Henderson v. U.S., 98-C-1228.

Citation95 F.Supp.2d 995
Decision Date09 May 2000
Docket NumberNo. 98-C-1228.,98-C-1228.
CourtUnited States District Courts. 7th Circuit. United States District Court of Eastern District of Wisconsin
PartiesHarold HENDERSON and Synergy Service Group, Inc., Plaintiffs, v. UNITED STATES of America, Defendants.

Douglas H Frazer, Frazer Schapiro & Rich, Milwaukee, WI, for plaintiffs.

Mary E Bielefeld, United States Department of Justice, Tax Division, Washington, DC, for defendant.

RANDA, District Judge.


This matter comes before the Court on defendant's motion to dismiss and defendant's motion for summary judgment. Plaintiffs, Harold Henderson ("Henderson") and Synergy Service Group, Incorporated ("SSGI")1 request an abatement of employment taxes and interest and seek to recover economic damages for the Internal Revenue Service's ("IRS") refusal to release a lien. In Count I of the complaint, Henderson alleges that the lien filed against his property for a 1992 employment tax liability is invalid. Henderson alleges that the assessment upon which the lien is based was made after the expiration of the statute of limitations and in violation of the Internal Revenue Code's ("IRC") deficiency procedures. In Count II of the complaint, SSGI seeks an order abating its assessed taxes and interest for its 1993 employment tax liabilities. SSGI claims that the IRS is responsible for SSGI's failure to pay its 1993 employment taxes. SSGI also seeks a refund of the $200 it paid toward the 1993 employment tax assessment. Defendant's counterclaims request plaintiffs' payment of the 1992 and 1993 employment tax assessments.


Henderson is a resident of the State of Wisconsin and SSGI is a Wisconsin corporation whose principle place of business is in Wisconsin. Defendant United States of America is a governmental entity which maintains an office in Milwaukee, Wisconsin, and which represents its agency, the IRS. (Defendant's Findings Of Facts ("DFOF") ¶¶ 1-3.)

A. Tax Year 1992

On December 1, 1991, Henderson attempted to incorporate Synergy Service Group ("Synergy").2 (Plaintiffs' Additional Findings of Fact ("PFOF") ¶ 1). Unaware that the incorporation was improper, the IRS issued Synergy a corporate Employer Identification Number ("EIN") in January of 1992.(Id.) Synergy began operations on March 1, 1992.(Id.) Synergy timely filed an Employer's Quarterly Federal Tax Return ("Form 941") with the IRS for the first, second and third quarters of 1992 using the assigned corporate EIN 39-1716336 ("Corporate EIN"). (DFOF ¶ 5, PFOF ¶ 1.) Synergy paid its federal employment tax liabilities for the first three quarters of 1992, although the IRS alleges that the third quarter payment was late.3

In December of 1992, after Synergy filed a Form 941 for the first, second and third quarters using the Corporate EIN, Henderson determined that Synergy had not been properly incorporated. (DFOF ¶ 7, PFOF ¶ 2.) He discussed options and corrective measures with accountant Tom Olson ("Olson") and attorney John Raasch ("Raasch"). (DFOF ¶ 8.) Olson subsequently contacted the IRS to determine how to proceed. (Id.¶ 9.) The IRS told Olson to apply for a sole proprietorship Employer Identification Number and submit corrected returns reflecting the change. (Id.) Olson received Employer Identification Number 39-1747144 ("Sole Prop EIN") for Harold Henderson d/b/a Synergy Service Group — a sole proprietorship ("Sole Prop"). (Id.¶ 10.) Sole Prop then submitted "corrected returns" for the first three quarters of 1992 on Forms 941 using the Sole Prop EIN. Sole Prop also filed a Form 941 for the fourth quarter of 1992 using the Sole Prop EIN. (Id.¶ 13.) The IRS received these four quarterly tax returns on February 23, 1993. (Pls.' Ex. 2-5.) According to the IRS, plaintiffs neither made their monthly tax deposits nor paid their taxes for the fourth quarter.4 (DFOF ¶ 13; Pls.' Ex. 4-9.) After the IRS received the "corrected returns," it created a new Sole Prop account. (DFOF ¶ 14.) The IRS allegedly abated the assessments made against Synergy, transferred the payment credits to the Sole Prop account, and merged the corporate entity into the sole proprietorship entity.5 (DFOF ¶¶ 14-15.) In this process, the IRS mistakenly abated the assessments made against Sole Prop for the first three quarters of 1992. (DFOF ¶ 16.) As a result, the IRS erroneously refunded Synergy's employment tax payments for the first three quarters of 1992.6 (DFOF ¶ 17.) Henderson received checks totaling $23,152.55. (Id.¶ 18.)

