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STATE OF WISCONSIN

TAX APPEALS COMMISSION

JASON K. SANDBERG,

Petitioner,

vs.

WISCONSIN DEPARTMENT OF REVENUE,

Respondent.

DOCKET NO. 08-W-143(P-II)

DECISION AND ORDER


THOMAS J. MCADAMS, COMMISSIONER:

This case comes before the Commission following a trial that was held in Madison, Wisconsin on August 4, 2010, and on September 15, 2010.(1) The Petitioner in this matter, Mr. Jason Sandberg, is represented by Attorney John C. Santee of Mount Prospect, Illinois. The Respondent in this matter, the Wisconsin Department of Revenue ("the Department"), is represented by Attorney John R. Evans. Both sides have filed post-trial briefs. For the reasons stated below, we hold for the Petitioner.

Having considered the record before it in its entirety, the Commission finds, rules, and orders as follows:

FINDINGS OF FACT(2)

A. Jurisdictional Facts

1. On May 24, 2007, the Department issued an assessment against Petitioner for failure to pay over withholding taxes as an officer, employee, or other responsible person of Ken Sandberg Drywall, Inc. for the periods December 31, 2004; January 31 through December 31, 2005; and January 15, 2006 through June 30, 2006. The assessment was made pursuant to Wis. Stat. § 71.83(1)(b)2, in the amount of $45,297.99. (Petitioner's Brief, p. 1.)

2. On July 23, 2007, the Petitioner filed a timely petition for redetermination of said assessment. Id.

3. On July 21, 2008, the Respondent denied the petition for redetermination. Id.

4. Petitioner appealed the denial to the Wisconsin Tax Appeals Commission on or about September 22, 2008. (Commission File.)

B. Material Facts

1. The corporation involved in this case is Ken Sandberg Drywall, Inc., a Wisconsin corporation, which was engaged in the business of drywall installation. The business was incorporated in 2004 as a continuation of a sole proprietorship owned and operated by Mr. Kenneth Sandberg ("Kenneth"). At all relevant times, Kenneth was the president, secretary, treasurer, sole shareholder and director of the corporation. The corporation was only a change in the formal structure of the business; otherwise, the day-to-day operation of the business continued the same as it had been. (August 4, 2010 Transcript, pp. 4-8.)

2. The Petitioner, Mr. Jason Sandberg, was a salaried employee of the corporation and a son of Mr. Kenneth Sandberg. Petitioner was not a shareholder or a director of the corporation. He was identified as a vice president on a bank signature card for the business's checking account, but no corporate minutes or filings with the Secretary of State documented his selection as a vice president. Petitioner received no additional compensation for this designation. Mr. Jason Sandberg went to work for his father full time after graduating from college in 2001 with a degree in electrical engineering because his father was "swamped." Previous to Jason coming into the business, the office duties of the business were performed by a secretary, including the payroll. (August 4, 2010 Transcript, pp. 7-9.)

3. Petitioner was named as a signatory on the bank account at the insistence of the company's bank as a convenience to the business -- specifically, in order to have someone in the office available to sign checks. Even though the Petitioner had the authority to sign checks, he did so to pay employees, creditors, and taxing bodies only if payment was approved by Kenneth Sandberg. (August 4, 2010 Transcript, pp. 25-26.)

4. Kenneth Sandberg maintained control over all aspects of the business, including such business operations as hiring and firing employees. Within the business, Petitioner never had independent authority over day-to-day operations or finances. Kenneth Sandberg talked to Petitioner several times each day in person and by phone in order to supervise his activities and to keep control over the business. (August 4, 2010 Transcript, pp. 11-16.)

5. Petitioner's duties within the business were to do whatever Kenneth Sandberg needed him to do that particular day, which caused the Petitioner's responsibilities to change frequently. However, these responsibilities tended to include opening the mail, organizing the bills, discussing the bills with Kenneth Sandberg, obtaining Kenneth's approvals to pay bills, delivering materials to job sites, mudding dry wall, and checking on the status of work at job sites. (August 4, 2010 Transcript, pp. 10 and 12.)

