Janice Leather Imports Ltd. v. United States, 73 Civ. 807

• Decision Date: 19 July 1974
• Docket Number: 73 Civ. 808,and 73 Civ. 809.,No. 73 Civ. 807,73 Civ. 807
• Parties: JANICE LEATHER IMPORTS LTD., Plaintiff, v. UNITED STATES of America, Defendant. JANICE LACE CO., INC., Plaintiff, v. UNITED STATES of America, Defendant. JANICE INTERNATIONAL, LTD., Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of New York

391 F. Supp. 1235

JANICE LEATHER IMPORTS LTD., Plaintiff, v. UNITED STATES of America, Defendant.

JANICE LACE CO., INC., Plaintiff, v. UNITED STATES of America, Defendant.

JANICE INTERNATIONAL, LTD., Plaintiff, v. UNITED STATES of America, Defendant.

Nos. 73 Civ. 807, 73 Civ. 808, and 73 Civ. 809.

United States District Court, S. D. New York.

July 19, 1974.

Meltzer & Fishman, New York City, for plaintiffs by Stanley F. Meltzer, New York City, of counsel.

Paul J. Curran, U. S. Atty., for defendant by William R. Bronner, Asst. U. S. Atty., of counsel.

KEVIN THOMAS DUFFY, District Judge.

These are motions for summary judgment¹ made by the defendant, United States of America, in three related actions brought by plaintiff corporations for refund of penalties for late filing of quarterly withholding income tax returns for the calendar year 1970. All parties admit that administrative remedies have been exhausted.

In the years between 1940 and 1964, Nathan Leffeld formed three close corporations: Janice Lace Co., Inc., Janice Leather Imports, Ltd., and Janice International, Ltd. the plaintiff in these three actions. During the year 1965, Mr. Leffeld, who was until then sole owner of plaintiff corporations, sold one-third of "the business" to a junior executive, one Herbert Sussman.

In 1969, Mr. Leffeld suffered a severe heart attack and had to curtail sharply his normal business activities, with the result that Mr. Sussman, as Vice-President, took over control of the business of the three corporations. Up until this point for a number of years, one Marilyn Minton was the "Comptroller" and main bookkeeper of the plaintiff corporations. One of her duties was to maintain the books and records pertaining to withholding taxes and Social Security taxes. For years she prepared tax returns for payment of these taxes. The returns would then be signed by Mr. Leffeld, or, in his absence, by Mr. Sussman. Prior to 1970, plaintiff corporations had never been delinquent in the payment of their taxes.

Late in 1970, Mr. Leffeld, on the advice of his outside accountants, returned to the office "because of business conditions". Upon his return or shortly thereafter, Mr. Leffeld discovered that Miss Minton had apparently embezzled an amount in excess of $13,000.00 during Mr. Leffeld's illness, and that Mr. Sussman had taken "substantially" greater sums. Apparently in an attempt to conceal their embezzlement no withholding tax returns were made for the year 1970. After his return Mr. Leffeld discovered the failure to file the tax returns and he filed them, paying the penalty assessed.

Section 6651, Title 26 U.S.C. provides in relevant part:

"§ 6651. Failure to file tax return

(a) Addition to the tax. — In case of failure —

(1) to file any return required . . . on the date prescribed therefor . . . unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate."

It is the position of the government that the actions of Mr. Sussman and Miss Minton in failing to file the appropriate tax returns was the result of a conscious scheme or design by them to cover the fact that they were "looting" plaintiff corporations. The plaintiff corporations contend that the law requires "willfulness" on the part of the corporations before any penalty can be assessed for late filing and that the facts thus far adduced are insufficient to prove such "willfulness" so as to render the matter subject to summary judgment. In effect the plaintiffs would have this Court set a standard of "willfulness" for the failure of a corporation to file a tax return on time, higher than that...