United States v. Algernon Blair, Inc., 29979.
| Decision Date | 06 May 1971 |
| Docket Number | No. 29979.,29979. |
| Citation | 441 F.2d 1379 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. ALGERNON BLAIR, INC., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
John R. Matthews, Jr., Montgomery, Ala., for defendant-appellant.
Ira DeMent, U. S. Atty., F. E. Leonard, Jr., Asst. U. S. Atty., Montgomery, Ala., Johnnie M. Walters, Asst. Atty. Gen., Lee A. Jackson, Charles E. Anderson, Attys., Dept. of Justice, Tax Div., Washington, D. C., for plaintiff-appellee.
Before BROWN, Chief Judge, COLEMAN, and CLARK, Circuit Judges.
The District Court granted summary judgment against Algernon Blair, Inc. for income tax and FICA withholding tax in the amount of $49,375.66 plus interest, § 3505(b) of the Internal Revenue Code of 1954 (as effective January 1, 1967).1
Blair initially moved to dismiss the Government's complaint on the ground that § 3505(b) is unconstitutional. Upon the denial of this motion the Government took depositions and moved for a summary judgment, which was granted. We affirm.
Blair was the prime contractor on two projects, one in Montgomery, Alabama, and one in Fort Jackson, South Carolina. Whitehead Plumbing and Heating, Inc. had the plumbing sub-contract on both jobs. Early in 1968, Whitehead ran into financial difficulties. On January 18, 1968, Blair and Whitehead entered into an agreement whereby Whitehead granted Blair a security interest in certain of its property to secure advances which Blair was to make and did make to Whitehead to enable the latter to pay its wages and suppliers in completing both contracts.
The Court below specifically found that Blair knew the advances it was making to Whitehead were for the payment of wages and, furthermore, that Blair had actual notice and knowledge that Whitehead could not make timely payments of taxes which were due to be withheld.
The Court's findings were based on substantial and undisputed evidence. Mr. Whitehead, the sub-contractor's president, went to the officials of Blair and told them he just "couldn't go any further" and that he couldn't handle the monetary requirements for the work he was performing as sub-contractor. Pursuant to this conversation Blair changed the method of paying Whitehead, and a security instrument was drafted by Blair which stated:
"WHEREAS, Whitehead has performed a portion of said sub-contract and has exhausted its funds and can obtain no financing by which it can meet its payrolls and pay for the various materials needed to complete said sub-contract, * * *" (Emphasis supplied).
For every payroll period thereafter, Whitehead would supply Blair with a request for funds which specifically recited that Whitehead did not have available funds to meet wages. Checks drawn by Whitehead were furnished to Blair on a daily basis. Blair was told a number of times during 1968 that Whitehead was not paying the taxes due, and this information was furnished Blair by Internal Revenue Service agents as early as March 4, 1968.
Blair complains on appeal that the lower court erred in granting summary judgment because Blair had no notice or knowledge that Whitehead would not pay its taxes. Blair also again urges that § 3505(b) of the Internal Revenue Code of 1954 is unconstitutional.
The uncontested facts clearly established that when Blair advanced Whitehead its net payrolls only, making no provision for withholding and FICA taxes, it had actual notice or knowledge that Whitehead could not and would not pay these taxes. It thus had notice within the meaning of § 6323(i) (1) of the Internal Revenue Code of 1954.2
We simply have here a situation which Congress intended to eliminate when it enacted § 3505(b). The purposes of that legislation are to be found in S.Rep.No. 1708, 89th Cong., 2d Sess., pp. 21-23 (1966 — 2 Cum.Bull. 876, 891-892), U.S.Code Cong. & Admin. News 1966, p. 3744:
Prior to the effective date of § 3505(b), problems arose with the...
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Taubman v. United States
...and can be inferred where, for example, the lender knows of the employer's deteriorating financial condition. United States v. Algernon-Blair, Inc., 441 F.2d 1379 (5th Cir. 1971); United States v. Park Cities Bank & Trust Co., supra at 740; United States v. Wilmar General Contractors, Inc.,......
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...the contractor could be held liable under federal and state law for any unpaid taxes related to such wages. In United States v. Algernon Blair, 441 F.2d 1379 (5th Cir.1971), for example, a contractor made payroll advances to a financially strapped subcontractor and was held liable for withh......
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...known as "net payroll financing," was apparently quite prevalent in the construction industry. See generally United States v. Algernon Blair, Inc., 441 F.2d 1379 (5th Cir.1971). In an attempt to keep work moving along smoothly, prime contractors would provide their financially troubled subc......
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