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'EX-FATHER IN LAW MADE ME DO IT' DEFENSE FAILS

October 20, 2004

Working for your ex-wife's father can have its awkward moments. It was Larry Borman's misfortune to have such a moment in Bankruptcy Court.

Mr. Borman ran Gold Auto Sales in Florida for his "former father in law," who owned the business. When financial difficulties arrived, the business made the always unwise choice to pay other creditors before paying its employment taxes. Still, the business failed.

The IRS tried to collect the unpaid taxes from Mr. Borman as a "responsible person." Under the tax law, if an employer fails to pay employment taxes, the IRS can collect the taxes from any person "responsible" for "willful" failure to pay the tax - even if the "responsible person" is not the owner.

Mr. Borman asked the Bankruptcy Court to stop IRS collection efforts. He argued that his ex-wife's father would have fired him if he had paid the IRS before other creditors. The Court disagreed:

   The Debtor's defense is that, although
   he had knowledge, Mr. Goldstein told 
   him not to pay the taxes and, if he 
   did, that he would be fired. The IRS 
   contends that this "Nuremberg defense"
   is not available to the Debtor. Debtor's
   belief that he would be fired if he 
   did not obey orders not to pay 
   employee withholding taxes to IRS did 
   not excuse the debtor from liability.  
   The fact that the Debtor was told not 
   to pay the taxes and he might have 
   been fired does not negate his 
   liability to pay the taxes.

   For the foregoing reasons, the Debtor 
   is a "responsible person" pursuant to 
   § 6672 of the Internal Revenue Code 
   and is liable for the tax liability 
   determined by the IRS to be the amount
   of $41,465.00.

                        (citation omitted)

Lessons:

-Pay the IRS first.

-If the boss tells you to pay someone else first, the IRS won't care that you were "only following orders."

-Even if your boss is your ex-wife's daddy.

Citation: In Re Larry Borman, Debtor (USBC, SD-FL, 9/12/2004). Case courtesy Tax Analysts; no link available.

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