Looney v. U.S.

• Citation: 544 F.Supp.2d 574
• Decision Date: 26 February 2008
• Docket Number: Civil Action No. H-06-1166.
• Parties: Saraleigh E. LOONEY, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Texas

544 F.Supp.2d 574

Saraleigh E. LOONEY, Plaintiff, v. UNITED STATES of America, Defendant.

Civil Action No. H-06-1166.

United States District Court, S.D. Texas, Houston Division.

February 26, 2008.

COPYRIGHT MATERIAL OMITTED

Michael Gerard Schlafly, Attorney at Law, Houston, TX, for Plaintiff/Counter Defendant.

Jon E. Fisher, Dept. of Justice, Dallas, TX, for Defendant.

MEMORANDUM AND ORDER

EWING WERLEIN, JR., District Judge.

Pending are Plaintiff Saraleigh E. Looney's Motion for Partial Summary Judgment (Document No. 30), and Amendment thereto (Document No. 35),¹ and Defendant United States of America's Partial Motion to Dismiss (Document No. 48). After carefully considering the motions, responses, replies, and the applicable law, the Court concludes as follows.

I. Background

This is a tax dispute. Plaintiff, a Certified Public Accountant ("CPA"), served as controller of NexTec Operating Corporation ("NexTec") from May, 2000 to October, 2003. Document No. 39, Affidavit of Eric Frank at 1 ¶ iii. NexTec failed to pay its employment withholding taxes for the last two quarters of 2002. According to NexTec's President, Eric Frank, Plaintiff was responsible for ensuring that those taxes were paid to the Internal Revenue Service ("IRS"). See id. at ¶ 114.

In 2004, the IRS conducted an investigation of NexTec, determined that Plaintiff was responsible for NexTec's failure to pay the withholding taxes, and proposed to assess her for the outstanding amounts under 26 U.S.C. § 6672. The IRS also entered into an installment agreement with NexTec on August 30, 2004, under which NexTec was to remit monthly payments, in gradually increasing amounts, toward its outstanding withholding tax liability.

Plaintiff appealed the proposed assessment on July 8, 2004, which appeal was denied by letter in March, 2005. Plaintiff filed a Chapter 13 bankruptcy petition on April 8, 2005. On May 16, 2005, the IRS assessed Plaintiff for the withholding tax liabilities of NexTec for the third and fourth quarters of 2002, in the amounts of $85,206.77 and $158,499.61, respectively. Document' No. 30 at 2 ¶ 7. The IRS also retained Plaintiffs 2004 tax refund of $2,607. Id. Since that date, NexTec has paid in full the taxes owed for the third quarter of 2002, but $158,499.61 for the fourth quarter of 2002 remains outstanding. Document No. 39 at 3 ¶ 2.

Plaintiff filed a Claim for Refund and Request for Abatement, which the IRS denied. Plaintiff filed suit, alleging that the IRS wrongfully assessed her for the trust fund tax liabilities of NexTec and retained her 2004 tax refund, and further requesting costs, attorney fees, and damages of $1,000,000.00. Document No. 1 at 7. The Government, as authorized by the bankruptcy court, filed a counterclaim seeking payment of the assessment of $158,499.61, plus interest and statutory additions. Document No. 15 at 1-2; id. ex. 1.

Plaintiff now moves for partial summary judgment, contending that, as a matter of law, she cannot be held liable for the withholding tax deficiency of NexTec. Document No. 30 at 20-21. Defendant moves to dismiss Plaintiffs claim for damages on jurisdictional grounds, asserting that Plaintiff failed to exhaust her administrative remedies with respect to that claim. Document No. 48 at 1.

II. Discussion

A. Motion for Partial Summary Judgment

1. Standard of Review

Rule 56(c) provides that summary judgment "shall be rendered forthwith 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). The moving party must "demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

Once the movant carries this burden, the burden shifts to the nonmovant to show that summary judgment should not be granted. Moms v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998). A party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials in a pleading, and unsubstantiated assertions that a fact issue exists will not suffice. Id. "[T]he nonmoving party must set forth specific facts showing the existence of a `genuine' issue concerning every essential component of its case." Id.

In considering a motion for summary judgment, the district court must view the evidence "through the prism of the substantive evidentiary burden." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). All justifiable inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). "If the record, viewed in this light, could not lead a rational trier of fact to find" for the nonmovant, then summary judgment is proper. Kelley v. Price-Macemon, Inc., 992 F.2d 1408, 1413 (5th Cir.1993) (citing Matsushita, 106 S.Ct. at 1351). On the other hand, if "the factfinder could reasonably find in [the nonmovant's] favor, then summary judgment is improper." Id. Even if the standards of Rule 56 are met, a court has discretion to deny a motion for summary judgment if it believes that "the better course would be to proceed to a full trial." Anderson, 106 S.Ct. at 2513.

