Ferguson v. U.S.
| Decision Date | 06 May 2004 |
| Docket Number | No. 4:02-CV-40449.,4:02-CV-40449. |
| Citation | 317 F.Supp.2d 945 |
| Parties | Donald R. FERGUSON, Plaintiff/Counterclaim Defendant, v. UNITED STATES of America, Defendant/Counterclaim Plaintiff, v. Richard Musal and Nicholas P. Miller, Counterclaim Defendants. |
| Court | U.S. District Court — Southern District of Iowa |
Harold N. Schneebeck, JR., Brown Winick Graves Gross Baskerville & Schoenebaum PLC, West Des Moines, IA, for Plaintiff.
Laquita Taylor Phillips, Teresa Dondlinger Trissell, U.S. Dept. of Justice Washington, DC, for Defendant.
William Sidney Smith, Ronald L. Mountsier, Jan M. Mohrfeld-Kramer, Smith Schneider Stiles Hudson Serangeli Mallaney & Shindler PC, Jerrold Wanek, Garten & Wanek, James R. Monroe, Des Moines, IA, Third-Party Defendants.
ORDER ON MOTIONS FOR SUMMARY JUDGMENT BY MILLER AND THE UNITED STATES
This matter is before the Court on Counterclaim Defendant Nicholas Miller's Motion for Summary Judgment against Defendant/Counterclaim Plaintiff USA and the Defendant/Counterclaim Plaintiff USA's Motion for Summary Judgment against Richard Musal and Miller. Hearing was not held on the motions, and the matter is fully submitted for review.1 For the reasons discussed below, Counterclaim Defendant Nicholas Miller's Motion for Summary Judgment is denied. Defendant/Counterclaim Plaintiff's Cross-Motion for Summary Judgment against Counterclaim Defendant Nicholas Miller is denied. Defendant/Counterclaim Plaintiff USA's Cross-Motion for Summary Judgment against Counterclaim Defendant Richard Musal is granted.
Access Air, Inc. ("Access Air"), was a corporation that provided commercial passenger air transportation throughout areas of the continental United States. Access Air was a wholly owned subsidiary of Access Air Holdings, Inc. ("Holdings"). The operations of Access Air were essentially one and the same as Holdings, and the Board of Directors of Holdings2 acted as the Board of Directors of Access Air.
Plaintiff/Counterclaim Defendant, Donald Roger Ferguson ("Ferguson"), was Chief Executive Officer of Holdings, President of Access Air, and a board member of Holdings. As of February 1999, Ferguson's job entailed having schedules ready and management in place to operate the airline. Frank Rosenberg served as an interim COO for about two to three weeks in April or May of 1999; when Rosenberg left, Ferguson resumed the position of CEO as well as COO of Access Air. At this time, Ferguson assumed responsibility of passenger service, marketing, and fulfilling the operations of the airline. As CEO, he had all of the responsibility for operations, which included financing. Ferguson as CEO reported to the Board of Directors.
Counterclaim Defendant Richard Musal ("Musal") first began employment with Holdings in July 1996 when Ferguson hired him as Chief Financial Officer ("CFO"). Musal was the incorporator of Access Air and was appointed CFO of Access Air at its inception. Musal was on the Board of Directors of Access Air during his tenure with the airline and served as Treasurer of Holdings and Access Air. Musal also owned stock in Holdings. Musal, in his capacity as CFO, possessed the highest financial authority in the company and oversaw all the financial aspects of Access Air. Musal as CFO reported to Ferguson until August of 1999. Musal assumed the titles of President and COO of Access Air and Holdings some time in late July/early August of 1999,3 and after August, Musal reported directly to the Board of Directors.
Counterclaim Defendant Nicholas P. Miller ("Miller") was hired by Musal as controller of Access Air.4 Miller as controller was responsible for protecting the company assets, paying debts, and maintaining an accounting for assets and debts. Miller's duties entailed signatory power over Access Air's accounts, payment of accounts if funds were available, and supervisory power over the assistant controller, accountants, and payroll supervisor. Musal was Miller's boss with direct authority over Miller at all times during the period in question, and Miller reported directly to Musal.
Operations for Access Air commenced on February 3, 1999. From the very start of operations, Access Air was plagued with financial problems, and the corporation filed for bankruptcy protection on November 29, 1999.
