WPC@ 77dboxq,c_XtQm6Ya29CБ3$2H\d'z9sӖ i*f-Aj'?&ظXƈw6jlZh rMAIhBʭgH2t!*&5ǥ%|ke庨QWSJV4HQ$R|s6}uxT 2zk'?% 5ˊWoDYkFƢGX&8vnDuqMюᭅJeȿL]mat Ar>&ꄋX+%;cv\VNo)&eݙ-x'^D?PoWj:F[_I~POQ%S}=.(S7nǔrJB+NIFN>z"‡G$WghX. andconsequently,thedistrictcourtdidnoterrinrefusingto d applyit. X $X^XXX  =^XXdd=    16    _Wemakethisdeterminationassumingthat,bothattheonset  oflitigationandatthecloseofdiscovery,thegovernment  possessedevidencethatPaulhadrelinquishedhissignatory \  authorityduringthethirdquarter.Seecasescitedsupranote15.  Furthermore,werecognizethatitisnotentirelyclearthatPaul  statedthesecondofthetwoissuesintheaccompanyingtexttothe \ districtcourt.Nevertheless,forpurposesofthisappeal,we 2 assumethatthesecondissuewasclearlystated. !X^XXX  _TRY,3'X3' Letter 3' Letter3'T ? * ! X5XXX^ X X5     UnitedStatesCourtofAppeals E   FortheFirstCircuit Y EX^XY  A') ` dE< ` A   No.041121 K  @%PAULJEAN,  G  @ Plaintiff,Appellant,   @tt)v. O  @#UNITEDSTATES, K  @<< Defendant,Appellee.  A') ` dE<R` A S @*  @@ APPEALFROMTHEUNITEDSTATESDISTRICTCOURT 8 @@0 0 FORTHEDISTRICTOFMASSACHUSETTS ^ [Hon.DouglasP.Woodlock,U.S.DistrictJudge] 4 A') ` dE<` A  @'Before u   @@((Selya,CircuitJudge, !q Stahl,SeniorCircuitJudge, G andLynch,CircuitJudge.  A') ` dE<N ` A O "       TimothyJ.Burkeforappellant. 4!$   MichelleB.O'Connor,Attorney,withwhomEileenJ.O'Connor,  "Z% AssistantAttorneyGeneral,andKennethL.Greene,Attorney,Tax "0& Division,DepartmentofJustice,wereonbriefforappellee. #' *'ddd Xdd Xdd X(#(#,( dd ,( dd ,( dd +  8&!*8&!  SI&!+  @38385 @SFebruary3,2005 r'"-  RHCH(#."  @38385  @ R(&!/  (  * !    + '2?   8^XXdd8 *,X` XX* ` STAHL,SeniorCircuitJudge .TheInternalRevenue  Service("IRS"),actingpursuantto26U.S.C.6672,assesseda x penaltyagainstAppellantPaulJean("Paul"),anemployeeofFocus $t FinancialServices("Focus"),forunpaidincomeandsocialsecurity   taxeswithheldfromthewagesofFocus'employeesin1992.Paul |  paidaportionoftheassessmentand,afterexhaustinghis ( x  administrativeremedies,suedtheIRSintheUnitedStatesDistrict $  CourtfortheDistrictofMassachusettsforarefundandan   abatementofthebalanceoftheassessment." #  1      ׀Thegovernmentfiled ,|  acounterclaim,seekingtorecoverthebalanceoftheassessment. ( Atthecloseoftheevidenceattrial,thedistrictcourtentered  judgmentinPaul'sfavor.Paul,then,filedamotiontorecover 0 hisadministrativeandlitigationcostsunder26U.S.C.7430. , Thedistrictcourt,indenyingthemotion,foundthatthe  governmentwassubstantiallyjustifiedinissuingtheassessment 4 andpursuingthelitigation.Paulnowseeksreviewofthatdenial. 0 Findingnoerror,weaffirm.      I.Background  8!"  ` In1985,MichaelPottle("Pottle")incorporatedFocus. #P$ HeservedasFocus'presidentandtreasurerandwasthecompany's $& soleshareholder.PottlehiredGeorgeJean("George")toserveas X&!( thecompany'svicepresidentandgeneralmanager.Initially,Focus  provideddebtcollectionservicesoutofanofficeinPlymouth, \ Massachusetts.By1987,Focusalsohadacreditreportingbusiness X inLynn,Massachusetts., #  2      ׀Notwithstandingthisexpansion,even   after1987,allofthecompany'sbillswerepaidoutofits `  Plymouthoffice.  \   ` In1987,PottlehiredGeorge'sson,Paul,toworkpart   timeasabookkeeperforFocus.Paulwasgivenfullsignatory d  authorityoverFocus'bankaccounts;thatis,hehadthepowerto `  disbursefundsfromthecompany'saccounts.#< #  3      ׀Paul,whoworkedin   thePlymouthoffice,signedmanyofthechecksissuedbyFocus, h includingchecksissuedtocoverFocus'taxliabilities. d  ` Sometimein1991,Focusbeganhavingfinancial  difficulties,whichculminatedinitsfailuretopaytheIRStaxes l thathadbeenwithheldfromitsemployees'wagesforthefirst h threequartersof1992.Duringthosequarters,however,Focus  continuedtopayitsemployeesandothercreditors. p   ` PaulsignedmostofthechecksthatFocusissuedinthe !l" firsttwoquartersof1992hesigned114checks,transferring "$ $284,353.22toFocus'creditors,ofwhich$202,360.96waspaidto t$& creditorsotherthantheIRS.OnAugust2,1992,duringthethird  &p!( quarter,Paulrelinquishedhissignatoryauthority;apparently,he  fearedbeingheldliableforFocus'failuretopaytheIRS. \  ` OnDecember20,1994,pursuantto26U.S.C.6672,the X IRSproposedtoassessPaulforFocus'unpaidwithholding   obligations.TheIRSviewedPaulasa"responsibleperson"of `  Focuswhohadwillfullyfailedtopaythecompany'staxes.Prior  \  totheissuanceoftheproposedassessment,inMay1994,Pottle   filedwiththeIRSastatementinwhichheaverredthatheand d  GeorgeweretheonlypersonswithauthorityoverFocus'finances. `  Pottlefailedtomentionthat,duringmuchoftherelevantperiod,   Paulhadbeenauthorizedtodisburse,andhadinfactdisbursed, h moneyfromFocus'bankaccounts.Paulappealedtheproposed d assessmenttotheIRSOfficeofAppealsonJanuary12,1995.On  June28,1996,theOfficeofAppealsrejectedPaul'schallenge. l  ` OnAugust12,1996,theIRSassessedapenaltyagainst h Paulintheamountof$31,825.66forFocus'taxliabilitiesforthe  firstthreequartersof1992,theperiodfromJanuary1,1992to p  September30,1992.TheIRSmadealikeassessmentagainstGeorge. !l" PaulandGeorge,onNovember16,1999,eachpaidtheIRS$84.00and "$ filedrefundclaimswiththeagency.Theclaimsweredenied,and t$& onJune30,2000,PaulandGeorgesuedtheIRSindistrictcourt  &p!( forrefundsofthesumspaidandanabatementofthebalanceofthe '#*  assessment.Inresponse,thegovernmentfiledcounterclaims x)$, againstPaulandGeorgefortheportionoftheassessmentthat  remainedunpaid.$ #  4       \   ` Duringdiscovery,PottleandPaulweredeposed.+  #  5      ׀Athis X deposition,Paulstatedthathehadtheauthoritytowritechecks   topayFocus'smallerbills,"certainly[invoices]under$100,for `  example,"withoutfirstobtainingapprovalfromPottleorGeorge.  \  However,hesaidthathedidnothavetheauthoritytopayFocus'   "largerinvoicestelephonebills,forexample,"withoutobtaining d  priorapproval.Paultestifiedthattherewereno"specific... `  criteriathat[were]employed[todistinguishthesmallerbills   fromthelargerones]." h  ` Inaddition,PaulacknowledgedthatonceFocusbegan d experiencingfinancialdifficulties,heparticipatedindaily  meetingswithPottleandGeorgeduringwhichFocus'financial l  obligationswerediscussedanditwasdecidedwhichbillswereto h bepaid.