6. The Petitioner was also responsible for the entry of the employees' payroll data and for the production of the paychecks. However, the paychecks were never released to employees without Kenneth Sandberg's specific approval to do so based upon Kenneth's determination of the availability of funds. (August 4, 2010 Transcript, pp. 13 and 16.)

7. Petitioner was responsible for generating federal and state income tax withholding reports based upon the paychecks and worked with an accountant to do so. Petitioner sometimes signed a report upon Kenneth Sandberg's approval of the report. Income tax withholdings were sent in with or pursuant to a report only if Kenneth Sandberg specifically approved doing so. Petitioner had no authority to make any such payments without Kenneth Sandberg's express approval and direction. (September 15, 2010 Transcript, p. 188.)

8. While opening the business's mail during the relevant periods, the Petitioner saw notices of unpaid income tax withholdings and passed these notices on to Kenneth Sandberg. Kenneth told the Petitioner not to worry because he was taking care of them, and that he was working with the IRS and the Wisconsin Department of Revenue to resolve these issues. (September 15, 2010 Transcript, p. 191.)

9. The Petitioner met or talked to Mr. Mehrzad Mohammadi, an agent for the Wisconsin Department of Revenue, on a few occasions, but in each instance, he did so at Kenneth's specific direction, doing and saying only what Kenneth wanted the Petitioner to do and say. Mr. Mohammadi's notes reflect that on three or four occasions the Petitioner said to Mr. Mohammadi that he "had to check with his father." Mr. Mohammadi's office was approximately a mile away from the drywall business' office in Elkhorn. (September 15, 2010 Transcript, p. 86.)

10. The decision to cease operations of the business in 2006 was made solely by Kenneth Sandberg. Kenneth has had sole possession and control of the business's books and records since the business was closed. (September 15, 2010 Transcript, p. 146.)

11. Jason had no written employment contract. There was no written material such as an employment manual or job instructions. There is no written material, instructions, guides or other documents to substantiate whether or not Jason had to get authorizations for actions. (September 15, 2010 Transcript, p. 206.)

12. The business employed numerous employees over time and subcontractors. The business began to fail around this time period when a large contract was defaulted upon and, from thereon, the business could not get caught up financially. The business had its office in Elkhorn and that is where Jason Sandberg did the office work portion of his job. Kenneth Sandberg was often out on the road supervising drywall jobs, which were located generally in the southern half of Wisconsin and the northern part of Illinois. (September 15, 2010 Transcript, p. 207.)

13. Jason would organize and file the bills into folders for the various jobs. This would allow for the determination of the profit or loss on the various jobs. Kenneth would rely on this information to determine whom they could pay and whom they could not pay. (September 15, 2010 Transcript, pp. 145 and 148.)

14. Jason would also enter the bills on a spreadsheet listing the creditor, the amount, and when the bill was due. Jason would note if the bills were past due. Jason paid particular note to the bills for materials to make sure the amount spent on materials was consistent with the size of the project. (September 15, 2010 Transcript, p. 196.)

15. Kenneth was solely responsible for the solicitation of new business and Kenneth made the decisions regarding the pricing of job estimates. (August 4, 2010 Transcript, pp. 16, 17, and 143.)

16. Kenneth was solely responsible for collecting any monies owed by customers and only Kenneth had the authority to compromise accounts receivable. (August 4, 2010 Transcript, pp. 17-18.)

17. Jason was able to spend small amounts of money in emergency type situations when Kenneth was unavailable, such as to pay the light bill when overdue notices arrived or to buy materials at the local supply shop, but this purchasing authority was the same as any other employee had. The purchase of supplies costing a substantial amount required Kenneth's specific approval. (September 15 Transcript, pp. 137, 160-61.)

18. Jason had no authority to set the compensation for employees, including no authority to give raises; only Kenneth had this authority; Jason had no authority to borrow money on behalf of the business; only Kenneth did. (September 15, 2010 Transcript, pp. 12-13 and 165.)

19. Mr. Mike Stamm, a long time employee of the drywall business, testified that Jason Sandberg was an employee of Kenneth's "like everyone else." {August 4, 2010 Transcript, p. 74.)

RELEVANT STATUTES

71.83 Penalties.

(1) CIVIL.

* * *

(b) Intent to defeat or evade.

