United States v. Estate of Richard T. Cole, Jr., et al., United States District Court for the Eastern District of Michigan, (Case No. 22-cv-12916, May 15, 2026)

For tax professionals representing corporate officers, few provisions in the Internal Revenue Code present a more formidable challenge than the Trust Fund Recovery Penalty (TFRP) under Internal Revenue Code Section 6672. A recent decision from the United States District Court for the Eastern District of Michigan, United States v. Estate of Richard T. Cole, Jr., et al. (Case No. 22-cv-12916, May 15, 2026), serves as a stark reminder of the absolute risk corporate officers face when employment taxes are withheld but not remitted.

This case underscores how difficult it is for co-owners and officers to escape joint and several liability by pointing fingers at co-officers, invoking third-party administrative failures, or claiming that their active role was merely nominal. For CPAs and Enrolled Agents, the court's rigorous application of the "responsible person" and "willfulness" tests provides essential lessons in risk management and administrative defense.

Factual History and Commercial Context

In February 1999, Robert W. Burland, Jr. and Richard T. Cole, Jr. founded Associated Community Services, Inc. (ACS), a telemarketing firm that raised funds for charitable causes and political campaigns. Burland and Cole served as co-presidents and each owned 50 percent of ACS’s voting shares.

From July 1999 through June 2005, ACS utilized Assurion, Inc. as a professional employer organization (PEO). Under this arrangement, Assurion leased employees to ACS, administered payroll, withheld employment taxes, and remitted them under Assurion's Employer Identification Number (EIN).

In June 2005, ACS terminated its contract with Assurion and engaged CO-HR, LLC. Crucially, the operational relationship with CO-HR was structured differently. CO-HR did not act as a PEO; it did not lease employees to ACS. Instead, ACS hired its own employees directly, compiled its payroll data, and forwarded that data to CO-HR. CO-HR then generated payroll checks, delivered them to ACS, remitted withheld employment taxes on ACS’s behalf, and invoiced ACS for the total amount of wages, unemployment taxes, and withheld federal employment taxes.

Over time, cash flow strain led to significant discrepancies. ACS failed to fully fund the invoices presented by CO-HR. By 2007, CO-HR calculated the funding shortfall at approximately $3 million, while ACS’s internal financial statements reflected $2.8 million in unpaid withholding taxes.

In September 2008, CO-HR formally notified ACS that it would no longer deposit ACS’s withheld employment taxes with the Internal Revenue Service (IRS), shifting the burden of direct remittance back to ACS. The entities parted ways in May 2009.

In September 2012, the IRS filed a notice of federal tax lien against ACS for approximately $5.4 million. In December 2012, the IRS assessed civil penalties under Section 6672 against both Burland and Cole personally for unpaid withholding taxes covering all quarters of 2008 and the first quarter of 2010, totaling roughly $3.4 million.

ACS filed for Chapter 11 bankruptcy in March 2014. By January 2017, the IRS's proof of claim in the bankruptcy court had grown to approximately $14.2 million. In April 2017, ACS and the IRS settled their bankruptcy objections, with the settlement authorizing the IRS to "file suit to obtain a money judgment" against Burland and Cole personally to protect the statute of limitations.

The government initiated the present collection suit in December 2022. While Cole’s estate entered into a stipulated judgment on February 3, 2025, Burland contested his liability, leading to cross-motions for summary judgment.

Statutory Foundation of the Trust Fund Recovery Penalty

To understand the court’s holding, practitioners must look to the statutory mechanics of Section 6672. The Code requires employers to withhold federal income tax and Federal Insurance Contributions Act (FICA) taxes from employee wages, holding these funds in trust for the United States under Section 7501(a). As noted in Byrne v. United States, 857 F.3d 319, 321 n.1 (6th Cir. 2017):

"A trust-fund tax is money withheld from an employee's wages (income tax, social security, and Medicare taxes) by an employer and held in trust until paid to the Treasury."

In Bell v. United States, 355 F.3d 387, 392 (6th Cir. 2004), the court elaborated on the trust nature of these assets:

"The withholding taxes are part of the wages of the employee, held by the employer in trust for the government; the employer, as a function of administrative convenience, extracts money from a worker's paycheck and briefly holds that money before forwarding it to the IRS."

Because the government is legally required to credit employees for these withholdings regardless of whether the employer actually remits them, the IRS faces a direct loss when remittance fails. Under Slodov v. United States, 436 U.S. 238, 243 (1978):

"An employer who fails to pay taxes withheld from its employees' wages is... liable for the taxes which should have been paid."

To mitigate this risk, Congress enacted Section 6672(a) as an administrative tool to pierce the corporate veil and hold responsible individuals personally liable:

"Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over."

To establish liability under Section 6672(a), the government must show that the individual is (1) a "responsible person" and (2) "willfully" failed to pay over the tax. Importantly, once the IRS introduces its assessment, the assessment carries a presumption of correctness, shifting the burden of proof to the taxpayer. As emphasized in Byrne, 857 F.3d at 327:

"The taxpayer carries 'the burden of proving by a preponderance of the evidence either that he is not a responsible person or that his failure to pay taxes was not willful.'"