% #  6      ׀TheextentofPaul'sinvolvementinthemeetingsandin   theultimatedecisionastowhichcreditorsweretobepaidis \ unclearfromthedepositiontranscript.Paulalsoadmittedthat, X in1992,hewasawarethatFocushadnotpaiditstaxesbutthatit   waspayingitsemployees'salariesandotherobligations. `   ` PottletestifiedathisdepositionthatPaullackedthe  \  authoritytomakeindependentspendingdecisions.But,Pottlealso   statedthat,atallrelevanttimes,Georgewasresponsibleforthe d  daytodayoperationsofthecompany'sbusinessinPlymouth.And, `  PottlesaidthatherarelyvisitedthePlymouthofficeafterthe   firstfewyearsofFocus'existence. h  ` Followingthecloseofdiscovery,Paulfiledamotionfor d summaryjudgmentinwhichheassertedthattheundisputedfacts  establishedthathewasnotapersonresponsibleforthepaymentof l taxesbyFocusbecauseheneverhadtheauthoritytodecidewhich h ofFocus'creditorsweretobepaid.Atthesametime,Paulfiled  anaffidavitinwhichhemaintainedthathewasnothingmorethan p  aclericalemployeeofFocus;heinsistedthathe:(1)"didnot !l" havetheauthority...todeterminewhichcreditorsweretobe "$ paid";(2)"wasnotanofficer,shareholderordirector";(3)"was t$&  controlledby[]Pottle";(4)"didnothavetheactualabilityto  &p!( establishfinancialpoliciesorprocedures";and(5)"didnothave  theabilitytohireorfireemployees." \   ` Thegovernmentopposedthemotion,arguingthatthescope X ofPaul'sauthoritytodeterminewhichofFocus'creditorswereto   bepaidwasindispute.Thegovernmentpointedoutthat,athis `  deposition,Paultestifiedthathehadtheauthoritytopaycertain  \  creditorswithoutpriorapprovalandparticipatedindailymeetings   withPottleandGeorgeconcerningFocus'financialobligations. d   ` Thedistrictcourtallowedthemotioninpartanddenied `  itinpart.Itconcludedthat,fortheperiodfromJanuary1,1992   throughAugust1,1992(thefirst,thesecond,andpartofthe h thirdquarter),therewasagenuinedisputeastowhetherPaulhad d therequisitedecisionmakingauthoritytorenderhimaperson  responsibleforpaymentoftaxesbyFocus.Bycontrast,it l reasonedthatPaul'srelinquishmentofhischecksigningauthority h onAugust2,1992lefthiminapositionwhere,afterthatdate,he  clearlylackedauthoritytopaytaxes.Therefore,thedistrict p  courtallowedthemotionastotheperiodfromAugust2,1992 !l" throughSeptember30,1992anddenieditastotheperiodfrom "$ January1,1992throughAugust1,1992. t$&  ` Afterthecloseofevidenceattrial,Paulfiledamotion  &p!( foradirectedverdict,whichthedistrictcourtallowed.Paul '#* thenmovedforadministrativeandlitigationcostsunder26U.S.C. x)$, 7430.Thegovernmentopposedthemotion,claimingthatitwas $+t&. substantiallyjustifiedintakingthepositionthatPaulwasliable  forFocus'taxdeficiencies.Thedistrictcourtagreedwiththe \ governmentanddeniedthemotion.Paulnowseeksreviewofthat X denial.     II.Discussion  `  7 ` Wehavenotpreviouslyaddressedthequestionofwhat ( x  standardofreviewappliestoadistrictcourt'srulingonamotion $  forcostspursuantto26U.S.C.7430.Wewillfollowoursister   circuitsandreviewthedistrictcourt'sdeterminationthatPaul ,|  wasnotentitledtocostsunder7430forabuseofdiscretion. ( See,e.g.,UnitedStatesv.Bisbee,245F.3d1001,1007(8thCir.  