* * *

2. Personal liability. . . Any person required to withhold, account for or pay over any tax imposed by this chapter, . . . who intentionally fails to withhold such tax, or account for or pay over such tax, shall be liable to a penalty equal to the total amount of the tax, plus interest and penalties on that tax, that is not withheld, collected, accounted for or paid over. The personal liability of such person as provided in this subdivision shall survive the dissolution of the corporation or other form of business association. "Person", in this subdivision, includes an officer, employee or other responsible person of a corporation . . . who, as such officer, employee . . . or other responsible person, is under a duty to perform the act in respect to which the violation occurs.

77.60 Interest and penalties

(9) Any officer or employee of any corporation subject to this subchapter or other person who has responsibility for making payment of the amount of tax imposed under this subchapter and who willfully fails to make such payment to the department shall be personally liable for such amounts, including interest and penalties thereon, if that corporation is unable to pay such amounts to the department, and the personal liability of such officer, employee or other responsible person as provided herein shall survive the dissolution of the corporation. Such personal liability may be assessed by the department against such officer, employee or other responsible person...

DECISION

In this case, the Department of Revenue issued a $45,297.99 assessment against Mr. Jason Sandberg, the Petitioner, for unpaid withholding taxes, alleging that Jason Sandberg was a "responsible person" under Wis. Stat. § 71.83(1)(b)2. In 2002, Jason Sandberg went to work for his father's drywall business. According to the Petitioner, his job was to manage drywall projects from the office and he also did the payroll, paying bills as directed by his father, Mr. Kenneth Sandberg, who was the president of the company as well as its treasurer. In support of its assessment, the Department points to the fact that the Petitioner was a vice president of the company and a signatory on the business account used to pay the employees and the taxes. The Department also points to the fact that the Petitioner knew the withholding was not paid over to the State because he opened the mail and saw the overdue notices from the Department. In response, the Petitioner denies being a person responsible for the unpaid taxes, claiming that his role in the business was "ministerial,"(3) and that he acted only when directed by the owner. The first part of this decision will summarize the arguments and the law that applies and the second part of the decision will discuss why the Petitioner has proven that he was not a "responsible person."(4)

A. THE ARGUMENTS OF THE PARTIES

1. The Respondent's Arguments

The Department's brief argues that Jason is liable based upon five independent bases. First, the Department argues that he admittedly wrote checks on job sites without any direction or control, and he paid himself. Second, the Department asserts that the Petitioner participated with Kenneth in a collaborative and synergistic manner to decide whom to pay with Jason directing the analyses. Third, the Department posits that Jason was in a position of authority and a confidant of his father to such, that he was able to advocate, if not direct, payments. Since Jason had the information, he had effective control. Fourth, as a matter of credibility, the Department argues that it is impossible to believe that Jason was powerless with respect to the taxes and bills when he had autonomy and authority with respect to all the other facets of the business and control of the computer. Fifth, the Department states that Jason could have written the checks, but did not, because he was allegedly told not to and this is not a defense.

2. The Petitioner's Arguments

Mr. Jason Sandberg's first response to the Department's arguments points to the fact that his acts were "ministerial" in nature and nothing was done independent of specific directions from his father. Second, Jason Sandberg posits that he was not a "responsible person." In brief, the Petitioner contends that the three-part test is not met and argues that the facts here are like those in a federal case where the taxpayer was found not to be a responsible person because the taxpayer there merely acted at the direction of another.

B. APPLICABLE LAW AND ANALYSIS

1. Burdens and Procedure

The legal issue in this case is whether Mr. Jason Sandberg is personally liable for the sales and withholding tax deficiencies of his father's business. Procedurally, in order to show that an officer or employee is a responsible person, the Respondent has the initial burden of going forward with evidence. The Respondent must produce clear and satisfactory evidence that the Petitioner had the authority to pay the company's taxes and the duty to pay them, and there was an intentional breach of that duty. To prove the element of intent, the Respondent need only show that the Petitioner made decisions to use corporate funds to pay creditors, with knowledge of taxes being due. William Drilias v. Wis. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶400-222 (WTAC 1996). Once the Respondent produces the required evidence, the burden normally shifts, and then the Petitioner must overcome the Respondent's case by clear and satisfactory evidence. David J. Ruppel v. Wis. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶400-313 (WTAC 1997).

