Greenberg v. US

• Decision Date: 03 December 1993
• Docket Number: Civ. A. No. 1:CV-92-642.
• Citation: 873 F. Supp. 912
• Parties: Mark Z. GREENBERG, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

873 F. Supp. 912

Mark Z. GREENBERG, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 1:CV-92-642.

United States District Court, M.D. Pennsylvania.

December 3, 1993.

Robert E. Chernicoff, Harrisburg, PA, for Mark Z. Greenberg.

James J. West, U.S. Atty., Harrisburg, PA, John A. Morano, Jr., U.S. Atty.'s Office, Scranton, PA, Karl J. Fingerhood, U.S. Dept. of Justice, Tax Div., Michael J. Kane, Asst. U.S. Atty., Harrisburg, PA, for U.S., Dept. of Treasury, I.R.S.

MEMORANDUM

RAMBO, Chief Judge.

Before the court is the government's motion for summary judgment. Briefs have been filed and the motion is ripe for disposition.

Background

Plaintiff filed the instant action seeking to recover certain funds paid to the Internal Revenue Service ("IRS"). The funds were paid in partial satisfaction of certain assessments made against Plaintiff for allegedly failing to pay employment withholding taxes owing to the government.

Plaintiff is a certified public accountant and a former employee, officer and director of Turning Basin, Inc., a holding company which acquired other operating corporations through leveraged buyouts. In November 1979, after having worked for Turning Basin as an outside consultant, Plaintiff joined the company as Controller. In 1980, Plaintiff became an officer of Turning Basin when he was elected Treasurer and also became a member of the company's Board of Directors. Sometime in 1981, Plaintiff received 40,000 shares of Turning Basin stock.

Plaintiff's responsibilities throughout this period included supervising the other accountants and bookkeepers at the company, preparing financial statements and reports on corporate subsidiaries, consolidating reports and balance sheets for semi-annual reports, assisting outside accounting firms with annual audits, preparing and filing corporate tax returns, and participating in the hiring and firing of employees in his department. Plaintiff was an authorized signatory on all corporate accounts. With Arthur Tuchinsky, Chairman of the company's Board of Directors, Plaintiff had primary responsibility for payroll. Plaintiff wrote most of the payroll checks and checks to other creditors himself.

During 1981 and thereafter, Turning Basin experienced cash-flow problems. During the second quarter of 1981, Turning Basin failed to turn over to the IRS all of the funds due the IRS for employee withholding taxes. Subsequently, the IRS filed a notice of assessment against and demanded payment from Turning Basin and certain of its officers, including Plaintiff.

The assessment against Plaintiff was made pursuant to the 100 percent penalty provision of the Internal Revenue Code, 26 U.S.C. § 6672. Section 6672 provides for the assessment of a 100 percent penalty against individuals determined to be "responsible for the failure to turn employee withholding taxes over to the government." 26 U.S.C. § 6672.

Plaintiff paid $4024.26 toward the assessment and filed the instant action to obtain a refund. Shortly thereafter, the government filed a counterclaim against Plaintiff for $14,456.52 plus interest which it claims Plaintiff also owes to the government under the penalty provision. The government has moved for summary judgment with respect to Plaintiff's claim and its counterclaim.

Discussion¹

I. Summary Judgment Standards

The Third Circuit Court of Appeals has capsulized the standards for the award of summary judgment under Federal Rule of Civil Procedure 56:

Summary judgment may be entered if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c). An issue is "genuine" only if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 247-49 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Equimark Comm. Finance Co. v. C.I.T. Financial Serv. Corp., 812 F.2d 141, 144 (3d Cir. 1987). If evidence is "merely colorable" or "not significantly probative" summary judgment may be granted. Anderson, 477 U.S. at 249-51 106 S.Ct. at 2511; Equimark, 812 F.2d at 144. Where the record, taken as a whole, could not "lead a rational trier of fact to find for the nonmoving party, summary judgment is proper." Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586-88 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

Hankins v. Temple Univ., 829 F.2d 437, 440 (3d Cir.1987). Once the moving party has shown that there is an absence of evidence to support the claims of the nonmoving party, the nonmoving party may not simply sit back and rest on the allegations in his complaint, but instead must "go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986) (quotations omitted).

