Commonwealth Bank v. United States, CIVIL ACTION NO. 3:13-CV-01204-CRS

• Court: United States District Courts. 6th Circuit. United States District Court of Western District of Kentucky
• Writing for the Court: Charles R. Simpson III
• Parties: COMMONWEALTH BANK AND TRUST COMPANY PLAINTIFF v. UNITED STATES OF AMERICA DEFENDANT
• Decision Date: 03 July 2014
• Docket Number: CIVIL ACTION NO. 3:13-CV-01204-CRS

COMMONWEALTH BANK AND TRUST COMPANY PLAINTIFF
v.
UNITED STATES OF AMERICA DEFENDANT

CIVIL ACTION NO. 3:13-CV-01204-CRS

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY AT LOUISVILLE

July 3, 2014

MEMORANDUM OPINION

This matter is before the Court on a FED. R. CIV. P. 12(b)(6) motion to dismiss (DN 6) Count One of Plaintiff Commonwealth Bank & Trust Company's ("Commonwealth") Complaint filed by Defendant United States of America (the "United States"). For the reasons set forth below, the Court will grant the motion to dismiss.

BACKGROUND

Unless otherwise indicated, the following facts are undisputed. Commonwealth acts as a fiduciary of numerous pension plans, individual retirement accounts, and employee benefit plans with respect to which it is responsible for withholding federal income taxes. For taxable years 2004, 2005, 2007, 2008, 2009, and 2010, Commonwealth timely and fully deposited all withheld income taxes, but failed to comply with 26 C.F.R. § 31.6302-1(h)(2)(ii)'s requirement that taxpayers depositing more than $200,000 of taxes "must use electronic funds transfer... to make all deposits of those taxes." As a result, the Internal Revenue Service ("IRS") assessed

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Commonwealth with failure-to-deposit penalties in the amount of $252, 842.87 pursuant to 26 U.S.C. § 6656(a), which provides as follows:

In the case of any failure by any person to deposit (as required by this title or by regulations of the Secretary under this title) on the date prescribed therefor any amount of tax imposed by this title in such government depository as is authorized under section 6302(c) to receive such deposit, unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be imposed upon such person a penalty equal to the applicable percentage of the amount of the underpayment.

After paying the assessment in full and having its claims for refund denied by the IRS, Commonwealth filed the present action on December 12, 2013, alleging that the IRS improperly imposed the assessment under Section 6656(a) because: 1) there was no "failure... to deposit" insofar as Commonwealth timely and fully deposited all withheld income taxes (Count One); and 2) even if there were a failure to deposit, such failure was "due to reasonable cause and not due to willful neglect" (Count Two). Rather than failing to deposit its taxes at all, Commonwealth argues that it merely failed to follow the proper procedures for doing so. Arguing that Section 6656(a) applies only to a "failure... to deposit," Commonwealth claims that it did not violate Section 6656(a) and therefore should not have been assessed failure-to-deposit penalties thereunder.

On February 18, 2014, the United States filed a motion to dismiss (DN 6) Count One of Commonwealth's Complaint on the grounds that Section 6656(a) applies not only to a failure to deposit per se, but also a "failure... to deposit (as required by this title or by regulations of the Secretary under this title)..." 26 U.S.C. § 6656(a). Because 26 C.F.R. § 31.6302-1(h)(2)(ii) requires that taxpayers depositing more than $200,000 of taxes "must use electronic funds transfer... to make all deposits of those taxes," the United States argues that Commonwealth's

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manual deposit of its taxes amounted to a "failure... to deposit (as required by this title or by regulations of the Secretary under this title)..." 26 U.S.C. § 6656(a).

Having considered the parties' briefs and being otherwise sufficiently advised, the Court will now address the motion to dismiss.

DISCUSSION

There is no dispute that Commonwealth's tax obligation, on the occasion in question, was in excess of $200,000, and that 26 C.F.R. § 31.6302-1(h)(2)(ii) required Commonwealth's payment to be by EFT. There is also no dispute that the IRS furnished deposit forms to Commonwealth, and that Commonwealth erroneously used those forms to...