CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT.
Brennan, J., delivered the opinion of the Court, in which Stewart, Marshall, Powell, Rehnquist, and Stevens, JJ., joined. Rehnquist, J., filed a concurring opinion, post, p. 260. White, J., filed an opinion dissenting in part, in which Burger, C. J., and Blackmun, J., joined, post, p. 261.
MR. JUSTICE BRENNAN delivered the opinion of the Court.
Petitioner, an orthodontist by profession, on January 31, 1969, purchased the stock and assumed the management of three corporations engaged in the food vending business. The corporations were indebted at the time of the purchase for approximately $250,000 of taxes, including federal wage and Federal Insurance Contribution Act (FICA) taxes withheld from employees' wages prior to January 31. The sums withheld had not been paid over when due, however, but had been dissipated by the previous management before petitioner acquired the businesses. After petitioner assumed control, the corporations acquired funds sufficient to pay the taxes, but petitioner used the funds to pay employees' wages, rent, suppliers, and other creditors, and to meet other day-to-day expenses incurred in operating the businesses. The question to be decided is whether, in these circumstances, petitioner is personally liable under § 6672 of the Internal Revenue Code of 1954, 26 U. S. C. § 6672 -- which imposes personal liability for taxes on "[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 . . ." -- for the corporations' unpaid taxes withheld from wages prior to his assumption of control. The Court of Appeals for the Sixth Circuit held that petitioner was personally liable under § 6672 for the unpaid taxes. 552 F.2d 159 (1977). We granted certiorari.*fn1 434 U.S. 817 (1977). We reverse.
The case arose from the filing by the Internal Revenue Service (IRS) of a claim for the taxes in a proceeding instituted by petitioner in July 1969 for a real property arrangement under Chapter XII of the Bankruptcy Act. The facts determined after hearing by the bankruptcy judge, 74-2 USTC para. 9719 (ND Ohio 1974), are not challenged. Petitioner purchased and assumed managerial control of the Tas-Tee Catering, Tas-Tee Vending, and Charles Corporations on January 31, 1969. When he bought the stock, petitioner understood, and the purchase agreement reflected, that the corporations had an outstanding obligation for taxes in the amount of $250,000 due for payment on January 31, including withheld employee wage and FICA taxes (hereinafter trust-fund taxes). During the purchase negotiations, the sellers represented to petitioner that balances in the various corporate checking accounts were sufficient to pay these taxes as well as bills due other creditors. Relying on the representation, petitioner, on Saturday, February 1, sent four checks to the IRS in payment of the taxes.
On Monday, February 3, petitioner discovered that the accounts were overdrawn and stopped payment on the checks. Thus, at the time that petitioner assumed control, the corporations had no liquid assets, and whatever trust-fund taxes had been collected prior to petitioner's assumption of control had been dissipated.
Petitioner immediately advised the IRS that the corporations had no funds with which to pay the taxes, and solicited guidance concerning how the corporations should proceed. App. 36. There was evidence that IRS officials advised petitioner that they had no objection to his continuing operations so long as current tax obligations were met, and that petitioner agreed to do so and to endeavor to pay the arrearages as soon as possible. Tr. 37-38. The IRS never represented that it would hold petitioner harmless under § 6672 for the back taxes, however.
To continue operations, petitioner deposited personal funds in the corporate account, and, to obtain inventory, agreed with certain suppliers to pay cash upon delivery. During petitioner's tenure, from January 31 to July 15, 1969, the corporations' gross receipts approximated $130,000 per week for the first few months but declined thereafter. The corporations "established a system of segregating funds for payment of withheld taxes and did, in fact, pay withheld taxes during the period February 1, 1969, to July 15, 1969." App. 30. The bankruptcy judge found, and the IRS concedes, that the $249,212 in taxes paid during this period was approximately sufficient to defray current tax obligations. No taxes owing for periods prior to February 1, were paid, however, and in July 1969 the corporations terminated operations and filed for bankruptcy.