2. Substantive Law

Federal income tax law, which Wisconsin generally follows, treats a person with the effective power to pay the tax as the "responsible person." Howard v. United States, 711 F.2d 729, 734 (5th Cir. 1983). The courts read the term "responsible person" expansively. O'Callaghan v. United States, 943 F.Supp. 320, 324 (S.D.N.Y. 1996). An "employee with the power and authority ... to direct the payment of the taxes is a responsible person within the meaning of section 6672." Feist v. United States, 221 Ct. Cl. 531, 607 F.2d 954, 960 (1979). In the responsible person analysis, the answer often turns on whether the person had the power to make tax payments in light of the business' financial organization and decision-making structure. O'Connor v. United States, 956 F.2d 48, 51 (4th Cir. 1992). This is a fact-intensive inquiry; in some instances, employees who perform the clerical functions of collecting and paying taxes are not the responsible person. Feist, 607 F.2d at 957, 960. Nonetheless, responsibility does not turn on one's role as an officer or employer but rather on "knowledge of the tax delinquency and authority over the decision to pay or not to pay the taxes which is at issue." Mueller v. Nixon, 470 F.2d 1348, 1350 (6th Cir. 1972). Thus, one can be a responsible person if he or she is in a position within the business to prevent the default from occurring. United States v. Kim, 111 F.3d 1351, 1362 (7th Cir. 1997) (quoting Bowlen v. United States, 956 F.2d 723, 728 (7th Cir. 1992).

Wisconsin also reads the term "responsible person" broadly. Strozinsky v. School District of Brown Deer, 2000 WI 97, ¶59, 237 Wis. 2d 19, 614 N.W.2d 443 (2000). The person need not be an officer or other key employee because this state's penalty provision, Wis. Stat. § 71.83(1)(b)2, refers expansively to officers, employees, and "other responsible person(s)." Although the Wisconsin Legislature has not defined "other responsible person," the Tax Appeals Commission gauges responsibility by examining whether the person had the actual or de facto authority to withhold, account for, or pay the taxes, the duty to pay the taxes, and whether the person intentionally breached that duty. Noard v. Wis. Dep't. of Revenue, Wis. Tax Rptr. (CCH) ¶400-401 (WTAC 1998). Thus, an office manager who filed tax returns and made some payments could be held personally liable because she was fully apprised of the company's tax problems. Green v. Wis. Dep't. of Revenue, Wis. Tax Rptr. (CCH) ¶400-378 (WTAC 1998). We have also found a restaurant owner's father to be a responsible person where the father was never an officer or an employee, but a self-titled consultant who got involved only when the son's business began to fail. Noard v. Wis. Dep't. of Revenue, Wis. Tax Rptr. (CCH) ¶400-401 (WTAC 1998).

While we have construed "responsible person" broadly, it is not without its limits. As the Fourth Circuit has stated, the responsible person determination is pragmatic and based on considerations of substance, rather than form. It boils down to the fact that the "crucial inquiry is whether the person had the effective power to pay the taxes---that is, whether he had the actual authority or ability, in view of his status within the corporation, to pay the taxes owed." Plett v. United States, 185 F.3d 216, 219 (4th Cir. 1999). The Plett case identified a number of criteria which serve as indicia of the requisite authority, including whether the employee (1) served as an officer of the company or as a member of its board of directors; (2) controlled the company's payroll; (3) determined which creditors to pay and when to pay them; (4) participated in day-to-day management of the corporation; (5) possessed the power to write checks; and (6) had the ability to hire and fire employees. Simply signing checks and tax reports as a bookkeeper does not establish such authority. Sabaska v. Wis. Dep't. of Revenue, Wis. Tax Rptr. (CCH) ¶400-538 (WTAC 2001). The authority to sign checks might establish the authority to direct the payment of taxes, but such authority must be real, not illusory. John D. Ceille and Charlene Ceille v. Wis. Dep't. of Revenue, Wis. Tax Rptr. (CCH) ¶400-473 (WTAC 2000).

