The Eleventh Circuit Court of Appeals rejected a unique twist on the “my boss ordered me not to pay the trust fund taxes” defense in the case of Myers v. United States, CA 11, Case No. 18-11403. In this case the party Mr. Myers claimed ordered him not to pay was an agent of the Small Business Administration (SBA) that had been appointed as a receiver of his employer.
The opinion summarizes the facts of this case as follows:
The two companies that Myers worked for were owned by another company (“Parent Company”), and Parent Company was licensed by the U.S. Small Business Administration (the “SBA”) as a Small Business Investment Company (the “SBIC”). The SBA guarantees debentures that SBICs issue and has the power to place those SBICs into receivership.
Here, Parent Company violated the terms of its license, so the SBA filed suit in the Southern District of New York to place Parent Company into receivership.
See United States v. Avalon Equity Fund, L.P., No. 1:08-cv-7287 (S.D.N.Y., filed Aug. 18, 2008). Under an agreed-to Consent Order, the Southern District of New York placed Parent Company in receivership. Per the Consent Order, the Southern District of New York took “exclusive jurisdiction” of Parent Company and “all of its assets, and the Court appointed the SBA as Parent Company’s receiver.
As Parent Company’s receiver, the SBA was given “all powers, authorities, rights and privileges . . . [enjoyed] by the general partners, managers, officers and directors” of Parent Company. In turn, Parent Company’s actual general partners, managers, officers, and directors were dismissed. Put simply, the SBA was calling the shots for Parent Company.
In 2009 the companies that Mr. Myers worked for failed to pay trust fund taxes. Mr. Myers was the CFO and co-president of the entities, and he had signature authority over the entities’ bank accounts.
The problem arose while the receivership was in place, and Mr. Myers claimed that the SBA’s agent handling the receivership told him to pay other creditors rather than first paying the trust fund taxes. Mr. Myers did agree to pay those vendors even though that meant the trust fund taxes remained unpaid.
The IRS eventually assessed the trust fund penalty under IRC §6672 against Mr. Myers. Mr. Myers agreed that, generally, the “my boss told me to do it” defense doesn’t work in trust fund penalty cases. But he argued that this case was different—the party ordering Mr. Myers to not pay the U.S. government the trust taxes was an agent of the U.S. government.
The main opinion in the case contains a very terse and broad ruling against Mr. Myers’ position, stating:
So, the narrow question before us is whether 26 U.S.C. § 6672(a) — and our case law interpreting it — applies with equal force when a government agency receiver tells a taxpayer not to pay trust fund taxes. We hold that it does. We cannot apply different substantive law simply because the receiver in this case was the SBA. Thus, Myers is liable under § 6672(a).
Judge Jordan, in a concurring opinion, agreed with the result but did not agree with the broad holding that the same rule would apply in all cases. The judge notes:
Mr. Myers’ contention is that a person should not be liable under § 6672(a) to a federal agency — the IRS — for trust fund penalties if a different federal agency— the SBA acting as receiver — has told him not to pay trust fund taxes. I am not sure this legal issue is clear cut, and I can imagine a situation — like the one presented in McCarty v. United States, 437 F.2d 961, 963–73 (Ct. Cl. 1971) — where the answer would not be self-evident.
But this case is not such a case in Judge Jordan’s view:
As I see things, Mr. Myers is essentially arguing that the IRS should be estopped from recovering trust fund penalties because he acted pursuant to the instructions of the SBA receiver. I would hold that, on this record, Mr. Myers’ reliance on these instructions was not objectively reasonable. Cf. United States v. Alvarado, 808 F.3d 474, 484–85 (11th Cir. 2015) (explaining, in the criminal context, that the public authority and entrapment-by-estoppel defenses require reasonable reliance).
When the SBA became the receiver of the parent company, it stepped into the private status of that entity, see Untied States ex rel. Petras v. Simparel, Inc., 857 F.3d 497, 503–04 (3d Cir. 2017), and had to abide by its own liquidation standard operating procedures. Those procedures, in relevant part, required the SBA receiver to make all appropriate filings with federal tax authorities as required by 28 U.S.C. §960 if reasonably possible. See id. at 504; Small Business Administration, SBIC Liquidation SOP 10 07 1 at Ch. 7 ¶ 7.b(2) (2007). In turn, § 960 provides that “[a]ny officers and agents conducting any business under authority of a United States court shall be subject to all Federal . . . taxes applicable to such business to the same extent as if it were conducted by an individual or corporation.” Given this language, Mr. Myers could not have reasonably relied on the do-not-pay instructions of the SBA receiver. See Cal. State Bd. of Equalization v. Sierra Summit, Inc., 490 U.S. 844, 852 (1989) (explaining that Congress’ intent in enacting § 960 was that “a business in receivership . . . should be subject to the same tax liability as the owner had he been in possession of, and operating, the enterprise.”).