II. Liability under the 100 Percent Penalty Provision

Under the Internal Revenue Code, employers are required to withhold from the wages of their employees income and social security taxes and to hold such taxes in trust for the United States. 26 U.S.C. §§ 3102, 3402, 7501. Employers who fail to collect or turn over such funds to the United States are liable for a penalty (the "100 percent penalty") in the amount of the funds that should have been withheld and paid to the United States. 26 U.S.C. § 6672. The Third Circuit recently outlined certain principles applicable to a challenge to the assessment of such a penalty:

Section 6672(a) provides that a person responsible for withholding and paying over taxes who willfully fails to do so is liable for a penalty equal to the total amount of the unpaid taxes. A section 6672 assessment against a responsible person is equivalent to the assessment of a tax. 26 U.S.C. § 6671(a) (West 1989); see In re Ribs-R-Us, Inc., 828 F.2d 199, 200 (3d Cir.1987). Once the IRS assesses a tax, a rebuttable presumption arises that the assessment is correct. Psaty v. United States, 442 F.2d 1154, 1160 (3d Cir.1971). Thus, the IRS's introduction of certified copies of the assessment before the district court shifts to the taxpayer the burden of going forward with evidence to show that the assessment against him under section 6672 was incorrect by establishing either (1) that he was not a responsible person within the meaning of the statute, or (2) that he did not willfully fail to pay the amount due to the IRS. Id.; Quattrone Accountants, Inc. v. IRS, 895 F.2d 921, 927 (3d Cir.1990).

Brounstein v. United States, 979 F.2d 952, 954 (3d Cir.1992).

In this case, there is no dispute that the IRS has made the above assessments and that Turning Basin owed the taxes.² (Counterclaim at ¶ 3; Reply at ¶ 3.) The only material dispute relates to whether (1) Plaintiff was a "responsible person" within the meaning of § 6672 and (2) whether Plaintiff "willfully" failed to turn over the taxes due. The government contends that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law; Plaintiff, on the other hand, asserts that issues of material fact exist which preclude the entry of judgment in favor of the government.

A. "Responsible Persons" Under § 6672

Under § 6672, responsibility is "a matter of status, duty, or authority, not knowledge," and requires that a party have significant, though not necessarily exclusive, control over corporate finances before liability can be imposed. Brounstein, 979 F.2d at 955. Section 6672 "was designed to cut through the organizational form and impose liability upon those actually responsible for an employer's failure to withhold and pay over the tax." Godfrey v. United States, 748 F.2d 1568, 1574 (Fed.Cir.1984) (quoting Pacific Nat'l Ins. Co. v. United States, 422 F.2d 26, 31 and n. 12 (9th Cir.), cert. denied, 398 U.S. 937, 90 S.Ct. 1838, 26 L.Ed.2d 269 (1970)). Factors relevant to this determination of responsibility include:

(1) contents of corporate bylaws, (2) ability to sign checks on the company's bank account, (3) signature on the employer's federal quarterly and other tax returns, (4) payment of other creditors in lieu of the United States, (5) identity of officers, directors, and principal stockholders in the firm, (6) identity of individuals in charge of hiring and discharging employees, and (7) identity of individuals in charge of the firm's financial affairs.

Brounstein, 979 F.2d at 955 (citing Datlof v. United States, 252 F.Supp. 11, 32-33 (E.D.Pa.), aff'd, 370 F.2d 655 (3d Cir.1966), cert. denied, 387 U.S. 906, 87 S.Ct. 1688, 18 L.Ed.2d 624 (1967)).

In support of its motion for summary judgment, the government has presented a certified copy of the notice of assessment and evidence of a demand for payment, as well as substantial evidence with respect to the above factors.

Certain evidence is uncontroverted. First, Plaintiff was an authorized signatory and had the legal power to sign checks on all of Turning Basin's corporate checking accounts. (Greenberg Dep.Tr. at 29, 31.) In fact, Plaintiff signed most of the payroll checks issued during his tenure at Turning Basin and signed checks to other creditors, including the United States. (Greenberg Dep.Tr. at 31, 40.) Second, Plaintiff prepared and signed Turning Basin's federal employment tax statements and returns. (Plaintiff's Counter-Statement of Facts at ¶ 24.) Third, during the relevant time period, Plaintiff was an officer and member of Turning Basin's Board of Directors. (Id. at ¶¶ 8, 10.) During that same time period, Plaintiff also held 40,000 shares of Turning Basin stock. (Id. at ¶ 9.)

Fourth, Plaintiff was aware of the employment tax delinquency as soon as it arose. (Id. at ¶ 25.) Subsequently, he wrote checks to pay...