There is a line of federal cases that has absolved individuals from liability where, apart from any instructions, they were in no real position to ensure that funds would actually pass from the business to the IRS. These cases stress that while an individual's title or authority to sign checks may suggest a theoretical authority to effectuate such a payment, those features are not controlling if, based on the record as a whole, it preponderates that a given individual actually lacked the effective ability to pay the taxes over to the IRS. See, e.g., Barrett v. United States, 580 F.2d 449, 453 (1978)(despite having authority to sign checks, corporate director not "responsible officer" where corporate president controlled which creditors would be paid, including the IRS); Bauer v. United States, 543 F.2d 142, 149 (1976) ("Mere office holding of and by itself does not render one responsible for the collection and paying over of employee withholding taxes."); De Alto v. United States, 40 Fed. Cl. 868, 878 (1998)("While the existence of another responsible person would not excuse plaintiff, (plaintiff's superior) retained such exclusive authority that plaintiff effectively had none when dealing with creditors"); Heimark v. United States, 18 Cl. Ct. 15, 21-23 (1989) (treasurer not responsible person where responsibilities were ministerial and president of company was "autocratic" in the control of funds); United States v. Rem, 38 F.3d 634, 647(2d Cir. 1994) (the power to sign checks and the holding of corporate office "can exist in circumstances where the individual in reality does not possess significant control over corporate finances"); Williams v. United States, 25 Cl. Ct. 682, 684 (1992) (officer that had written checks to creditors other than the IRS held not responsible where "though plaintiff had check writing authority and seemingly important titles, he lacked any independent authority within (the company)."); United States v. Carrigan, 31 F.3d at 134 (1994) (concluding that employee with check-signing authority may not have been a "responsible person" insofar as his control over the affairs of the company was "significantly circumscribed" by others). As noted by a leading author, these cases hold that the concept of responsibility connotes more than "corporate title" or a "theoretical authority" to pay over taxes, but rather "arises out of control actually exercised over the financial operations of the business." Michael I. Saltzman, IRS Practice and Procedure ¶ 17.07 (2005).

The Petitioner in this case relies heavily on a federal case like those above where the taxpayer successfully showed in the summary judgment context that he did not have effective control over the disbursements of the corporation and, therefore, was not a "responsible person." McGlaughlin v. United States, 2001-USTC (U.S. Dist. Ct. Md. 2000). In that case, the taxpayer was a director of the corporation and had some control over the payroll, with the power to write checks at the direction of the company president, Mr. Burek. The taxpayer did make deposits and tax payments, but they were always authorized by Mr. Burek. The taxpayer was aware of the tax delinquencies, but had no decision-making authority in deciding which bills got paid. The court stated that the business was a "one man show," and McGlaughlin was "not that man." Id. at 2. What we understand the thrust of McGlaughlin to be is that regardless of titles, actual authority does not exist in the taxpayer where it resides exclusively within someone else.

The Tax Appeals Commission does not appear to have previously had occasion to consider a case like McGlaughlin. The Petitioner in this case, however, squarely asks us to apply McGlaughlin to the facts of this case.(5)

3. The Evidence in this Case

a. Summary of the Trial

In order to understand the Commission's ruling here, it is necessary to know what was and what was not introduced at the trial.(6) The Petitioner's first witness was Mr. Kenneth Sandberg, who testified that he was in control of the business during the relevant periods and that he made all of the business and financial decisions. He testified that he had been in the drywall business since the 1970s and that he hired his son Jason full time after Jason was graduated from college, apparently to replace a secretary. Mr. Kenneth Sandberg painted a picture wherein his son was basically an office manager, going through the mail and organizing the bills, but also doing whatever was needed "to get the job done." Mr. Kenneth Sandberg repeatedly emphasized that he made the decisions as to which bills were paid, after Mr. Kenneth Sandberg analyzed how much money he had available. He then instructed his son to send out those checks which he had determined could be paid. Mr. Kenneth Sandberg testified that his son was listed as a vice president on a bank signature card because the bank required that the business have more than one person who could sign checks in cases where he was absent or unavailable. Jason was never, in fact, a vice president of the corporation. Mr. Kenneth Sandberg acknowledged sending his son to meet with the Department's auditor concerning back taxes.