On March 26, 1996, a delegate of the Secretary of the Treasury made a Combined Annual Wage Report assessment of employment tax in the amount of $29,624.83 and an assessment of interest in the amount of $8,613.60 against Sole Prop for the tax period ending December 31, 1992.7 (DFOF ¶ 20.) The IRS abated the $2,963.00 in penalties and the interest on these penalties assessed against Sole Prop on March 26, 1996. (DFOF ¶ 22.) On January 14, 1997, the IRS filed a Notice of Federal Tax Lien against Sole Prop with the Register of Deeds Office in Waukesha County, Wisconsin, in the amount of $41,207.14. (DFOF ¶ 24.) The sum of assessed tax, assessed interest, plus accrued interest as of December 31, 1999, is $50,118.17. (Id. ¶ 25.)

On April 23, 1998, pursuant to IRC § 6325, Henderson requested a release of the tax lien, asserting the assessment for 1992 tax violated the deficiency assessment procedures of section 6213(a). (DFOF ¶ 35.) Henderson also argued that the statute of limitations had expired for an erroneous refund suit under section 7405, allegedly the IRS's only form of relief. (Id.) On May 1, 1998, the IRS denied Henderson's request for release of the tax lien. (Id. ¶ 36.) On December 8, 1998, the IRS received Henderson's administrative claim for actual and economic damages under section 7432. (Id.¶ 38.) Henderson filed this lawsuit for actual and economic damages on December 18, 1998, before the IRS rendered a decision on the administrative claim. (Id.¶ 39.)

B. Tax Year 1993

According to the IRS, SSGI failed to timely file a Form 941 (Employer's Quarterly Federal Tax Return) for each quarter in 1993. (DFOF ¶ 28.) Plaintiffs dispute this allegation. (PRFF ¶ 28.) The parties agree that SSGI sent the IRS a Form 941 for all quarters of 1993 in September of 1997. (DFOF ¶ 30.) SSGI has not made any deposits or payments for its 1993 employment taxes. (DFOF ¶ 29.) A delegate of the Secretary of the Treasury made assessments of employment tax and interest against SSGI on November 3, 1997 for the tax periods and in the amounts set forth below:

                    Tax                       Interest
                Period Ended Tax Assessed Assessed
                Mar. 31, 1993    $14,660.46   $ 8,307.69
                June 30, 1993    $12,206.18   $ 6,534.46
                Sept. 31, 1993   $13,077.38   $ 6,598.27
                Dec. 31, 1993    $14,646.51   $ 6,947.02
                                 __________   __________
                     TOTALS      $54,590.53   $28,387.44

(DFOF ¶ 31.) On April 30, 1998, SSGI paid $200 toward its 1993 employment tax assessment and filed a claim for refund and request for abatement, Form 843. (DFOF ¶ 42; Compl. ¶ 20.) The IRS denied the refund and abatement requests on July 21, 1998. (DFOF ¶ 43; Compl. 21.) SSGI brought suit on December 18, 1999. (DFOF ¶ 44.)

As of December 31, 1999, the balance due for 1993 is $92,340.26, representing the sum of the unpaid assessed tax of $54,390.53, unpaid assessed interest of $25,169.46, unpaid assessed penalties of $0.02, and unpaid accrued interest of $11,780.25. (Id. ¶ 33.) The IRS abated all penalties (except $0.02) and interest on penalties assessed against SSGI for 1993 because of the IRS's error regarding the Sole Prop account for 1992. (Id. ¶ 34.)

A. The Summary Judgment Standard

Under Rule 56(c), summary judgment is proper "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 the moving party is entitled to judgment as a matter of law."

Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The Court must construe all facts in a light most favorable to the non-moving party and draw all reasonable and justifiable inferences in favor of that party. See Bombard v. Fort Wayne Newspapers, Inc., 92 F.3d 560, 562 (7th Cir.1996).

Summary judgment is no longer a disfavored remedy. "Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to secure the just, speedy and inexpensive determination of every action." Id., at 327, 92 F.3d 560 (citations omitted). It "can be a tool of great utility in removing factually insubstantial cases from crowded dockets, freeing courts' trial time for those that really do raise genuine issues of material fact." United Food and Commercial Workers Union Local No. 88 v. Middendorf Meat Co., 794 F.Supp. 328, 330 (E.D.Mo.1992). Thus, "the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. 2548. "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). While a material fact is one that is "outcome determinative under the governing law", Whetstine v. Gates Rubber Co., 895 F.2d 388, 392 (7th Cir. 1990), a genuine issue as to that material fact is raised only "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

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