Several provisions of the Internal Revenue Code require third persons to collect taxes from the taxpayer. Among the more important are 26 U. S. C. §§ 3102 (a) and 3402 (a) (1970
ed. and Supp. V) which respectively require deduction from wages paid to employees of the employees' share of FICA taxes, and the withholding tax on wages applicable to individual income taxes. The withheld sums are commonly referred to as "trust fund taxes," reflecting the Code's provision that such withholdings or collections are deemed to be a "special fund in trust for the United States." 26 U. S. C. § 7501 (a). There is no general requirement that the withheld sums be segregated from the employer's general funds, however, or that they be deposited in a separate bank account until required to be paid to the Treasury. Because the Code requires the employer to collect taxes as wages are paid, § 3102 (a), while requiring payment of such taxes only quarterly,*fn2 the funds accumulated during the quarter can be a tempting source of ready cash to a failing corporation beleaguered by creditors.*fn3 Once net wages are paid to the employee, the taxes withheld are credited to the employee regardless of whether they are paid by the employer, so that the IRS has recourse only against the employer for their payment.*fn4
An employer who fails to pay taxes withheld from its employees' wages is, of course, liable for the taxes which should have been paid, §§ 3102 (b) and 3403. The IRS has several means at its disposal to effect payment of the taxes so withheld.
First, once it has been determined that an employer has been inexcusably delinquent, the IRS, upon giving hand-delivered notice, may require the employer, thereafter, and until further notice, to deposit withheld taxes in a special bank trust account within two banking days after collection, to be retained there until required to be paid to the Treasury at the quarter's end. § 7512. Second, with respect to trust funds past due prior to any such notification, the amount collected or withheld "shall be held to be a special fund in trust for the United States [and] [the] amount of such fund shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including penalties) as are applicable with respect to the taxes from which such fund arose." 26 U. S. C. § 7501. Thus there is made applicable to employment taxes withheld but not paid the full range of collection methods available for the collection of taxes generally. After assessment, notice, and demand,*fn5 the IRS may, therefore, create a lien upon the property of the employer, § 6321, and levy, distrain, and sell the employer's property in satisfaction. §§ 6331 to 6344 (1970 ed. and Supp. V).
Third, penalties may be assessed against the delinquent employer. Section 6656 of the Code imposes a penalty of 5% of the underpayment of any tax required to be deposited, and 26 U. S. C. §§ 7202 and 7215 provide criminal penalties respectively for willful failure to "collect or truthfully account for and pay over" trust-fund taxes, and for failure to comply with the requirements of § 7512, discussed supra, regarding special accounting requirements upon notice by the Secretary.
Finally, as in this case, the officers or employees of the employer responsible for effectuating the collection and payment
of trust-fund taxes who willfully fail to do so are made personally liable to a "penalty" equal to the amount of the delinquent taxes. Section 6672 provides, inter alia :
"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. . . ."
Section 6671 (b) defines "person," for purposes of § 6672, 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." Also, § 7202 of the Code,*fn6 which tracks the wording of § 6672, makes a violation punishable as a felony subject to a fine of $10,000, and imprisonment for 5 years. Thus, an employer-official or other employee responsible for collecting and paying taxes who willfully fails to do so is subject to both a civil penalty equivalent to 100% of the taxes not collected or paid, and to a felony conviction. Only the application to petitioner of the civil penalty provision, § 6672, is at issue in this case.
When the same individual or individuals who caused the delinquency in any tax quarter are also the "responsible persons"
*fn7 at the time the Government's efforts to collect from the employer have failed, and it seeks recourse against the "responsible employees," see IRS Policy Statement P-5-60, IRS Manual, MT 1218-56 (Feb. 25, 1976), there is no question that § 6672 is applicable to them. It is the situation that arises when there has been a change of control of the employer enterprise, here corporations, prior to the expiration of a tax quarter, or at a time when a tax delinquency for past quarters already exists that creates the question for our decision. In this case, petitioner assumed control at a time when a delinquency existed for unpaid trust-fund taxes, while the specific funds withheld but not paid had been dissipated by predecessor officers and when the corporations had no liquid assets with which to pay the overdue taxes.
Petitioner concedes that he was subject to personal liability under § 6672 as a person responsible for the collection, accounting, and payment of employment taxes required to be withheld between January 31, 1969, when he assumed control of the corporations, and July 15, 1969, when he resigned. Tr. of Oral Arg. 8. His contention is that he was not, however, a responsible person within § 6672 with respect to taxes withheld prior to his assumption of control and that § 6672 consequently imposed no duty upon him to pay the taxes collected by his predecessors. Petitioner argues that this construction of § 6672 follows necessarily from the statute's limitation of personal liability to "[any] person required to collect, ...