The Petitioner also called Mr. Mike Stamm as a witness, a long-time employee of the drywall installation business. Mr. Stamm testified that Jason Sandberg was an employee of the corporation, just like everyone else. The Petitioner took the stand and his testimony largely agreed with that of his father.

In its portion of the trial, the Department called Mr. Merzhad Mohammadi, a Department employee who testified that he had been assigned to the Sandberg Drywall account during the relevant time periods. Mr. Mohammadi testified that Jason Sandberg came to his office on several occasions during the relevant time period, sometimes dropping off checks to pay part of the back taxes. Mr. Mohammadi testified that he and Jason Sandberg discussed setting up a payment plan, and on three or four occasions his notes from the meetings reflect that Mr. Jason Sandberg said that he "had to check with his father." Mr. Mohammadi also testified that he had had numerous personal contacts with Kenneth Sandberg over the years concerning delinquent taxes. The Department also introduced as exhibits numerous checks the Petitioner wrote and a copy of the bank signature card. The Department called no other witnesses.

b. Analysis of the Evidence

Having summarized the evidence, it is now necessary to look at the evidence in relation to the burdens of proof. As mentioned above, the initial burden of going forward in these proceedings is on the Department. Assuming this initial burden is met, the burden then shifts to the Petitioner to disprove the Department's case by clear and convincing evidence. Based on the record placed before us at trial, we believe the Department met its initial burden, but the Petitioner subsequently proved at trial that he clearly was not, in fact, a "responsible person." We will examine the evidence in detail below in relation to each step.

1. The Department's Initial Burden of Going Forward

At the trial, the Department produced enough evidence to go forward. In brief, that evidence consisted of three things. First, the Petitioner wrote checks on the company's payroll account during the period when the taxes were not being paid. Second, there was evidence that the Petitioner had been represented as a vice president of the company. Finally, the Petitioner had personally dealt with the revenue agent on several occasions concerning back taxes, dropping off checks and signing some returns. Taken together, this in our view constitutes under the relevant case law a prima facie case as to authority, duty, and an intentional breach of duty. The Department, thus, met its initial burden of going forward.

2. The Petitioner's Burden of Proof

The testimony that the Petitioner produced in response presented a very different picture from that used to establish the Department's prima facie case. Kenneth Sandberg testified that it was always his drywall business and that his son was essentially office help. The Petitioner testified at length along the same lines. Finally, Mike Stamm corroborated the view that Kenneth Sandberg controlled all aspects of the business and that Jason was an employee "like everyone else." In our view, this testimony clearly established that Jason was not a "responsible person" under Wis. Stat. § 71.83, as he, at a minimum, lacked "authority" and "duty." The remainder of this section will discuss the issues with the evidence and the two reasons for our decision.

The testimony showed that there were a number of problems with the evidence the Department produced to meet its initial burden. While the Petitioner was able to exercise some functions which indicate management type responsibility, the Petitioner's father in fact controlled all aspects of the business' financial dealings. The Petitioner introduced evidence which showed that the check writing authority was illusory, as Kenneth Sandberg determined which checks to send out and when to send them out. Second, the designation of vice president was not formal or real, and, to the degree it was significant, it merely enabled the Petitioner to sign the checks the father approved paying. The tax notices the Petitioner saw took on less significance given that Kenneth Sandberg assumed responsibility for their payment and the Petitioner had no independent authority to compel payment. On several occasions the Petitioner did meet with the revenue agent, but the meetings took place at the father's direction and the agent generally noted that the results had to be cleared by the father. The Department argues in its brief that the Sandbergs worked in collaboration with each other, but our independent observation of the witnesses at the trial clearly indicated otherwise. No one who sat in that hearing room and observed the Sandbergs testify over the course of two days would question that Kenneth was fully in charge of his business.

In order to determine whether an individual is a responsible person, the Commission must look beyond formal titles and mechanical functions to search for the person or persons with ultimate authority to expend funds. See Godfrey, 748 F.2d at 1575. More than one person within a corporation, however, can be "responsible." See White, 178 Ct. Cl. at 775, 372 F.2d at 518. In other words:

It is not necessary that an individual have the final word as to which creditors should be paid in order to be subject to liability under (section 6672). Rather it is sufficient that the person have significant control over the disbursement of funds.

