In The Matter Of Johnson Systems Inc.
| Citation | 432 B.R. 306 |
| Decision Date | 21 June 2010 |
| Docket Number | No. 09-81758-JAC-11.,09-81758-JAC-11. |
| Parties | In the Matter of JOHNSON SYSTEMS, INC., EIN: XX-XXXXXXX, Debtor(s). |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Alabama |
COPYRIGHT MATERIAL OMITTED
Angela Stewart Ary, Heard Ary, LLC, Huntsville, AL, for Debtor.
Johnson Systems, Inc. (“Johnson Systems” or “debtor”) objects pursuant to 11 U.S.C. §§ 502(b) and 505(a) to the amended proof of claim filed by the Internal Revenue Service (“IRS”) in this case to the extent the government assessed penalties against the debtor for failure to timely file a required return, failure to timely pay a tax, and failure to timely make required deposits of taxes pursuant to 26 U.S.C. §§ 6651(a)(1), 6651(a)(2), and 6656(a). The debtor asserts that it is entitled to an abatement of the penalties on the grounds that its failure to satisfy its tax obligations was due to reasonable cause and not willful neglect. This case is pending before the Court on the parties' cross-motions for summary judgment. For the reasons set forth below, the Court finds that summary judgment is due to be entered in favor of the IRS for each of the tax years in question.
The standard for summary judgment is set forth in Rule 56 of the Federal Rules of Civil Procedure, made applicable to this adversary proceeding by Rules 7056 and 9014 of the Federal Rules of Bankruptcy Procedure. Summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, if any, show that there is no genuine issue of material fact and that 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); See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179, 1185 (11th Cir.2002).
The moving party always bears the initial burden of showing that there are no genuine issues of material fact to be decided at trial. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. When the moving party has satisfied its burden, the non-moving party “ ‘may not rest upon the mere allegations or denials of his pleading, but ... must set forth specific facts showing that there is a genuine issue for trial.’ ” Anderson, 477 U.S. at 248, 106 S.Ct. 2505(quoting First Nat'l Bank of Arizona v. Cities Service Co., 391 U.S. 253, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)).
The evidence and all factual inferences therefrom must be viewed in the light most favorable to the party opposing the motion and all reasonable doubts about the facts must be resolved in favor of the non-moving party. Acevedo v. First Union Nat'l Bank, 476 F.3d 861, 865 (11th Cir.2007); Andreini & Co. v. Pony Express Delivery Servs., Inc. (In re Pony Express Delivery Servs., Inc.), 440 F.3d 1296, 1300 (11th Cir.2006); Loren v. Sasser, 309 F.3d 1296, 1301-02 (11th Cir.2002); Hyman, 304 F.3d at 1185.
When ruling on cross-motions for summary judgment, the court must consider the motions independently and view the evidence on each motion in the light most favorable to the party opposing the motion. Fair Housing Council of Riverside County v. Riverside Two, 249 F.3d 1132, 1136 (11th Cir.2001); Avocent Huntsville Corp.v. ClearCube Tech., Inc., 443 F.Supp.2d 1284, 1293 (N.D.Ala.2006). The Court having considered each motion independently, finds that summary judgment is due to be entered in favor of the IRS for each of the tax years in question.
1. On April 30, 2009, Johnson Systems, a Georgia corporation, filed the above styled bankruptcy petition. The debtor has fabricates and installs various types of pollution control and air conveying systems for cotton gins.
2. On November 12, 2009, the IRS filed an amended proof of claim for $366,046.99 for debtor's unpaid and unfiled Form 940 unemployment taxes for the tax years 2001, 2002, 2003, 2004, and 2005, and debtor's Form 941 employment taxes for the fourth quarter of 2003 through the third quarter of 2004, the second quarter of 2005, and the third and fourth quarters of 2007.
3. The proof of claim includes a secured claim for $363,173.86, an unsecured claim totaling $1,440.84, and a priority claim totaling $1,432.29. The secured portion of the claim includes penalties assessed by the IRS against Johnson Systems totaling $104,569.91 for the tax periods 2001 through 2005, and the tax period 2007. The penalties for debtor's Form 940 unemployment taxes totals $5,393.58, while the penalties for debtor's Form 941 employment or withholding taxes totals $99,176.33.
4. Johnson Systems only objects to the penalties assessed against it for the tax periods 2001 through 2005.1 Penalties for the tax periods for 2001 through 2005 total $100,674.97. Johnson Systems proposes to pay the balance of the tax debt and interest thereon through its Chapter 11 plan which has not yet been confirmed.
5. Dewey O. Johnson, Jr. (“Dewey Johnson”) is the sole shareholder and president of Johnson Systems. From the inception of the business in 1991, Dewey Johnson has been in charge of sales and the drafting and fabrication of the system designs. Dewey Johnson is a third generation fabricator.
