Datlof v. United States

Decision Date24 March 1966
Docket NumberCiv. No. 31805.
Citation252 F. Supp. 11
PartiesJoseph DATLOF, Plaintiff, v. UNITED STATES of America, Defendant.
CourtU.S. District Court — Eastern District of Pennsylvania


Robert M. Taylor, Philadelphia, Pa., for plaintiff.

Sullivan Cistone, Asst. U. S. Atty., Philadelphia, Pa., for defendant.

JOHN W. LORD, Jr., District Judge.

This is a civil non-jury action for a refund of $81.90, being a sum which was paid by plaintiff Joseph Datlof as the result of an assessment against him for unpaid federal withholding and employment tax obligations by the Commissioner of Internal Revenue under the provisions of Section 6672 of the Internal Revenue Code of 1954. The defendant has filed a counterclaim to collect the remaining unpaid balance on this assessment in the amount of $31,499.45.

Trial was had before my late colleague, Judge Allan K. Grim, on May 11, 12, 17 and 18, 1965. His unfortunate death in December, 1965, however, prevented him from filing Findings of Fact and Conclusions of Law.

The case was thereafter referred to me for decision. It was agreed by both parties that no further testimony would be offered and that I could make Findings of Fact and Conclusions of Law on the Record now before me. See Finding No. 10 below.

Accordingly, after considering the entire record, briefs and arguments of counsel, I make the following


1. Mr. Joseph Datlof is a citizen of the United States and of the State of Pennsylvania. (Stip. par. 1.) Mr. Datlof was the president and treasurer of the Donchester Manufacturing Company during the entire period when that firm was in existence. (Stip. par. 3; Tr. 25, 86; see also, Deft. Ex. 1, minutes of meeting of November 9, 1945.)

2. Donchester was a corporation which was organized under the laws of the State of Delaware on or about October 25, 1945. (Stip. par. 3; Tr. 86; Deft. Ex. 1.) From late 1945 until about December 31, 1955, this firm was engaged in the business of making clothing. During the three quarters of the calendar year 1955 which are in issue in this case, the corporate premises were located on the third, fourth, and fifth floors of the Pilling Building, at 23rd and Arch Streets in Philadelphia, Pennsylvania. (Stip. par. 3.)

3. The Donchester Manufacturing Company employed about 460 individuals. (See line 4 of Pltf. Exs. 10, 11, and 12.) Federal income and employment taxes were withheld from the wages of these employees in the normal course of Donchester's business. (Tr. 49-51.) However, not all of these withheld taxes were paid over by Donchester to the United States Government. At the time when Donchester ceased active operations at the end of the year 1955, the following amounts of employees' withholding and Federal Insurance Contribution Act taxes were due and owing from that firm. (Stip. pars. 4, 5; Stip. Ex. A.)

                                              Table 1
                                      Employees' Withholding and
                                      F.I.C.A. Taxes Collected by
                                      Donchester Manufacturing
                                      Company but Not Paid to
                   Quarter                     Amount             Stipulation
                   Ending                        Owed                   Reference 
                June 30, 1955                $10,632.08             Ex. A, p. 2
                September 30, 1955           $14,798.45             Ex. A, p. 3
                December 31, 1955            $12,273.57             Ex. A, p. 4
                       Total                 $37,704.10

4. On September 30, 1957, the Commissioner of Internal Revenue assessed a 100% penalty under the provisions of Section 6672 of the Internal Revenue Code of 1954 against the individuals who were officers of the Donchester Manufacturing Company during the year 1955.

The Commissioner's September 30, 1957 penalty assessment was timely assessed against both the plaintiff, Joseph Datlof, in his capacity as President and Treasurer of Donchester, and against one Samuel L. Schwartz, who was the Vice-President and Secretary of Donchester. (Stip. par. 5; Deft. Ex. 1, minutes of meeting of February 21, 1955.) The original assessment was in the amount of $44,405.10, but this sum was subsequently abated by $6,701.00 as a result of the identification of certain payments of tax in that amount which had been made by Donchester shortly before it went out of business. (Stip. par. 5 and Stip. Ex. C.) As thus reduced, the amount of the joint and several assessment against Mr. Datlof and Mr. Schwartz came to $37,704.10, which is the same as the amount of the unpaid withholding and employment tax liabilities of the Donchester Manufacturing Company. (Stip. par. 4; Stip. Ex. A; and Table 1, supra.)

5. Subsequent to the assessment and abatement described in the previous paragraph, Mr. Samuel Schwartz paid $3,640.00 in settlement of the assessment against him. In addition, the Government collected $2,482.75 out of the proceeds of a suit which had been commenced by Donchester in July 1955 against Bernard Stoumen Trading as Brentwood Knitting Mills. (Stip. par. 5; Tr. 172.) Finally, the Government received a payment in the amount of $81.90 from Mr. Joseph Datlof. (Stip. par. 5.) It is this $81.90 payment which Mr. Datlof seeks to recover in this suit.

