Mullikin v. U.S., 90-6456
| Decision Date | 13 March 1992 |
| Docket Number | No. 90-6456,90-6456 |
| Citation | 952 F.2d 920 |
| Parties | -376, 60 USLW 2433, 92-1 USTC P 50,020 James M. MULLIKIN, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Ashley W. Ward, Stites & Harbison, Bruce M. Reynolds (argued and briefed), Lexington, Ky., for James M. Mullikin, Jr.
Louis DeFalaise, U.S. Atty., Lexington, Ky., Gary R. Allen, Acting Chief (briefed), Richard Farber, Kenneth W. Rosenberg (argued), U.S. Dept. of Justice, Appellate Section Tax Div., S. Hollis Fleischer, Office of the Dept. of Justice, Office of Special Litigation, Tax Div., Washington, D.C., for U.S.
Before RYAN and BOGGS, Circuit Judges, and DOWD, District Judge. *
Defendant-appellant the United States of America appeals the district court's grant of partial summary judgment in favor of plaintiff-appellee James M. Mullikin, Jr. ("Mullikin") in this tax refund suit. Mullikin, an accountant, prepared eight quarterly employment tax returns, Forms 941, for Vanco International, Inc. ("Vanco") for the years 1982 and 1983. Mullikin also prepared nine Wage and Tax Statements, W-2 Forms, for Vanco employees in 1982, and ten W-2 Forms in 1983. In preparing the tax documents, Mullikin failed to include the portion of wages paid to Vanco employees in cash. As a result of Mullikin's failure to include cash wages, Vanco's liability for payroll and withholding taxes, and the employees' respective tax liabilities were understated.
The Internal Revenue Service ("IRS") subsequently made the determination that Mullikin's actions with respect to the various tax forms constituted the aiding and abetting of the understatement of tax liability in violation of 26 U.S.C. § 6701 and assessed penalties against Mullikin in the total amount of $99,000.00.
Pursuant to the assessment challenge procedure set forth in 26 U.S.C. § 6703(c)(1), Mullikin paid fifteen percent of the assessed penalties within thirty days of the notices of assessment and filed claims for refund of the amounts paid. The IRS denied one claim for a refund and failed to address the second claim within the time specified by the Internal Revenue Code ("IRC"). Accordingly, Mullikin filed suit in the United States District Court for the Eastern District of Kentucky seeking a refund of the portions of the penalty assessments paid.
The parties filed cross-motions for summary judgment and on July 13, 1990, the district court sustained Mullikin's motion for partial summary judgment finding first that the five year statute of limitations contained in 28 U.S.C. § 2462 applies to the assessment of penalties pursuant to Section 6701 and that Section 2462 barred the assessment of any penalties relating to tax forms filed more than five years before the dates of the respective notices of assessment. The district court further found that the phrase "taxable period," as used in Section 6701(b)(3), is the equivalent of calendar year and that only one penalty per person per calendar year can be assessed against an individual for violations of Section 6701. Accordingly, the district court found that even though Mullikin prepared on the designated quarterly basis four Forms 941 for Vanco in 1983, the IRS could only properly assess one $10,000.00 penalty against Mullikin for the four Forms 941 prepared for 1983. 1
The United States appeals the district court's grant of partial summary judgment in favor of Mullikin and argues that the district court erred in both its application of the statute of limitations contained in Section 2462 to the Section 6701 penalty assessments, and in its determination that only one penalty per person per calendar year can be assessed for violations of Section 6701.
Two issues are present for our review. First, this Court must decide whether the five year statute of limitations contained in 28 U.S.C. § 2462 applies to penalty assessments made pursuant to 26 U.S.C. § 6701 for the aiding and abetting of the understatement of tax liability. Second, the Court must determine whether only a single penalty per person per calendar year is properly assessable under Section 6701 or whether a separate penalty may be assessed for each of four false quarterly Forms 941 prepared.
For the reasons set forth below, the Court finds that the district court erred in applying the five year statute of limitations contained in 28 U.S.C. § 2462 to the assessment of penalties pursuant to Section 6701. Accordingly, the Court reverses that portion of the district court's opinion finding the assessments for the tax forms relating to 1982 barred by the statute of limitations found in Section 2462. The Court further finds that the district court erred in its determination that the IRS could only assess one $10,000.00 penalty against Mullikin for the four Forms 941. The Court reverses the judgment of the district court and remands the case to the district court with specific instructions that the district court issue an order in accordance with this Court's opinion.
