taxes as they accrued, he may still be held liable if, after he learned of the delinquency, the company had liquid assets with which to pay the taxes. Rem, 38 F.3d at 643. The burden of proving a lack of liquid assets rests on the responsible individual because it is part of the larger willfulness inquiry. Barnett, 988 F.2d at 1458.
Here, it is undisputed that O'Callaghan learned of Cafe Society's tax liability in August 1992. Therefore, after this point, O'Callaghan "had a duty to ensure that the taxes were paid before any payments were made to other creditors." Barnett, 988 F.2d at 1457; see also Muck v. United States, 3 F.3d 1378, 1381 (10th Cir. 1993) ("Once he learned of the delinquency, plaintiff was obligated to apply unencumbered funds to pay the tax liabilities for the two delinquent quarters as well as any future quarters."). The record establishes that O'Callaghan failed to satisfy this obligation. Instead of ensuring that the government was paid before any other creditors, O'Callaghan permitted the business to continue to operate through December 1992.
O'Callaghan first argues that he told Kaye, Cafe Society's bankruptcy attorney, to monitor the tax payments and that Kaye assured him that the taxes were in fact being paid. O'Callaghan Aff. at P 18. In addition, O'Callaghan testified at his deposition that he told Troche, the bookkeeper, that it was important that the taxes be paid. O'Callaghan Dep. at 79-80. The record is unclear whether Kaye was instructed to pay both past due as well as current tax liabilities, or just to keep current with newly accrued liabilities. Drawing all inferences in plaintiff's favor, I conclude, based on the current record, that O'Callaghan instructed Kaye to pay all tax liabilities. See also O'Callaghan Dep., Ex. V, at 5.
The flaw in O'Callaghan's argument, however, is that he knew that the actual responsibility to pay the taxes remained with the same managers and bookkeepers that had previously failed to pay the trust funds. See O'Callaghan Dep. at 79. Indeed, plaintiff argues that given the financial condition of Cafe Society, it would have been imprudent to change management. Pl. Mem. at 19. Further, plaintiff claims that he "had no involvement in the paying of creditors or the allocation of revenues." Id. at 21. Even drawing all inferences in his favor, this argument supports the proposition that plaintiff took no additional action beyond his conversations with Kaye and Troche.
In such circumstances, his failure to take more affirmative steps to ensure payment of taxes before any other creditors constitutes willfulness as a matter of law. As the Second Circuit held in Kalb, "willful conduct . . . includes failure to investigate or to correct mismanagement after having notice that withholding taxes have not been remitted to the Government." Kalb, 505 F.2d at 511. "Once a responsible person becomes aware that withholding taxes have not been remitted, he may not fulfill his obligation to address the delinquency by delegating the task to someone who has already proven unreliable or untrustworthy." Finley v. United States, 82 F.3d 966, 973 (10th Cir. 1996). See also id. ("'Should the "responsible person" continue to delegate, without taking appropriate measures to assure that the delegated person will not repeat the dereliction in the future, the subsequent willfulness of the delegatee in once more failing to pay taxes will be imputed to the "responsible person."'" (quoting Thomsen v. United States, 887 F.2d 12, 19 (1st Cir. 1989))); In re Gadoury, 1996 U.S. App. LEXIS 3254, No. 95-1872, 1996 WL 83894, at *2 (1st Cir. Feb. 26, 1996) (per curiam) ("As to willfulness, Gadoury admitted that he was aware the taxes were not paid, that he urged them to be paid, but that he failed to take any steps to see that they were in fact paid. There is no more to be said.").
Next, O'Callaghan contends that he believed Cafe Society had no funds to pay any creditors, including the United States. To support this, he notes that he personally paid Kaye with his own funds. He also notes that of the approximately $ 3 million of assets listed on Cafe Society's bankruptcy petition, only $ 17,500 were liquid assets. Pl. Rule 3(g) Statement at P 28. These arguments fail to raise a genuine issue of fact as to O'Callaghan's willfulness. First, O'Callaghan has submitted no competent proof as to the exact financial state of Cafe Society in August 1992. Plaintiff's Rule 3(g) Statement does not cite anything in the record as support for its assertion that only $ 17,500 in assets were liquid. More importantly, plaintiff's Rule 3(g) Statement constitutes an admission that Cafe Society had at least $ 17,500 in assets that could have been used to reduce its tax liability. The use of these funds to run the business rather than pay the Government constitutes willfulness.