2. Liability as a "responsible person" under 26 U.S.C. § 6672

Plaintiff asserts for numerous reasons and as a matter of law that she cannot be held liable for the withholding tax deficiency of NexTec under 26 U.S.C. § 6672. Federal law requires employers to withhold social security and income taxes from employee paychecks and hold them in trust for the United States. See 26 U.S.C. §§ 3102, 3402; see also USLIFE Title Ins. Co. of Dallas v. Harbison, 784 F.2d 1238, 1242 (5th Cir.1986). Section 6672 of the Internal Revenue Code imposes liability on "any person" responsible for collecting, paying, or truthfully accounting for federal withholding taxes who willfully fails to do so or attempts to evade or defeat the payment of such taxes. See 26 U.S.C. § 6672; Slodov v. United States, 436 U.S. 238, 98 S.Ct. 1778, 1787, 56 L.Ed.2d 251 (1978) (construing § 6672 to extend to persons responsible for performing any of the enumerated duties); Harriett v. I.R.S., 988 F.2d 1449, 1453 (5th Cir.1993) (en banc). This provision was "designed to assure compliance by the employer with its obligation to withhold and pay the sums withheld, by subjecting the employer's officials responsible for the employer's decisions regarding withholding and payment to civil ... penalties for the employer's delinquency." Slodov, 98 S.Ct. at 1785; see also In re Prescription Home Health Care, Inc., 316 F.3d 542, 544 (5th Cir.2002) (noting the purpose of § 6672 of "deter[ring] misuse of trust funds by corporate officers" and providing a "means of ensuring the tax is paid").

a. Burden of proof

The parties dispute whether the Government properly assessed Plaintiff with the withholding tax liabilities of Nex-Tec. "It is well established in the tax law that an assessment is entitled to a legal presumption of correctness...." United States v. Fior D'ltalia, Inc., 536 U.S. 238, 122 S.Ct. 2117, 2122, 153 L.Ed.2d 280 (2002). This presumption places the burden on the tax-payer of proving the assessment was erroneous. See Conway v. United States, 326 F.3d 1268, 1278 (Fed.Cir. 2003). Therefore, "[i]n § 6672(a) cases, once the Government offers an assessment into evidence, the burden of proof is on the taxpayer to disprove h[er] responsible-person status or will-fulness." Barnett, 988 F.2d at 1453; see also Stallard v. United States, 12 F.3d 489, 493 (5th Cir.1994) (observing that an assessment under § 6672 is entitled to a presumption of validity).

Although the disputed assessment is in evidence, see Document No. 15 ex. 2, Plaintiff insists that the Government bears the burden of proving her "responsible person" status and willfulness, because the assessment was made after she filed for bankruptcy and therefore violates the automatic stay. Document No. 30 at 17-19 ¶¶ 33-36; Document No. 42 at 4-5 ¶ 8. "Section 362(a) [of the Bankruptcy Code] recounts a long list of actions that are stayed by the filing of a bankruptcy petition," In re TXNB Internal Case, 483 F.3d 292, 301 (5th Cir.2007), but since the enactment of the Bankruptcy Reform Act of 1994, the Code has specifically exempted from the automatic stay "the making of an assessment for any tax...." 11 U.S.C. § 362(b)(9)(D) (emphasis added).² Although liability under § 6672 is labeled as a "penalty," that moniker "does not alter [its] essential character as taxes" within the meaning of the Bankruptcy Code. United States v. Sotelo, 436 U.S. 268, 98 S.Ct. 1795, 1800, 56 L.Ed.2d 275 (1978) (holding the debtor's liability under § 6672 for failure to pay over withholding taxes to be non-dischargeable in bankruptcy); see also In re Mosbrucker, 227 B.R. 434, 436-37 (8th Cir. BAP 1998) (applying Sotelo and holding an assessment under § 6672 was entitled to priority status as a "tax required to be collected or withheld" under Section 507(a)(8)(C) of the Bankruptcy Code, and not a penalty treated as an unsecured claim under Section 507(a)(7)(B)). Indeed, the Fifth Circuit and others have recognized that liability under § 6672 is not penal in nature, but is "`simply a means of ensuring that the tax is paid.'" Newsome v. United States, 431 F.2d 742, 745 (5th Cir.1970) (quoting Botta v. Scanlon, 314 F.2d 392, 393 (2d Cir. 1963)); see also In re Energy Res. Co., 871 F.2d 223, 232 (1st Cir.1989); United States v. Huckabee Auto Co., 783 F.2d 1546, 1548 (11th Cir.1986) (quoting Newsome). Because liability under § 6672 is properly viewed as a tax, the challenged assessment qualifies as "an assessment for any tax" expressly...