6. Dewey Johnson's wife, Gail M. Johnson (“Gail Johnson”), was the debtor's secretary and bookkeeper during the relevant time periods. She was in charge of handling the company's accounts payable, accounts receivable, payroll, and other general office duties including filing and paying the debtor's taxes.
7. In approximately January of 2002, Dewey Johnson's father, Dewey O. Johnson, Sr. (“Mr.Johnson”), moved into Gail and Dewey Johnson's home. Mr. Johnson weighed 87 pounds at the time and suffered from a plethora of illnesses including chronic obstructive pulmonary disease, depression, and narcotic additions. Mr. Johnson required constant care which Dewey and Gail Johnson provided until Mr. Johnson passed away in October of 2002. During this time period, Gail Johnson was only able to spend approximately eight hours per week working for Johnson Systems.
8. Prior to 2002, Johnson Systems was located in Moultrie Georgia. In the fall of 2002, Johnson systems relocated its business operations to Florence, Alabama. See Dewey Johnson Aff. ¶ 3. The Johnsons relocated the business from Georgia to Alabama to be closer to Gail Johnson's mother, Ida Motely (“Mrs.Motely”), who lived in Somerville, Tennessee. Mrs. Motely was diagnosed with leukemia in 2001.
9. After Mr. Johnson passed away in October of 2002, Gail Johnson began spending a considerable amount of time in Tennessee caring for her mother whose condition became progressively worse soon after her father-in-law passed away. At that point, Gail Johnson began spending on average three to four days per week in Tennessee caring for and visiting her mother until Mrs. Motely passed away in April of 2005.
10. Dewey Johnson testified that the amount of time his wife spent visiting and caring for her mother adversely affected his ability to make sales calls because he choose to stay closer to home during that time period. He wanted to be available to care for their two school age children when his wife was away caring for her mother. (Dewey Johnson Dep. 90:12-91:17).
11. However, even before his father became ill, Dewey Johnson had hired a sales team in 2000 to begin handling sales for Johnson Systems. Johnson Systems retained the sales team from 2000 until 2004. (Dewey Johnson Dep. 23:13-24:16). Unfortunately, it appears that the sales team cost Johnson Systems more than the team generated in sales. (Dewey Johnson Dep. 37:3-39:15). At some point, Dewey and Gail Johnson realized that Johnson Systems was simply not seeing the kind of sales that it had realized in the past with Dewey Johnson actively making sales calls and generating business. (Dewey Johnson Dep. 39-1:15).
12. Although it is undisputed that Gail Johnson spent a tremendous amount of time visiting with and caring for her mother throughout Mrs. Motely's illness, she continued to work at Johnson Systems throughout the time period in question during which the debtor's tax forms were not filed and taxes were not paid. Throughout the relevant time period, Gail Johnson continued to sign up to 75 checks per month for the debtor paying creditors when funds were available. Though she was assisted by a payroll clerk during 2002 and 2003, Gail Johnson continued to process payroll for the debtor throughout the relevant time period. Gail Johnson testified that she paid other employees before she paid herself and her husband if Johnson Systems did not have sufficient funds to cover all payroll expenses. (Gail Johnson Dep. 58:10-59:22).
13. The debtor's Form 940 taxes were prepared by the debtor's accountants. Once the annual form was prepared, the accountant would send the form to Gail Johnson for her to “sign and send off and take care of paying.” (Gail Johnson Dep. 29:19-30:1). If the accountant forgot to prepare the form, Gail Johnson testified that she “just normally-I just forgot about it.” (Gail Johnson Dep. 30:6-12). If she received something in the mail, presumably from the IRS, Gail Johnson testified that she would “take care of it” at that point. (Gail Johnson Dep. 30:6-23). Gail Johnson further testified that she and her husband never hired anyone on behalf of Johnson Systems to help with the accounting functions she normally performed for the company because she knew she could do the job and they could not really afford to hire someone else to come in and do a job that the company could not even pay the Johnsons to perform at times. (Gail Johnson, Dep. 72:13-73:5).
14. Dewey Johnson testified that his wife being away from the business to care for his father and her mother combined with his decision to stay close and not do the normal selling that he had historically done caused Johnson Systems to not be able...
To continue reading
Request your trial
-
Stine v. United States
...a tax penalty, however, is not always purely a question of fact. See Boyle, 469 U.S. at 249 n.8; see also In re Johnson Sys., Inc., 432 B.R. 306, 308, 311-18 (Bankr. N.D. Ala. 2010) (ruling on cross-motions for summary judgment regarding reasonable cause and willful neglect). In Conway v. U......