Taubman v. United States, Civ. A. No. 4-72489 and 5-71759.
| Decision Date | 28 April 1978 |
| Docket Number | Civ. A. No. 4-72489 and 5-71759. |
| Citation | 449 F. Supp. 520 |
| Parties | Lester TAUBMAN, Plaintiff, v. UNITED STATES of America, Defendant and Third-Party Plaintiff, v. Murton SCHLESINGER, Third-Party Defendant. UNITED STATES of America, Plaintiff, v. INTERCONTINENTAL INDUSTRIES, INC., Defendant. |
| Court | U.S. District Court — Western District of Michigan |
J. Laevin Weiner, Southfield, Mich., for Taubman.
D. Patrick Mullarkey, Tax Division, Dept. of Justice, Washington, D. C., Pamela J. Thompson, Asst. U. S. Atty., Dept. of Justice, Federal Building, Detroit, Mich., for United States of America.
Murton Schlesinger, in pro. per.
Dean Carlton, Dallas, Tex., for Defendant Intercontinental Industries, Inc.
In an opinion dated January 11, 1978, this court held that Lester Taubman and Murton Schlesinger, former president and vice-president respectively of the now-bankrupt corporation, Prebuilt Homes, Inc., are personally liable under § 6672 of the Internal Revenue Code for the failure of Prebuilt Homes to pay over to the government $156,565.34 in income and social security taxes withheld from its employees from August, 1969 until February, 1970, when the company finally ceased operations. This holding was based on a finding that both Taubman and Schlesinger were responsible and controlling corporate officers who willfully failed to pay over payroll taxes withheld from the corporation's employees. In a consolidated case this court held that Intercontinental Industries, Inc. (INI), Prebuilt's principal source of financing during the period in question, was liable to the government under § 3505(b) of the Internal Revenue Code for $62,598.94. This liability was arrived at by applying the 25% limit of § 3505(b) to the $250,395.78 that the court determined to have been advanced by INI to Prebuilt from August, 1969 to January, 1970 for the payment of wages, for which INI knew that no withholding taxes would be collected or paid.
The case is now before me on the government's motion for the entry of judgment. The sole disputed issue is whether or not prejudgment interest should be added to the $62,598.94 for which INI was held liable. The government contends that statutory interest must be added to the judgment against INI even if this results in INI's paying more than 25% of the amount it supplied to Prebuilt. INI contends that its total liability for taxes and interest cannot exceed 25% of the amount it supplied. The resolution of this issue depends upon the interpretation given to § 3505(b).
That section reads as follows:
(b) Personal liability where funds are supplied. — If a lender, surety, or other person supplies funds to or for the account of an employer for the specific purpose of paying wages of the employees of such employer, with actual notice or knowledge (within the meaning of section 6323(i)(1)) that such employer does not intend to or will not be able to make timely payment or deposit of the amounts of tax required by this subtitle to be deducted and withheld by such employer from such wages, such lender, surety, or other person shall be liable in his own person and estate to the United States in a sum equal to the taxes (together with interest) which are not paid over to the United States by such employer with respect to such wages. However, the liability of such lender, surety, or other person shall be limited to an amount equal to 25 percent of the amount so supplied to or for the account of such employer for such purpose. (Emphasis supplied)
The government would apply this section in the following manner. Given that the amount of taxes not paid over ($156,565.34) is more than 25% of the amount supplied by Intercontinental to Prebuilt, the judgment should be for the full 25% or $62,598.94. To this the government would add interest on the $62,598.94 from the due date of the employer tax return with respect to which that liability arose to the date of judgment. It computes that interest to date under § 6621 of the Internal Revenue Code to be $32,718.16. The government's position is based in part upon Section 31.3505-1(b) of the Treasury Regulations on Employment Taxes and certain examples given therein. That section provides in part as follows:
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U.S. v. Intercontinental Industries, Inc.
...liability is published at 499 F.Supp. 1133. The court's opinion on the question of liability for prejudgment interest is reported at 449 F.Supp. 520. Facts INI of Dallas, Texas, is a holding company with an interest in a number of diversified businesses. In May 1969, INI entered into an agr......
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U.S. v. Metro Const. Co., Inc.
...that "liability" as used in the last sentence so clearly includes interest that any regulation to the contrary is void. Taubman v. United States, 449 F.Supp. 520, 78-2 U.S.Tax Cas. (CCH) P 9552 (E.D.Mich.1978). While we do not agree with the Taubman court that the statute's meaning is plain......