2001);Wilkersonv.UnitedStates,67F.3d112,119(5thCir. 0 1995);Cooperv.UnitedStates,60F.3d1529,1531(11thCir. , 1995);Awmillerv.UnitedStates,1F.3d930,930(9thCir.1993);  Wilfongv.UnitedStates,991F.2d359,364(7thCir.1993);Pate 4 v.UnitedStates,982F.2d457,459(10thCir.1993). 0  (}03"3"  3<2}  A  .3  0 `   StatutoryFramework3<<݌ ` (#` (# Ќ   ` Attheoutset,wereviewthestatutoryframeworkrelevant 8!" tothisappeal. "4$ ";"  ;=0 ` 2}  1  .3  0 ` (#` (#  26U.S.C.3102,3402,6672;= >݌$& (# (# Ќ   ` TheInternalRevenueCoderequiresemployerstowithhold <&!( federalincometaxesfromtheiremployees'wages.Slodovv.United '8#* States,436U.S.238,24243(1978);see26U.S.C.3102(a), )$, 3402(a).ThewithheldsumsaretobepaidtotheIRSona @+&. quarterlybasis.Slodov,436U.S.at243."Anemployerwhofails  topaytaxeswithheldfromitsemployees'wagesis...liablefor \ the[unpaid]taxes...."Id.Moreover,26U.S.C.6672(a) X extendsliabilityforunpaidtaxesbyproviding:   ` 0 ` Anypersonrequiredtocollect,truthfully `  accountfor,andpayoveranytaximposedby 6   thistitlewhowillfullyfailstocollectsuch  \  tax,ortruthfullyaccountforandpayover  2  suchtax,orwillfullyattemptsinanymanner   toevadeordefeatanysuchtaxorthepayment   thereof,shall,inadditiontootherpenalties d  providedbylaw,beliabletoapenaltyequal :  tothetotalamountofthetaxevaded,ornot `  collected,ornotaccountedforandpaidover.6` x` x ` AAForpurposesof6672(a),a"'person'...includesanofficeror  employeeofacorporation...who...isunderadutyto > performtheactinrespectofwhichtheviolationoccurs."26 : U.S.C.6671(b).Thus,anemployeemaybeliableunder6672(a)  ifhe(1)isapersonwhois"requiredtocollect,truthfully B accountfor,[or]payover"thetaxes(a"responsibleperson"),& #  7       > and(2)"willfully"failstodoso.SeeThomsenv.UnitedStates,  887F.2d12,14(1stCir.1989).Anindividualdeemedliableunder F ! 6672(a)bearstheburdenofprovingthathewasnotaresponsible !B# personanddoesnotmeetthewillfulnessrequirement.Stuartv. #% UnitedStates,337F.3d31,36(1stCir.2003);seeLubetzkyv. J% ' UnitedStates,No.012357,2004WL2997888,at*3(1stCir.Dec.  29,2004). \  ` Thereisnosinglefactorthatdetermineswhetheran X individualisaresponsibleperson.) #  8      ׀Vinick,205F.3dat8.   Indiciaofresponsibilityincludewhethertheindividual: `  ` 0 ` (1)isanofficerormemberoftheboardof  \  directors,(2)ownssharesorpossessesan  2  entrepreneurialstakeinthecompany,(3)is   activeinthemanagementofdaytodayaffairs   ofthecompany,(4)hastheabilitytohire d  andfireemployees,(5)makesdecisions :  regardingwhich,whenandinwhatorder `  outstandingdebtsortaxeswillbepaid,(6) 6 exercisescontroloverdailybankaccountsand   disbursementrecords,and(7)hascheck  signingauthority.