Spang v. United States, CIV-81-157-T.

• Decision Date: 03 February 1982
• Docket Number: No. CIV-81-157-T.,CIV-81-157-T.
• Citation: 533 F. Supp. 220
• Parties: Richard C. SPANG, Plaintiff, v. The UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Oklahoma

533 F. Supp. 220

Richard C. SPANG, Plaintiff, v. The UNITED STATES of America, Defendant.

No. CIV-81-157-T.

United States District Court, W. D. Oklahoma.

February 3, 1982.

Richard C. Fox, Harrisburg, Pa., for plaintiff.

Rick Disney, Dept. of Justice, Tax Division, Dallas, Tex., for defendant.

MEMORANDUM OPINION

RALPH G. THOMPSON, District Judge.

Plaintiff commenced this action seeking the recovery of funds paid to the Internal Revenue Service. Plaintiff alleges that the District Director of the Internal Revenue Service in Philadelphia, Pennsylvania assessed a 100% penalty in the amount of $13,132.81 against plaintiff "as a person required to collect, account for, and pay over withheld taxes" for Land Developers, Inc. Against this assessment the plaintiff has paid under protest $115.17. Additionally, the plaintiff and his wife were entitled to receive refunds for the overpayment of their personal income taxes in 1979 in the sum of $4,005.73. The Internal Revenue Service has retained this overpayment refund as a credit applicable to the penalty assessment. The United States has counterclaimed against the plaintiff for the remaining $9,011.91 of the penalty assessment.

Although plaintiff was assessed the trust fund portion of the unpaid employment taxes of Land Developers, Inc. for all of the second quarter of 1974, defendant has conceded that plaintiff severed his connection with the corporation on April 17, 1974. Thus, the United States only contends that plaintiff is liable for those unpaid taxes which accrued during the first quarter and during the first seventeen days of the second quarter. Notwithstanding the penalty assessment of $13,132.81, and, in light of this concession, the parties have stipulated that the plaintiff's maximum liability for unpaid withholding taxes is $5,967.07.

The case was tried to the Court on November 16, 1981, plaintiff appearing personally and by his counsel, Richard Fox, and defendant appearing through Rick K. Disney, attorney, Tax Division, Department of Justice. Having heard and considered the evidence, testimony and argument of the respective parties, the Court files this Memorandum Opinion which shall constitute its findings of fact and conclusions of law.

During the late 1960's and 1970, Mr. Lamont Tibbitts and his wife, Shellie Tibbitts, founded and organized a corporate holding company structure which was involved primarily with real estate development, construction, and management. The parent corporation was a closely-held corporation called "UMC, Inc.," which Mr. and Mrs. Tibbitts controlled. UMC, Inc. had no operational functions but served solely to provide control of the entire corporate system to Mr. and Mrs. Tibbitts. UMC, Inc., in turn, controlled a publicly-held corporation called "United Management Capital Corporation." United Management Capital Corporation served as the financial and management center for the operating companies which were its 100% owned subsidiaries.

In 1972, Mr. Tibbitts met the plaintiff, Richard C. Spang, who is a registered civil engineer. At that time, Mr. Spang resided in Reading, Pennsylvania and owned and operated a corporation named "General Consultants, Inc." That corporation was engaged in rendering architectural and/or engineering services.

Mr. Tibbitts and Mr. Spang negotiated an arrangement whereby United Management Capital Corporation would organize a new 100% owned subsidiary to be called "United A & E, Inc." to which General Consultants, Inc. would assign all of its business and operations. Mr. Spang was to become President of United A & E, Inc. An agreement to such effect was entered into as of July 1, 1972.

United A & E, Inc. designed two projects for commercial buildings to be constructed in Reading, Pennsylvania for United Management Capital Corporation. (United Management Capital Corporation syndicated the projects as tax shelter investments.) The prime contractor on the projects was intended to be a company called Delaware Atwood Construction Company, a company wholly owned by a Mr. James McIntyre. Delaware Atwood Construction Company entered into a contractual commitment to construct the projects, and banks approved construction contracts and loans. However, due to increased costs resulting from subsequent changes in the plans and specifications for the two projects, Delaware Atwood Construction Company declined to proceed. With the help of Delaware Atwood Construction Company, a replacement contractor ("Plotnick") was found and one of the projects was started in early 1973.