The Taxpayer's Defenses and Requests for Relief

Robert Burland asserted several defenses in his cross-motion for summary judgment, seeking complete relief from the assessments:

Lack of Responsibility and Financial Authority: Burland argued that his co-president, Cole, exercised exclusive control over ACS’s disbursements. He maintained that he lacked the actual power or authority within the corporate structure to cause taxes to be paid or to direct corporate expenditures.
Delegation of Financial Information: He claimed that Cole provided him with all financial data, which Burland merely forwarded to the corporate accountant.
Third-Party Embezzlement and Administrative Fault: Burland argued that CO-HR, LLC, acted as the true employer of the workers, was responsible for the withholding tax deficiencies, and had embezzled funds from ACS.
Statute of Limitations Bar: He contended that the government's collection action was time-barred.

The Court’s "Responsible Person" Analysis

Section 6671(b) defines a "person" for purposes of the penalty as including:

"...an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs."

In determining whether an individual is a "responsible person," courts look beyond formal titles to the actual operational and financial control exercised. In Kinnie v. United States, 994 F.2d 279, 283 (6th Cir. 1993), the Sixth Circuit established that:

"Whether one is considered a person responsible for paying over such taxes to the government under section 6672 is a question focusing upon the degree of influence and control which the person exercised over the financial affairs of the corporation, and, specifically, disbursements of funds and the priority of payments to creditors."

The Sixth Circuit evaluates responsibility using a five-factor test:

The officer's duties according to the corporate bylaws;
The individual's ability to sign corporate checks;
The identity of the officers, directors, and shareholders of the corporation;
The identity of the individuals who hired and fired employees; and
The identity of the individuals who are in control of the financial affairs of the corporation.

The Eastern District of Michigan applied these factors to Burland and found his defense of limited authority unconvincing. The court noted that Burland co-founded ACS, served as co-president, owned 50 percent of the voting shares, possessed corporate check-signing authority, and signed ACS's 2006 and 2007 corporate tax returns. Furthermore, Burland acted as the primary liaison to the company's accountant.

The court reiterated that under settled law, a taxpayer does not need to have absolute control to be deemed responsible. Citing Kinnie, 994 F.2d at 283:

"...liability requires the existence of only significant as opposed to absolute control of the corporation's finances."

The Sham Affidavit Doctrine and Pre-Litigation Admissions

To counter the government's motion, Burland submitted a personal affidavit declaring:

"I have never agreed that I was a person responsible for the payment of withholding taxes by ACS... as I never had the power or authority within ACS to cause taxes to be paid or to make any expenditure of ACS funds."

The court rejected this statement under the sham affidavit rule. In March 2009, Burland had executed an IRS Form 433-B (Collection Information Statement) under penalties of perjury, admitting his responsibility for depositing ACS’s payroll taxes.

The court noted that the sham affidavit rule prevents a party from generating a convenient issue of material fact to survive summary judgment by contradicting their own prior testimony. Under Reich v. City of Elizabethtown, 945 F.3d 968, 976 (6th Cir. 2019), the rule prevents a party from:

"...creat[ing] a factual issue by filing an affidavit, after a motion for summary judgment has been made, which contradicts her earlier deposition testimony."

The court extended this principle to statements made under penalty of perjury on official IRS collection documents, citing James v. Hale, 959 F.3d 307, 316 (7th Cir. 2020):

"We also disregard an affidavit that contradicts a statement made under penalty of perjury, even if the statement was not made in the course of litigation."

Burland’s prior administrative admission on Form 433-B, combined with his status as co-president and 50 percent owner, conclusively established his status as a responsible person under Section 6672(a).

The "Willfulness" Standard and the Preferential Payment Rule

Once responsibility is established, the inquiry shifts to willfulness. Under Byrne, 857 F.3d at 327, willfulness exists when a responsible person:

"...'had knowledge of the tax delinquency and knowingly failed to rectify it when there were available funds to pay the government,' or 'deliberately or recklessly disregarded facts and known risks that the taxes were not being paid.'"

Actual knowledge is demonstrated when a responsible party:

"...'first becomes aware of a past due withholding tax liability after the liability has accrued' and 'fails to use all unencumbered funds that come into his possession thereafter to pay the delinquent taxes.'"

The court defined "encumbered funds" restrictively, quoting Byrne, 857 F.3d at 327:

Funds are encumbered "only where the taxpayer is legally obligated to use the funds for a purpose other than satisfying the preexisting employment tax liability and [the] legal obligation is superior" to the government's interest in the funds.

The record showed that Burland had detailed knowledge of the trust fund deficiencies. In March 2008, he created a reconciliation spreadsheet showing unpaid withholding taxes of $204,951.20 for the first quarter of 2008, $352,937.70 for the second quarter, and $574,156.70 for the third quarter. He also signed quarterly employment tax returns (Forms 941) for the fourth quarter of 2008, the first quarter of 2010, and the fourth quarter of 2012, all showing significant unpaid liabilities.