(< #  9      h` x` x ` JJId.at7(citationomitted);seeLubetzky,2004WL2997888,at*3. d However,"thecrucialinquiryiswhetherthepersonhadthe  effectivepowertopaythetaxesthatis,whetherhehadthe l actualauthorityorability,inviewofhisstatuswithinthe h corporation,topaythetaxesowed."Vinick,205F.3dat8  (internalquotationmarksandcitationsomitted).Therefore,the p   finalthreefactorsintheabovelistarethemostsignificant !l" "because[they]identif[y]mostreadilythepersonwhocouldhave  paidthetaxes,butchosenottodoso."Id.at9. \   ` Toactwillfullyunder6672,one"musthavesome X knowledgeoffailureorriskoffailuretoremittheemployment   taxes."Cooper,60F.3dat1532;seeLubetzky,2004WL2997888,at `  *3;Stuart,337F.3dat36.  \  ";"  ;[R0 ` 2}  2  .3  0 ` (#` (#  26U.S.C.7430;[RR݌  (# (# Ќ   ` While6672imposesliabilityforunpaidtaxes, d  7430(a)establishesthatanindividualwronglydeemedliable `  under6672forunpaidtaxesmayrecoverbothhisadministrative   andlitigationcosts.Section7430(a)provides: h  0 ` Inanyadministrativeorcourtproceeding d whichisbroughtbyoragainsttheUnited : Statesinconnectionwiththedetermination,  collection,orrefundofanytax,interest,or  penalty...,theprevailingpartymaybe l awardedajudgmentorasettlementforB` -` - 0 `  (1)reasonableadministrativecosts h incurredinconnectionwithsuch > administrativeproceedingwithinthe[IRS],  and` -` - 0 `  (2)reasonablelitigationcosts p  incurredinconnectionwithsuchcourt F ! proceeding.!l"` -` -  TTThus,tobeeligibleforanawardofadministrativecosts, "$ litigationcosts,orboth,anindividualmustestablishthatheis t$& a"prevailingparty."* #  10      ׀26U.S.C.7430(a).Anindividualisa  &p!( "prevailingparty"ifhe"hassubstantiallyprevailedwithrespect  totheamountincontroversy[]or...themostsignificantissue \ orsetofissuespresented,"26U.S.C.7430(c)(4)(A)(i),andhis X "networthdidnotexceed$2,000,000atthetimethecivilaction   wasfiled,"28U.S.C.2412(d)(2)(B);see26U.S.C. `  7430(c)(4)(A)(ii).However,eveniftheserequirementsaremet,  \  anindividual"shallnotbetreatedastheprevailingparty...   iftheUnitedStatesestablishesthat[its]position...inthe d  proceedingwassubstantiallyjustified."26U.S.C. `  7430(c)(4)(B)(i).1 #  11          ` Thegovernment'spositioninanadministrativeproceeding h isits"position...asoftheearlierof...thedateofthe d receiptbythetaxpayerofthenoticeofthedecisionofthe[IRS]  OfficeofAppeals,or...thedateofthenoticeofdeficiency."-  #  12      ׀ l 26U.S.C.7430(c)(7)(B).Thegovernment'spositioninajudicial  proceedingisits"position...attheonsetofthelitigation," \ Nallev.Comm'rofInternalRevenue,55F.3d189,191(5thCir. X 1995),andat"each[subsequent]stageofthecase,"Huffmanv.   Comm'rofInternalRevenue,978F.2d1139,1148(9thCir.1992). `  A"position...issubstantiallyjustifiedifithasareasonable  \  basisinbothlawandfact,adeterminationmadeonacasebycase   basis."Bisbee,245F.3dat1007.Thegovernment'slossinthe d  underlyinglitigationisnotdeterminativeofwhetheritsposition `  wassubstantiallyjustified.See,e.g.,Nalle,55F.3dat192   ("[I]fattheonsetoflitigationtheerrorwasnotobvious,the h [government]maystillbesubstantiallyjustifiedindefendingan d ultimatelyunsuccessfulposition.").  "3"  3c2}  B  .3  0 `   ApplicationofFactstoLaw3c