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

CourtUnited States District Courts. 6th Circuit. United States District Court of Western District of Kentucky
Writing for the CourtCharles R. Simpson III, Senior Judge United States District Court
Decision Date28 January 2016
Docket NumberCIVIL ACTION NO. 3:13-cv-01204-CRS


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


January 28, 2016


Plaintiff Commonwealth Bank and Trust Company ("CBTC") brings this action to recover tax penalties. Although CBTC paid its taxes on time using paper deposit coupons, the bank failed to electronically deposit taxes from 2004 through 2010 as required. The Internal Revenue Service subsequently assessed CBTC a failure-to-file penalty.

Defendant, the United States of America, moves for summary judgment. For the reasons below, the Courts finds that—as a matter of law—CBTC cannot demonstrate an entitlement to a penalty refund. The Court will sua sponte dismiss in part CBTC's claims for lack of subject matter jurisdiction and grant the United States' motion for summary judgment for the remaining claims.


Unless otherwise indicated, the following facts are undisputed. CBTC acts as a for-profit fiduciary for various pension plans, Individual Retirement Accounts, and other employee benefit plans. As the fiduciary of these accounts, CBTC withholds federal income tax from earnings and

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then deposits the withheld taxes with the Internal Revenue Service. When CBTC withholds taxes, the Internal Revenue Code requires the bank to file with the Internal Revenue Service a Form 945 tax return.

When a taxpayer deposits more than $200,000 of taxes during one tax year, the taxpayer must use the Electronic Federal Tax Payment System ("EFTPS") for all deposits after the end of the following year and continuing in all subsequent years. See 26 C.F.R. § 31.6302-1(h)(2)(ii).

In 2002, CBTC's income tax withholdings exceeded $200,000. CBTC continued to manually deposit its taxes using Form 8109 paper coupons during the tax years 2004, 2005, 2007, 2008, 2009, and 2010 (collectively, the "relevant years").

During the relevant years, CBTC did not timely file its Forms 945. CBTC officially filed its Forms 945 for tax years 2003 through 2008 in March 2009, although the bank alleges it attempted to file some Forms 945 in mid to late 2008. CBTC filed the 2009 Form 945 in 2011 and the 2010 Form 945 in 2012. According to CBTC, the 2004 departure of Linda Reas, CBTC's former Trust Administrative Officer and Vice President, "caused a loss of institutional knowledge during the Tax Periods regarding these filings and the required process for deposits pursuant to Section 6656 of the Code." Pl.'s Resp. 32 n.20, ECF No. 40. Steven Prince - Senior Vice President and Manager of Trust Operations for CBTC - explicitly stated that "due to Ms. Reas' resignation from [CBTC] on or around January 2004, there was an internal breakdown in its preparing and filing of the Returns for five years (tax years 2003 through 2008)...." Prince Aff. ¶ 6, ECF No. 41-1.

The Internal Revenue Service assessed CBTC with failure-to-deposit penalties in the amount of $252,842.87 pursuant to 26 U.S.C. § 6656. CBTC filed suit against the United States

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to recover the penalties under two counts: (1) there was no failure to deposit as CBTC timely and fully deposited all withheld income taxes; and (2) even if there was a failure to deposit, such failure was due to reasonable cause and not willful neglect. This Court previously dismissed count one for failure to state a claim. Order, ECF No. 13.


Before granting a motion for summary judgment, the Court must find that "there is no genuine issue of material fact such that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The Court must view the evidence in a light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378 (2007). However, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The non-moving party must show that a genuine factual issue exists by "citing to particular parts of materials in the record" or by "showing that the materials cited do not establish the absence ... of a genuine dispute[.]" Fed. R. Civ. P. 56(c)(1). "The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).


I. Subject Matter Jurisdiction

The United States argues that the Court lacks subject matter jurisdiction over CBTC's claim for abatement of the 2009 penalty because CBTC has not paid the entire penalty for that year. Refund suits cannot be maintained unless the tax or tax penalty has been fully paid. See

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Flora v. United States, 357 U.S. 63 (1958); Peppers v. United States, 485 F. App'x 85, 87 (6th Cir. 2012); Tiernan v. United States, 113 Fed.Cl. 528, 533 (2013). The United States provided evidence that the 2009 tax penalty was not paid in full prior to the filing of the complaint. See 2009 IRS Account Transcript, ECF No. 36-9. In its complaint, CBTC stated that $35,666.04 has not been paid relating to failure to deposit penalties for 2009. See Compl. ¶ 6, n.1, ECF No. 1. Therefore, the Court does not have subject matter jurisdiction over CBTC's claim to the extent it seeks refund of the 2009 tax penalty.

Also, the United States argues that this Court lacks subject matter jurisdiction over a $9,100 payment for an amount owed for the 2007 tax year. CBTC made this payment on July 1 or 2, 2013, which was after CBTC filed its administrative refund claim on March 15, 2012. See 2007 IRS Account Transcript, ECF No. 36-7; Compl. ¶ 7, ECF No. 1. A plaintiff may only recover in a tax or tax penalty refund action the amount paid prior to filing a refund claim. See Tiernan, 113 Fed.Cl. at 532-33.

CBTC responded by arguing that that the United States waived its jurisdictional challenge. However, "Parties cannot ... waive a court's lack of subject matter jurisdiction because, quite simply, subject matter jurisdiction cannot be created where none exists." Thomas v. Miller, 489 F.3d 293, 298 (6th Cir. 2007) (internal citation and quotations omitted).

The Court will sua sponte dismiss CBTC's claims for lack of subject matter jurisdiction to the extent they involve the 2009 tax penalty and the tax penalties which were unpaid prior to filing the administrative refund claim.

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II. Tax Penalty Refund

The Court is tasked with the narrow question of whether CBTC's failure to electronically deposit taxes was due to...

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