Gephart v. United States, 818 F.2d 469, 475 (6th Cir. 1987) (citing Neckles v. United States, 579 F.2d 938, 940 (5th Cir. 1978)). The inquiry is necessarily fact intensive. The test is whether the Petitioner had the "status, duty and authority to avoid the default." Sale v. United States, 31 Fed. Cl. 726, 731 (1994). See also White, 178 Ct. Cl. at 778, 372 F.2d 513 (examining "authority, powers, and duties").

Here, the Petitioner informally may have held the designation of vice president and functioned as something of an office or general manager. The fact that a person is a corporate officer alone, however, is insufficient to hold a person responsible for the failure to pay trust-fund taxes. See Ghandour v. United States, 36 Fed. Cl. 53, 60-61 (1996). It is merely more probative where the person's status makes him the "'single most important individual' in the business affairs of the corporation." See Godfrey, 748 F.2d at 1575-76. While the Commission recognizes that the Petitioner played a role in the operations of the company, it cannot be said that he was the single, most important individual in the corporation's affairs. That was Mr. Kenneth Sandberg, who owned all of the stock, and who exercised a firm grip on the operations of the company.

A closer examination of the Petitioner's duties provides a clearer picture of whether he should be held "responsible." Although Kenneth Sandberg was the president and the treasurer, it is undisputed that the Petitioner's duties in part involved financial matters, including maintaining a computer generated record of accounts payable, such as payroll taxes. He was sometimes the second in command and was involved in coordinating the payment of creditors. During the relevant time periods, he signed some, but not all, payroll-tax forms, and apparently worked with an outside accountant. As the office person, it was his responsibility to ensure that the accounts payable were processed efficiently and accurately before they were presented to Kenneth Sandberg. He forwarded tax delinquency notices to Kenneth Sandberg, who then told him he was taking care of them. He was also tasked with meeting with the Department on his father's behalf. In fulfilling those duties, the Petitioner would have been knowledgeable that the company was delinquent in its payment of withholding taxes.(7) On the other hand, he did not negotiate contracts with creditors or loans with lenders. He did not hire, or fire, or determine compensation. He did not seek, or take on, new clients. Nor, as explained below, did he have anything other than a limited check-signing authority. We are struck by the fact the record is bereft of any significant decision or move that the Petitioner could have made on his own.

In addition to our observations concerning the demeanor of the witnesses, the most telling question in this case is whether Jason Sandberg had the authority to ensure that payments were directed to the Department, instead of other creditors. The Federal Circuit has explained some of the relevant considerations:

(A) person's "duty" under § 6672 must be viewed in light of his power to compel or prohibit the allocation of corporate funds. It is a test of substance, not form. Thus, where a person has authority to sign the checks of the corporation ... or to prevent their issuance by denying a necessary signature ... or where that person controls the disbursement of the payroll ... or controls the voting stock of the corporation ... he will generally be held "responsible".

Godfrey, 748 F.2d at 1576 (citations omitted).

In this case, the Petitioner did not control the voting stock. In fact, he was not a shareholder. He could not prevent the issuance of checks by withholding his signature. The overall inquiry is whether the Petitioner had "the power to compel or prohibit the allocation of corporate funds." See Godfrey, 748 F.2d at 1576. Generally, a person with independent check-signing authority on the company's accounts meets that test. See, e.g., Whiteside, 26 Cl. Ct. at 573 (finding vice president and general manager who was only authorized signor on bank accounts liable). But see Stewart v. United States, 19 Cl. Ct. 1, 7 (1989) (finding doctor was nominal figure of authority even though he had sole check-signing authority).

According to the bank signature cards, Kenneth Sandberg and the Petitioner both had check-signing authority. According to the Petitioner and his father, however, his check-signing authority was strictly limited. Only the checks that Kenneth approved went out. Petitioner did sign some checks without Kenneth's prior approval, but he explained that occurred only in small amounts for materials or in case of an emergency---an immediate threat to the company's ability to function, such as an imminent risk that the electricity would be shut off. Even then, "emergencies" were limited to situations when Kenneth Sandberg was not in the office. For practical purposes, therefore, the Petitioner's check-signing authority was fundamentally ministerial.