6. As a result of the payments described in the previous paragraph, the amount of the unpaid balance on the Commissioner's September 30, 1957, penalty assessment has been reduced to $31,499.45, which is the amount of the Government's counterclaim in this action. (Stip. par. 5.) Table 2 below, sets forth the amount of the Government's original assessment, and the amounts of the abatements and payments described above.

                                              Table 2
                                 Abatements and Payments on
                                 Commissioner's Deficiency
                                 Assessment of September 30, 1957
                Original Assessment ..................................... $44,405.10
                (September 30, 1957)
                Less Abatement as a result of
                     identification of two
                     previously unidentified
                     payments of tax by
                     Donchester .......................... $6,701.00        6,701.00
                Amount Unpaid as of January 17, 1958 .................... $37,704.10
                Less Schwartz Settlement
                     Payment ........................... $3,640.00
                     Proceeds of Suit Against
                     Brentwood ......................... $2,482.75
                     Datlof Payment (Refund
                     Demanded in Complaint) ............ $   81.90
                     Total                               $6,204.65          6,204.65
                Unpaid Balance on Assessment (Amount of
                     Gov't Counterclaim ................................. $31,499.45

7. Mr. Datlof paid the sum of $81.90 (as set forth in Table 2, above) on October 23, 1961. (Stip. Ex. C.) On December 8, 1961, he filed a claim for a refund of that amount. (Pltf. Ex. 13.) This claim was disallowed in full on April 18, 1962. (Pltf. Ex. 22.) Thereafter, this suit was commenced on July 27, 1962. (Stip. par. 6.) In its answer to Mr. Datlof's complaint, the Government asserted a counterclaim for the unpaid balance on its September 30, 1957 deficiency assessment, in the amount of $31,499.45. Ibid.

8. This case was tried to the Court on May 11, 12, 17, and 18, 1965. Three witnesses were called by the taxpayer. These were Miss Doris Shaftman, the bookkeeper-secretary for the Donchester Manufacturing Company (Tr. 21), Mr. Samuel Cohen, an electrician for Donchester (Tr. 62), and Mr. Datlof himself. The Government called five witnesses. These were Mr. Joseph Datlof; Mr. Alfred C. Achtert, assistant treasurer of the Broad Street Trust Company (Tr. 309), Mr. Irvin Sklar, a partner in the Philadelphia accounting firm of Sklar, Carmosin & Company (Tr. 520), and Mr. Fred J. Isaacson and Mr. Richard Frankfort, who are now officers of a New York clothing firm known as Donmoor-Isaacson (Tr. 535), and who formed a Pennsylvania corporation in the year 1955 which was known as Peay Manufacturing Company (Tr. 537, 539). During the last half of the year 1955, the Donchester Manufacturing Company produced garments for Peay Manufacturing. (Tr. 146, 555-557.) Mr. Isaacson and Mr. Frankfort appeared by deposition, since it was agreed that they were beyond subpoena range. (Tr. 375 & esp. 381.)

9. At the trial, the Taxpayer marked Plaintiff's Exhibits 1 through 29 for identification, and all of these exhibits were received in evidence. The Government marked defendant's Exhibits 1 through 18 for identification. All of these exhibits were admitted, except for Exhibits 8, 9, and 10, which were withdrawn when Exhibit 12 was admitted; Exhibit 16, which became unnecessary when the taxpayer withdrew its objection to the reading into evidence of the joint deposition of Mr. Isaacson and Mr. Frankfort (Tr. 381); and Exhibit 18, which was designed for the sole purpose of assisting the Court in taking judicial notice of the fact that October 5, 1955 was a Wednesday. (See Tr. 412-416.)

10. Subsequent to the passing of the Honorable Allan K. Grim on December 7, 1965, the parties executed a stipulation in which they indicated that this case could be decided on the basis of the record, as theretofore established, including the pleadings, the stipulation filed on May 12, 1965, the trial transcript, and the admitted trial exhibits. This stipulation was filed with the Court on December 30, 1965.


11. The Donchester Manufacturing Company was organized on October 25, 1945 (Deft. Ex. 1, pp. 1-5.) An agreement to form this corporation (Pltf. Ex. 7) had been drawn up in the year 1944 by Mr. Datlof's attorney (Tr. 387), but Donchester did not go into operation under the terms of this 1944 agreement. (Tr. 391-392.) After Mr. Datlof returned from wartime service, a new agreement to form a...

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