Plaintiff-appellee Mullikin was engaged in the practice of providing accounting services. In the performance of his profession, Mullikin prepared IRS Forms 941, Employer's Quarterly Federal Tax Returns, for Vanco for the eight calendar quarters of 1982 and 1983. 2 Mullikin also prepared nine W-2 Forms, Wage and Tax Statements, for Vanco employees for the 1982 calendar year and ten W-2 Forms for Vanco employees for the 1983 calendar year. The IRS subsequently determined that Mullikin, in preparing the Forms 941 and the W-2 Forms, omitted cash compensation paid to Vanco employees; this omission resulted in the understatement of Vanco's employment tax liability and the employees' income tax liability.
The IRS determined that Mullikin's actions constituted the aiding and abetting of the understatement of tax liability within the meaning of 26 U.S.C. § 6701 3 and proceeded to assess penalties against Mullikin for each of the documents prepared. In Notices of Penalty Charge dated November 14, 1988, the IRS notified Mullikin that he had been charged with penalties pursuant to Section 6701 for the nineteen W-2 Forms. Mullikin was assessed $9,000.00 in penalties for the W-2 Forms for calendar year 1982, and $10,000.00 in penalties for the W-2 Forms for calendar year 1983, representing the total of $1,000.00 each for the nineteen W-2 Forms prepared by Mullikin.
On November 21, 1988, the IRS sent Mullikin Notices of Penalty Charge in the amount of $80,000.00, representing the total of $10,000.00 each for the eight Forms 941 prepared. The total amount of penalties assessed against Mullikin pursuant to Section 6701 was $99,000.00.
Pursuant to Section 6703(c) 4, Mullikin paid fifteen percent of the amount of the penalties assessed against him within thirty days of the notices of penalty assessment and filed claims for refunds. 5
The IRS notified Mullikin in a letter dated May 15, 1989, that his claims for refund of the money paid with respect to the penalties relating to the Forms 941 were denied. Then, on June 13, 1989, within thirty days of the denial of his claim for a refund, Mullikin filed his complaint in the United States District Court for the Eastern District of Kentucky, seeking a refund of the $12,000.00 and an injunction against collection of the remainder of the penalties. 6
Mullikin did not receive a response within six months to his claims for refund filed on December 13, 1988. Accordingly, he filed an amended complaint on June 16, 1989 demanding an additional refund in the amount of $2,850.00.
On January 25, 1990, Mullikin filed a motion for partial summary judgment in which he argued that, as a matter of law, he is only liable for $20,000.00 of the penalties assessed against him. In his motion, Mullikin argued that: (1) the five year statute of limitations contained in 28 U.S.C. § 2462 7 bars the penalty assessments relating to actions taken more than five years before the dates of the IRS penalty notices, and (2) only one penalty may be assessed with respect to any one taxpayer for any taxable period and that therefore three of the four assessments relating to the Forms 941 made for each of the calendar years 1982 and 1983 are barred.
The United States filed a cross-motion for summary judgment on March 14, 1990 in which the United States argued that it is entitled to the full $99,000.00 of assessed penalties because no statute of limitations applies to the assessment of Section 6701 penalties and the limitation of one penalty for any taxable period refers, in the case of Forms 941, to calendar quarters, not the calendar year.
The district court issued its memorandum opinion and order addressing the cross-motions for summary judgment on July 13, 1990. The district court found first that the five year statute of limitations contained in 28 U.S.C. § 2462 applies to the assessment of penalties pursuant to Section 6701 and accordingly sustained Mullikin's motion for partial summary judgment on those penalties assessed on tax forms filed more than five years before November 14, 1988 or November 21, 1988. The district court next found that only one penalty per person per calendar year can be assessed pursuant to Section 6701 and found that Mullikin should be liable for only one $10,000.00 penalty in the remaining year for which the assessments were not time-barred.
The United States filed its notice of appeal of the district court's decision on November 13, 1990.
The Court begins by addressing the issue of whether the statute of limitations contained in Section 2462 applies to penalty assessments made pursuant to Section 6701. 26 U.S.C. § 6701 provides as follows:
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