The courts are reluctant to find responsible a Petitioner who is dominated by another person in the company. See Williams v. United States, 25 Cl. Ct. 682, 685 (1992); Heimark v. United States, 18 Cl. Ct. 15, 24 (1989). In Williams, the plaintiff had the "seemingly important titles" of vice president, treasurer, and office manager and check-signing authority. The court declined to find liability because the company was a "one-man operation" dominated by the plaintiff's father, the president of the company. While he allowed plaintiff to sign some checks and contracts, the court noted that the plaintiff was never given discretion in the payment of bills. In Heimark, the plaintiff was the comptroller and minority stockholder in the company. He had co-signing authority on the company's accounts. The court declined to find him responsible because it found he was dominated by the company president, who maintained a tight grip on accounts payable. The president circulated a memorandum that stated "no payments to be sent without my specific approval." The testimony here shows that the Petitioner here had similar limitations.(8)

Like the plaintiffs in Williams and Heimark, the Petitioner here did not have the discretion to choose among creditors. Those decisions were made by Kenneth Sandberg. The Petitioner may have provided something along the lines of input into the process, but he could not compel, nor could he prohibit, the payment of bills. Because he did not have the authority to direct payments or to prevent them, the Petitioner was not a "responsible person" under Wis. Stat. § 71.83 (1)(b)2.

CONCLUSION

The Department met its initial burden in this case by producing evidence at the trial that the Petitioner signed checks and tax forms, that he sometimes was designated informally as a vice president, and that he forwarded notices of delinquencies to his father. The testimony the Petitioner introduced then demonstrated clearly and convincingly that he was not, in fact, a "responsible person" within the meaning of the case law and the statutes. The specific problems with the Department's case were our observations of the true relationship between Jason and Kenneth and the lack of evidence of any significant move or decision that Jason could have made on his own. In sum, the evidence showed that the business, in fact, was a "one-man show" where his father, Kenneth Sandberg, was "that man."

ORDER

The Department's action on the petition for redetermination is reversed.

Dated at Madison, Wisconsin, this 18th day of November, 2011.

WISCONSIN TAX APPEALS COMMISSION

Lorna Hemp Boll, Chair

Roger W. LeGrand, Commissioner

Thomas J. McAdams, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"

1 This case was presented to the Commission for decision on July 28, 2011.

2 Each party submitted proposed findings of fact after the trial. We have made edits for form, clarity, and punctuation.

3 The term "ministerial" appears without definition in numerous responsible person cases. Dictionary.com defines "ministerial" in the secular context as "... pertaining to or invested with delegated executive authority" and "... serving as an instrument or means."

4 The Commission in 2009 denied the Department's motion for summary judgment in this case.

5 For more information about these laws, see Mary A. Bedikian, The Pernicious Reach of 26 U.S.C. Section 6672, 13 Va. Tax Review 225 (1993); Doreen McCall, Comment, Who is a "Responsible Person"---The Overreaching Power of the Internal Revenue Service to Collect Employer Withholding Taxes, 18 Ohio N.U. L. Rev. 905, (1992); Corrie Lynn Lyle, Comment, The Wrath of I.R.C. § 6672: The Renewed Call for Change---Is Anyone Listening? If You Are A Corporate Official, You Had Better Be, 74 S.Cal. L.Rev. 1133 (2001).

6 This narrative is not meant to supplant the findings of fact recited above. Instead, it is meant to assist in explaining the reasons for the Commission's decision.

7 The Department argues that Jason Sandberg was unquestionably aware of the tax issues as the account had been levied "10 or 12 times" during the relevant period, noting that the tax account was "in trouble long before the period at issue." The latter argument, in our view, undermines the argument that Jason was responsible during the periods in question.

8 The Department's brief distinguishes each case cited by the Petitioner in its brief and the Commission in its summary judgment decision. The discussion is comprehensive, and the attorney is to be commended for its thoroughness, but we have two brief responses. First, these cases are fact intensive, so there is rarely, if ever, a set formula for responsible person cases. Instead, each case rises, or falls, on its own facts. Second, the discussion gives no weight to the Commission's observations of what took place during the trial.