Despite this knowledge, Burland allowed ACS to pay other operating expenses. ACS continued to pay wages, supplier invoices, and employee benefit programs totaling over $24 million annually in 2012 and 2013. Furthermore, Burland drew a personal gross monthly salary of $20,425 through at least March 2009 and received personal loans from ACS totaling $116,911.58 by the end of 2011. ACS also issued loans to related entities co-owned by Burland and Cole.

Burland’s defense that Cole insisted on prioritizing other creditors was legally insufficient. The court referenced the Sixth Circuit’s guidance that when a co-officer demands prioritizing other creditors over the IRS, the responsible person must take decisive action, such as resigning, closing the business, or forcing a bankruptcy filing. Under Brewery, Inc. v. United States, 33 F.3d 589, 593 (6th Cir. 1994):

"It is no excuse that... the money was paid to suppliers and for wages in order to keep the corporation operating as a going concern—the government cannot be made an unwilling partner in a floundering business."

By continuing as co-president, drawing a salary, accepting corporate loans, and allowing other creditors to be paid while knowing of the tax debts, Burland acted willfully as a matter of law.

Dismantling the Embezzlement and Employer-Identity Defenses

Burland also sought to shift blame to CO-HR, LLC, claiming it was the true employer and had embezzled ACS’s funds. The court dismissed these arguments due to a lack of supporting evidence.

The court examined ACS's tax filings, which contradicted Burland's claim. ACS’s Forms 941 designated ACS as the employer under its own EIN, and its corporate income tax returns claimed deductions for employee wages—deductions ACS could not legally claim if the workers were employed by CO-HR.

Additionally, CO-HR's Consulting and Administrative Service Agreement explicitly stated:

"Client acknowledges and agrees that no shared employment, co-employment or joint employment relationship is created by this contract or otherwise between Client and CO-HR. CO-HR is only providing administrative services to Client's employees and is not providing temporary, contract or leased employees as defined under the Internal Revenue Code Section 414(n)."

Regarding the embezzlement claim, Burland points to an October 2008 letter from CO-HR admitting it had mistakenly overbilled ACS by 1.5% of gross wages (totaling $471,655.24) and promising a credit. The court noted this letter did not show administrative or criminal misconduct, did not cover the tax periods in question, and could not excuse the unpaid taxes for 2010 and 2012, which occurred after ACS and CO-HR parted ways in 2009.

Assessment and Collection Statutes of Limitations

Finally, the court rejected Burland's statute of limitations defense. Under Section 6502(a)(1), the government has a 10-year statute of limitations to bring a collection action in court, running from the date of assessment:

"Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is begun or the proceeding begun... within 10 years after the assessment of the tax..."

The IRS assessed the penalties on December 6, 2012, and March 31, 2014. Because the government filed suit in December 2022, the collection action was timely.

The assessments themselves were also timely. Under Section 6501(a), the IRS must assess taxes within three years after the return is filed. For the 2008 quarters, the IRS issued a preliminary notice under Section 6672(b)(1). Under Section 6672(b)(3)(B), if a taxpayer files a timely administrative protest, the assessment period is extended:

"...the period provided by such section for the assessment of such penalty shall not expire before the later of... the date 30 days after the Secretary makes a final administrative determination with respect to such protest."

Because the IRS resolved Burland's administrative appeal on November 29, 2012, and assessed the taxes on December 6, 2012, the assessments were timely under the law.

Practitioner Takeaways and Technical Risk Management

The decision in United States v. Estate of Richard T. Cole, Jr. highlights critical lessons for CPAs and Enrolled Agents advising corporate clients:

The Delegation Defense is Ineffective: Operating officers cannot escape liability under Section 6672 by delegating financial duties or claiming ignorance of tax deposits. If an officer has check-signing authority, ownership, and an executive title, they are highly likely to be deemed a "responsible person."
The Risk of Administrative Submissions: Practitioners must exercise extreme caution when preparing and submitting IRS Form 433-B. Admissions of responsibility made on this form under penalty of perjury will be treated as binding. Under the sham affidavit doctrine, clients cannot later retract these admissions during litigation.
The Dangers of Operating a Floundering Business: Once a responsible person becomes aware of an unpaid withholding tax liability, any payment to another creditor—including paying employee wages or purchasing inventory—creates personal liability. If a co-owner refuses to prioritize tax payments, the remaining officer's primary legal options to avoid personal liability are resignation or forcing a bankruptcy filing.
Clarify PEO and Administrative Service Contracts: When a client uses a payroll processor or HR service provider, practitioners must review the contract to determine whether it is a true PEO relationship (where the PEO is the employer of record and liable for taxes) or a standard administrative services contract (where the client remains the employer and retains ultimate liability).

Prepared with assistance from Gemini Flash 3.5.