Tax Byte
When a Responsible Person’s Failure to Pay is “Willful” (Kristopher Dreyer v. United States, 9th Cir., No. 24-906, March 28, 2025)
A nearly $188,000 personal tax liability struck board member Kristopher Dreyer when the Ninth Circuit affirmed that his leadership role at a private school made him personally responsible for the organization’s unpaid trust fund taxes. This cautionary case underscores the exposure board members face when they receive notice of tax delinquencies and fail to ensure payment. Dreyer served as a board member and chairperson of Riverside Christian School (RCS) during the last quarter of 2017 and first two quarters of 2018, a period when RCS failed to pay its trust fund taxes to the IRS.
Dreyer Claimed He Wasn't WillfuL:
In December 2021, the IRS determined Dreyer was a “responsible person” under §6672(a) and assessed tax penalties against Dreyer personally, requiring him to pay RCS’s outstanding trust fund taxes, plus interest and penalties. Dreyer paid a portion of the assessment for each quarter and filed suit seeking a refund. The United States countered with a claim for the remaining unpaid portion.
Following a bench trial, the district court ruled in favor of the government, awarding $187,900 plus interest and statutory additions. On appeal to the Ninth Circuit, Dreyer only challenged the finding that his failure to pay was “willful.”
Trust Fund Law Under §6672
To protect against revenue losses, §6672 authorizes the IRS to assess a civil penalty against responsible corporate officials equal to the amount of delinquent trust fund taxes. The Ninth Circuit in Matter of York, 78 F.4th 1074, 1092 (9th Cir. 2023) recently summarized the three elements required for liability:
- The individual qualifies as a “responsible person”
- The individual failed to collect or account for and pay over such tax
- The individual acted willfully
For §6672 purposes, “willfulness” is defined as “a voluntary, conscious and intentional act to prefer other creditors over the United States.” No intent to defraud or act in bad faith needs to be proven. Willfulness requires either knowledge of nonpayment or reckless disregard of whether the payments were made.
Ninth's Circuit's Determination
The Ninth Circuit affirmed the district court’s finding of willfulness, reviewing the factual findings for clear error and legal conclusions de novo. The district court found compelling evidence that Dreyer had knowledge that the trust fund taxes remained unpaid:
- In February 2018, Dreyer sent an email stating “we will pay [the taxes] directly”
- That same month, Dreyer received three emails from the school’s business manager informing him that the IRS was requesting payment of taxes and that the checks issued to pay the taxes had been rejected by the bank.
- While the school’s Citizens Bank account was repeatedly overdrawn, Dreyer had exclusive control over a second account with Union Bank that could have been used to pay the taxes. Dreyer maintained sole access to the Union Bank account that could have funded the tax payments. Although Dreyer didn’t deny knowing the taxes were outstanding, he claimed he believed they were subsequently paid.
The Ninth Circuit concluded that the district court’s rejection of Dreyer’s explanation was well-supported by the record.
Tax Practitioner Planning:
- Board member exposure is real: Individuals serving on boards with financial oversight can be personally liable for unpaid trust fund taxes even without day-to-day management responsibilities. When advising clients serving on boards, recommend a thorough reviews of trust fund tax compliance, as personal liability can attach regardless of intent to defraud.
- Documentation is crucial: The lack of written directives or follow-up communications regarding tax payments severely undermined Dreyer’s defense. Clients should document all instructions regarding tax compliance.
- The knowledge threshold for willfulness is low: Once a responsible person knows taxes are unpaid, using available funds for other purposes constitutes willfulness under §6672.
- Control of funds matters: Dreyer’s exclusive control over the Union Bank account that could have been used to pay the taxes was a significant factor in the court’s decision. When a responsible person has direct access to funds that could satisfy tax obligations, failure to use those funds for taxes strengthens willfulness findings.
The Dreyer case reinforces the significant personal liability risks facing board members and officers when it comes to trust fund taxes. The Ninth Circuit’s decision underscores that awareness of unpaid taxes, combined with control over funds that could pay those taxes, is sufficient to establish willfulness under §6672. Counsel your clients in organizational governance positions about these risks, emphasizing the importance of prioritizing tax payments, maintaining clear documentation of all tax-related communications, and implementing systems to verify tax compliance. As this case demonstrates, “I thought someone else paid it” is not a reliable defense.