Finally, O'Callaghan claims that he was precluded under the bankruptcy laws from paying the tax liabilities after the bankruptcy petition was filed in August 1992. Although neither party cited to Kalb for this proposition, in that case the Second Circuit considered and rejected this argument. The court held that the filing of a Chapter 11 bankruptcy petition does not excuse nonpayment of withholding taxes. As the court explained:
Herold argues that [after the bankruptcy petition was filed] payment of a preexisting debt was impermissible as a matter of law. However, withholding taxes are not simply a debt. They are part of the wages of the employee, held by the employer in trust for the government. 26 U.S.C. 7501(a) (1970). In paying the taxes over to the government the employer merely surrenders that which does not belong to him. We know of no rule prohibiting such payments by a petitioner under Chapter XI.
Kalb, 505 F.2d at 509.
O'Callaghan has failed to raise a genuine issue as to whether he was either a responsible person or that his failure to ensure payment of withholding taxes was willful. Accordingly, the defendant is entitled to summary judgment that O'Callaghan is liable for the tax assessment.
III. Amount of Liability
O'Callaghan also challenges the Government's assessment against him as erroneously calculated. The United States submitted the tax assessment as part of the record on this motion. See Declaration of Jonathan A. Willens. This assessment is entitled to a presumption of correctness and a taxpayer bears the burden of proving that the assessment is incorrect. United States v. McCombs, 30 F.3d 310, 318 (2d Cir. 1994). The taxpayer must prove both that the assessment is erroneous and the correct amount of his tax liability. United States v. Janis, 428 U.S. 433, 440, 49 L. Ed. 2d 1046, 96 S. Ct. 3021 (1976); DeLorenzo v. United States, 555 F.2d 27, 29 (2d Cir. 1977). To create a genuine issue as to the amount of his tax liability, O'Callaghan must point to "specific evidence" that demonstrates the proper amount of his tax liability. See LaBow v. Commissioner, 763 F.2d 125, 131 (2d Cir. 1985). Mere "conclusory denials and bald assertions," all that we have here, are insufficient to avoid summary judgment. Schiff v. United States, 1989 U.S. Dist. LEXIS 11807, No. N-86-354 (WWE), 1989 WL 119410, at *4 (D. Conn. Sept. 6, 1989), aff'd, 919 F.2d 830 (2d Cir. 1990), cert. denied, 501 U.S. 1238, 115 L. Ed. 2d 1037, 111 S. Ct. 2871 (1991).
O'Callaghan first seeks to create an issue of fact by pointing to a discrepancy between the assessments against him and against Cafe Society. As the United States notes, however, the employer is liable for certain taxes that O'Callaghan is not. Next, plaintiff points to a discrepancy between a February 24, 1994 letter from the IRS to him indicating a zero balance for the period ending June 30, 1991 and a May 25, 1994 letter from the IRS to him indicating an outstanding balance of $ 2,406.86 for the same period. Plaintiff, though, did not submit any evidence that demonstrates that the $ 2,406.86 balance for the June 30, 1991 period was incorrect. The fact that at an earlier time the United States had not claimed the $ 2,406.86 does not, by itself, create an issue for trial as to the validity of the final assessment. Finally, plaintiff claims that the assessment must be reduced because undeclared tips were improperly included in the withholding tax calculation. This allegation is insufficient to create a question of fact because it is not supported by any evidence as to the precise amount of the claimed error.
For the foregoing reasons, defendant's motion is GRANTED. The Clerk is directed to enter judgment in favor of the defendant in the amount of $ 98,363.50 less the amount of $ 21.42 paid on September 29, 1995, plus interest from January 2, 1995.
Dated: New York, New York
October 17, 1996
Harold Baer, Jr.