Dana Corp. v. US, 3:90CV7253.
| Decision Date | 22 May 1991 |
| Docket Number | No. 3:90CV7253.,3:90CV7253. |
| Citation | 764 F. Supp. 482 |
| Parties | DANA CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
Eric R. Fox, Ivins, Phillips & Barker, Washington, D.C., for plaintiff.
Charles M. Greene, Dept. of Justice, Tax Div., Washington, D.C., Constance Ann Snyder, Office of the U.S. Atty., Toledo, Ohio, for defendant.
This cause is before the Court on cross motions for summary judgment. This Court has jurisdiction pursuant to 28 U.S.C. § 1331.
Plaintiff, Dana Corporation (Dana), has brought this action against defendant, United States of America (hereinafter referred to as the IRS), seeking the refund of penalties imposed on it pursuant to 26 U.S.C. § 6656(a) of the Internal Revenue Code. Section 6656(a) imposes a penalty on a taxpayer who fails to make timely deposits of any tax required to be deposited with an authorized government depository. Specifically, Dana was penalized for failing to timely deposit the proper amount of payroll taxes 11 times over a two year period, 1982-83. During those two years, Dana was receiving payroll information from over 40 different locations that used a variety of payroll periods and payment dates and depositing payroll taxes for more than 20,000 employees.
Employers with aggregate undeposited payroll taxes of $3,000.00 or more in an eighth-monthly period1 are required to deposit such taxes in either a Federal Reserve Bank or an authorized financial institution within three banking days after the end of that particular eighth-monthly period. Treas.Reg. 31.6302(c)-1(a)(1)(i)(b). Because some employers may not be able to determine their exact tax liability and make the required deposit within three banking days after the end of a period, subdivision (1) creates a "safe harbor" for those employers who deposit "not less than 95 percent ... of the aggregate amount of the taxes with respect to wages paid during the period for which the deposit is made." Treas.Reg. 31.6302(c)-1(a)(1)(i)(b)(1) (). Each employer is also required to file a Form 941 every calendar quarter setting forth a summary of all employment taxes deposited during that quarter. Treas.Reg. 31-6011(a)-1 and 31-6011(a)-4.
This dispute centers around the interpretation of the safe harbor provision. Dana, pursuant to longstanding company practice, interpreted it to mean that the company had to deposit a total of 95% of its payroll tax liability from the first day of the calendar month to the end of the current eighth-monthly period to be protected against any penalties that could be imposed under § 6656(a). Thus, if Dana deposited 100% of its aggregate payroll taxes for one eighth-monthly period and 90% of its aggregate payroll taxes for the subsequent eighth-monthly period, Dana would not be liable for any penalties under § 6656(a) because it had deposited 95% of its payroll taxes over both periods.
The IRS argues that the 95% safe harbor provision applies to each eighth-monthly period individually. Under this interpretation, a company is liable for penalties under § 6656(a) each time an eighth-monthly period deposit is less than 95% of the aggregate payroll taxes due for that period. Thus, in the example above, Dana would be liable for a penalty under § 6656(a) for the eighth-monthly period that it deposited only 90% of its aggregate payroll taxes.
Using this interpretation, the IRS found that Dana had failed to deposit at least 95% of its aggregate payroll taxes for 11 eighth-monthly periods spanning 1982-83. Pursuant to that finding, the IRS assessed penalties against Dana in the amount of $455,005.65. Dana paid this penalty on December 1, 1989 and filed five separate claims for a refund on December 13, 1989. After the IRS denied those claims, Dana filed this lawsuit, seeking a refund. Both parties now move this Court for summary judgment, claiming that there are no genuine issues of material fact and that each is entitled to judgment as a matter of law. This case appears to be one of first impression; neither the Court nor the parties have been able to find any case law directly on point.
Rule 56 Fed.R.Civ.P. directs the disposition of a motion for summary judgment. In relevant part, Rule 56(c) states:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
The Court's function in ruling on a motion for summary judgment is to determine if any genuine issue of material fact exists for trial, not to resolve any factual issues, and to deny summary judgment if material facts are in dispute. United States v. Articles of Device, 527 F.2d 1008, 1011 (6th Cir.1976); Tee-Pak, Inc. v. St. Regis Paper Co., 491 F.2d 1193, 1195 (6th Cir.1974). Further, "in ruling on a motion for summary judgment, the evidence must be viewed in a light most favorable to the party opposing the motion." Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319, 1324 (6th Cir.1983). To summarize, summary judgment is only appropriate when no genuine issue of material fact remains to be decided, and when the undisputed facts, viewed in a light most favorable to the non-moving party, entitle the movant to judgment as a matter of law. Smith v. Pan Am World Airways, 706 F.2d 771, 771 (6th Cir.1983).
A principle purpose of summary judgment "is to isolate and dispose of factually unsupported claims or defenses." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). Rule 56(e) places responsibility on the party against whom summary judgment is sought to demonstrate that summary judgment is improper, either by showing the existence of a material question of fact or that the underlying substantive law does not permit such a decision. In relevant part the provision states:
When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.
Fed.R.Civ.P. 56(e). Rule 56(e) requires the non-moving party to go beyond pleadings and by affidavits, depositions, answers to interrogatories, or admissions on file, designate specific facts showing a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. at 324, 106 S.Ct. at 2553.
Dana advances two reasons why it is entitled to a refund of the penalties: (1) that Dana was in compliance with the IRS regulations either because its interpretation of the safe harbor provision is correct or because the safe harbor provision was ambiguous; and (2) that even if Dana was not in compliance, it is still not liable for the penalties because its failure to deposit the correct amount of payroll taxes was due to reasonable cause, not willful neglect. The IRS argues that Dana was not in compliance, the safe harbor provision is not ambiguous and that its failure to deposit the correct amount of payroll taxes was not due to reasonable cause.
The 1983 version of Treas.Reg. 31-6302(c)-1(a)(1)(i)(b) states in pertinent part that:
Dana argues that the word "period" as it is used in the safe harbor provision does not relate to the eighth-monthly period in which a deposit is to be made but to the period in which a Form 941 return is to be filed. In support of this position, Dana points to the fact that in subdivision (i)(b), each time the word "period" is used, it is preceded by the term "eighth-monthly". In the safe harbor provision however, the word "period" is not preceded by the words "eighth-monthly" but is followed by the words "for which the deposit is made". Also, subdivision (i)(b)(2) begins "If such eighth-monthly period ..." Dana argues that this must mean that some "period" other than an eighth-monthly period is intended. Dana found this other "period" in Treas.Reg. 31-6302(c)-1(a)(3)(iii), the regulation pertaining to the filing of Form 941.2 Because Dana always deposited 95% of its aggregate payroll taxes from the beginning of a quarter to the end of any current eighth-monthly period, Dana should not be penalized under § 6656(a).
Dana further argues that even if its interpretation is wrong, the safe harbor provision is ambiguous and Dana's interpretation is as reasonable as the IRS's interpretation. Because ambiguities in the tax laws are to be construed in favor of the taxpayer and against the IRS, Gould v. Gould, 245 U.S. 151, 153, 38 S.Ct. 53, 54, 62 L.Ed. 211 (1917); Weingarden v. Comm'r., 825 F.2d 1027, 1029 (6th Cir.1987), Dana should not be held liable for the imposed penalties.
The IRS argues, and this Court agrees, that...
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