This suit arises out of Access Air's failure to pay over to the IRS excise taxes that were collected on the sale of airline tickets. The Internal Revenue Code provides for a tax on amounts paid for the taxable transportation of persons by air. 26 U.S.C. § 4261. The customer purchasing the airline ticket is responsible for paying the tax, and the tax is generally included in the purchase price of the airline ticket. The tax is calculated based upon a percentage of the ticket's price, plus a flat rate per each domestic flight segment.5 The taxes paid by the customer belong to the United States and "shall be held to be a special fund in trust for the United States." 26 U.S.C. § 7501. If these funds are not remitted to the United States,
[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
26 U.S.C. § 6672(a).
Access Air's Department of Reservations and Accounting, located in Moline, Illinois, tracked the federal excise tax payments and receipts. Musal at all times had supervisory authority over this department. Although the Department of Reservations and Accounting was responsible for tracking the excise taxes, an outside individual in Texas was retained by Musal to prepare Access Air's excise tax returns. Access Air filed an excise tax return for the first quarter of 1999 and paid the delinquency shown on the return via check signed by Miller and dated August 30, 1999.6
In July of 1999, the second quarter return was prepared by the same individual from Texas that prepared the first quarter return. This return was reviewed by both Musal and Miller. Musal believed the second quarter return was incorrect; he did not believe the corporation owed as much as the figures on the return reflected. This second quarter return was never signed, the delinquency was not paid, and an amended return was never prepared.
The third quarter return was similarly not signed based on the same perceived inaccuracies, nor was the delinquency paid. Due to the financial problems Access Air encountered during its existence, Access Air filed for bankruptcy during the fourth quarter, and a fourth quarter return was never prepared.
The Internal Revenue Service assessed excise taxes in the amount of $1,404,404.09 in total for the second, third, and fourth quarter of 1999. The amount of unpaid excise tax was calculated by Revenue Agent Jerry Robertson from documents provided to him by Access Air.
Following an administrative review of the matter by the IRS Appeals Office located in Des Moines, the Commissioner of the IRS ("the Commissioner"), issued a notice of assessment on or about January 7, 2002, assessing a trust fund recovery penalty in the amount of $1,300,552.09 against Ferguson. In the January 7, 2002, notice of assessment, the Commissioner determined Ferguson to be responsible for the collection of air transportation excise taxes payable to Ferguson's former employer, Access Air, for the tax periods ending June 30, 1999, September 30, 1999, and December 31, 1999. The IRS also assessed a trust fund recovery penalty of $1,300,552.09 against Musal on January 7, 2002, and on February 18, 2002, a trust fund recovery penalty of $1,300,552.09 was assessed against Miller.
On or about February 13, 2002, Ferguson timely filed a Form 843 claim for refund for the tax periods ending June 30, 1999, September 30, 1999, and December 31, 1999. Each of Ferguson's claims for refund was for $20 for each relevant tax period, for a total of $60. The IRS denied Ferguson's claims for refund, and therefore the $60.00 he paid toward the trust fund recovery penalty assessed against him was not refunded.
On September 5, 2002, Ferguson filed a Complaint in United States District Court stating that he has overpaid the trust fund recovery penalty for the second, third, and fourth quarter 1999 tax periods, and requesting judgment in his favor on his claim for relief against Defendant in the amount of $60.00, together with interest thereon, his costs of this action, and other such relief as the Court may deem appropriate, including the award of attorney's fees under 26 U.S.C. § 7430.
Defendant states that as a result of the actions of Ferguson, Musal, and Miller, a delegate of the Secretary of the Treasury assessed a trust fund recovery penalty in the amount of $1,300,552.09 against Ferguson, Musal, and Miller in accordance with 26 U.S.C. § 6672. Defendant has brought a counterclaim seeking to reduce to judgment the trust fund recovery penalties assessed against each of them, asserting that they were each a person required to collect, truthfully account for, and pay over to the United States the unpaid federal excise taxes imposed under 26 U.S.C. § 4261 on the amounts paid to Access Air for air transportation, and that each willfully failed to collect or truthfully account for and pay over the excise taxes.
Defendant further asserts that despite notices and demands, Ferguson, Musal and Miller have each neglected, failed, and refused to pay the assessed amounts. Defendant states that each remains indebted to the United States for the unpaid balance of $1,300,552.90 plus statutory interest accruing from the dates of the assessments. Defendant requests the...
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