The foundation of work constructed by Plotnick was inadequate and substandard. As a result, his contract was terminated. Again, a replacement contractor was sought. As a result of the search, Mr. James Braswell, of Braswell Enterprises, Inc. was contacted. At that point, Braswell Enterprises, Inc. was completing two projects and was looking for new work. Accordingly, after some negotiations, an arrangement was made in the late spring or early summer of 1973 for Braswell Enterprises, Inc. to assume the responsibilities for the construction of the two projects.

Braswell Enterprises, Inc. was, in fact, the prime contractor on the two projects. However, because of the prior contractual arrangements and the bank approvals for the construction financing, Delaware Atwood Construction Company remained as the nominal prime contractor. Regardless, Braswell Enterprises, Inc. functioned as the prime contractor, however, and Delaware Atwood Construction Company had no responsibilities whatsoever except for the transmittal of the checks from the bank as they were issued. Braswell Enterprises, Inc. first removed Plotnick's faulty work on the one project and then proceeded with that. Shortly thereafter, Braswell Enterprises, Inc. began work on the second project.

At some point after the original arrangement was made, Mr. Braswell indicated that he would be willing to become a part of the United Management Capital Corporation group. There were various meetings at which an arrangement was negotiated. Ultimately, it was agreed that an inactive 100% owned subsidiary of United Management Capital Corporation ("United Real Estate Developers, Inc.") would be activated. Then, Braswell Enterprises, Inc. would assign or transfer the existing projects and work to that corporation. The Agreement was entered into as of October 1, 1973 and was to be effective as of January 1, 1974. During the remainder of 1973, therefore, Braswell Enterprises, Inc. continued to function as a separate and independent corporation. The Agreement went into effect on January 1, 1974 as scheduled.

At some point after the October 1, 1973 Agreement between Braswell and United Management Capital Corporation it was decided to consolidate the United Management Capital Corporation offices with those of United Real Estate Developers, Inc. ("United Real Estate Developers, Inc." later had its corporate name changed to "Land Developers, Inc." and hereinafter is referred to by that name.) An empty factory building in West Reading, Pennsylvania was located and rented. The first floor was cleaned out for the consolidated offices. The first floor in the factory building was simply one large room, with no offices, walls, partitions, or dividers. Desks, chairs, file cabinets, and other office furniture and equipment were moved in during late 1973 in anticipation of the January 1, 1974 consolidation.

The United Management Capital Corporation personnel (Mrs. Tibbitts, Allen Hess, and Joanne Christian) had desks, chairs, etc. in one section. The Land Developers, Inc. personnel (Mr. Braswell, Ben Mell, John Bechtel, and Betty Haman) had desks, chairs, etc. in another section. In addition, desks were provided for both Mr. Spang and Mr. Tibbitts at one end of the area. However, neither man was regularly present at the factory building office. Mr. Spang retained his office with United A & E, Inc. at 700 Lancaster Avenue, in Reading, Pennsylvania.

Shellie Tibbitts was in overall control of the banking and accounting functions, including payroll accounting and withholding for the United Management Capital Corporation group. At the time of the unification of the offices, she installed her standard payroll tax system, previously in effect for the United Management Capital Corporation group, for Land Developers, Inc. (Braswell Enterprises, Inc., prior to the unification, was delinquent in the payment of its payroll taxes as the personnel had no system or procedure for such.) Shellie Tibbitts' system first required that a weekly deposit be made in the payroll account covering not only the gross payroll, but also the employer's share of FICA, and the federal unemployment compensation tax, and the Pennsylvania unemployment tax. Her system further required that weekly payment (deposit) be made of the federal withholding and FICA. As a result of her system, all such taxes were paid through the entire first quarter of 1974 until the last week of March. (A check was actually written to the IRS even for the last week of March, but it was returned "NSF".)

The actual accounting for Land Developers, Inc. was done by John Bechtel and Betty Haman, who had previously been employees of Braswell Enterprises, Inc. and who accompanied Mr. Braswell to the West Reading offices at the time of unification.

Betty Haman was responsible for the actual payroll calculation and the drawing of the checks. She collected the time cards, computed the hours worked, verified the wage rates, and made up the payroll. Ben Mell, the General Superintendent of Land Developers, Inc., would then review the calculations and approve them. Next, Betty Haman would advise the amount needed under Mrs. Tibbitts' system to be deposited into the payroll account. Betty Haman would prepare the payroll checks, the tax deposit checks, and the tax deposit forms. The payroll checks were signed by Mr. Mell. Mr. Spang never signed any payroll checks.

John...