half of the
   money generated from the sale must be returned to his late wife’s estate
   because she retained a community property interest in those proceeds and
   was not liable for Williams’s unpaid taxes. “A motion to alter or amend the
   judgment under Rule 59(e) ‘must clearly establish either a manifest error of
   law or fact or must present newly discovered evidence.’” Marseilles
   Homeowners Condo. Ass’n Inc. v. Fid. Nat’l Ins. Co., 

542 F.3d 1053

, 1058 (5th
   Cir. 2008) (per curiam) (quoting Simon v. United States, 

891 F.2d 1154

, 1159
   (5th Cir. 1990)). Because “Rule 59(e) ‘motions cannot be used to raise
   arguments that could, and should, have been made before the judgment


 (quoting Simon, 

891 F.2d at 1159

), the district court did not

             The district court also acknowledged but did not exercise its power to sua sponte
   strike Williams’s counterclaim pursuant to Federal Rule of Civil Procedure 15 for failure to
   seek leave of court to file an amended answer.

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                                    No. 20-10433

   abuse its discretion in determining that Williams failed to meet this standard,
   see Fair Grounds Corp., 

123 F.3d at 339

          For the foregoing reasons, we AFFIRM the district court and find
   that Williams acted “willfully” in his failure to pay withheld payroll taxes,
   and he is thus personally liable for the trust fund recovery penalties under §


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