United States v. Colasuonno
| Decision Date | 27 January 2023 |
| Docket Number | 21 Civ. 10877 (JCM) |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. PHILIP COLASUONNO, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff the United States of America (“Plaintiff”) commenced this action on December 20, 2021, pursuant to 26 U.S.C. § 7401, seeking a judgment for unpaid tax penalties levied on Defendant Philip Colasuonno (“Defendant”) under 26 U.S.C. § 6682. (Docket No. 1).[1]Defendant now moves to dismiss the Complaint with prejudice and for judgment on the pleadings pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(c), respectively. (Docket Nos. 17-18). Plaintiff opposes the motion, (Docket No. 19), and Defendant replied, (Docket No. 20). For the reasons set forth herein, Defendant's motion is denied.
Plaintiff seeks to collect tax penalties assessed against Defendant for willfully failing to collect, account for and remit to the federal government Social Security, Medicare and income taxes for employee wages over a four-year period in accordance with federal law. Defendant was a one-third owner of American Armored Car Ltd. (“AAC”) from 2001 through 2005.
(Docket No. 1 ¶¶ 6, 20).[2] As partial owner, he “exercised authority and control over AAC's financial affairs including but not limited to the collection, truthful accounting, and paying over of employment taxes for its employees.” (Docket No. 1 ¶ 6). Federal law requires employers, like AAC, to withhold and remit Social Security, Medicare, unemployment and income taxes from their employees' wages, and to report such holdings to the Internal Revenue Service (“IRS”). (Docket No. 1 ¶¶ 7-8); 26 U.S.C. §§ 3102, 3301, 3402. Moreover, employers must place the withheld funds in a “special fund in trust for the benefit of the United States.” (Docket No. 1 ¶ 9); 26 U.S.C. § 7501. Failing to hold the funds in a special trust fund subjects the employer to a trust fund recovery penalty “assessed against a responsible person of the employer in an amount equal to the trust fund taxes that the employer did not collect or remit from the employees' wages.” (Docket No. 1 ¶ 11); 26 U.S.C. § 6672(a).
During nineteen quarterly tax periods spanning from June 30, 2001 through December 31, 2005, AAC “failed to collect, truthfully account for and remit to the United States” the Social Security, Medicare and unemployment taxes that it was required to under federal law. (Docket No. 1 ¶ 18).[3]Defendant, who was a Certified Public Accountant at the time, “was involved in [AAC's] preparation of financial statements.” (Docket No. 1 ¶ 20). Defendant paid, or caused to be paid, AAC's employees in cash during the tax periods at issue without withholding or otherwise accounting for the appropriate taxes or remitting such taxes to the IRS. (Docket No. 1 ¶ 21). Instead, Defendant wrote and caused to be written weekly checks made payable to a third-party company, FJC Security Services, Inc. (“FJC”), representing cash payroll to be made to employees of AAC, even though AAC had no ongoing business relationship with FJC during the Covered Tax Periods and the sole purpose of the checks made out to FJC was to cover up and disguise the payment of cash payroll to employees of AAC. AAC would account for cash payroll to its employees in its books and records as payments for “outside services” when in fact, as Defendant knew and understood, these payments were not for “outside services” but were cash payments to employees of AAC.
On June 18, 2007, Defendant pleaded guilty to a two-count Information charging him with conspiracy to commit tax fraud, in violation of 18 U.S.C. § 371, and aiding and assisting in the preparation of a false tax return, in violation of 26 U.S.C. § 7206(2). (Docket No. 1 ¶ 23); see Minute Entry, United States v. Colasuonno, No. 07 Cr. 555 (AKH) (S.D.N.Y. June 18, 2007). During his plea allocution, Defendant admitted to the criminal conduct as described above. (See Docket No. 1 ¶¶ 23-24). Judge Hellerstein sentenced Defendant to time-served, to be followed by five years of supervised release on count one to be served concurrently with five years of probation on count two, along with restitution in the amount of $781,467.00. No. 07 Cr. 555 (AKH), Judgment (Docket No. 7). Defendant thereafter violated the conditions of his probation by failing to make a good faith effort to make restitution payments and was sentenced to a four month prison term. (Docket No. 1 ¶ 26); No. 07 Cr. 555 (AKH), Order Imposing Sentence (Docket No. 31).
Defendant filed a petition for bankruptcy pursuant to Chapter 7 of the Bankruptcy Code on July 24, 2009. (Docket No. 1 ¶ 29); see In re Maria and Philip Colasuonno, No. 09-23330-rdd (Bankr. S.D.N.Y.). On April 21, 2011, while the bankruptcy case was pending, the IRS assessed penalties for the nineteen quarterly tax periods Defendant did not remit payment, in the total amount of $1,747,190.30. (Docket No. 1 ¶ 27).[4] On May 26, 2011, the IRS issued a Notice of Federal Tax Lien (“NFTL”), which was filed with the Westchester County Clerk on June 8, 2011. (Docket No. 19 at 1). On July 20, 2011, the Bankruptcy Court entered a discharge in Defendant's bankruptcy action. (Docket No. 1 ¶ 30). Plaintiff commenced this action on December 20, 2021. (Docket No. 1).
Rule 12(c) of the Federal Rules of Civil Procedure allows “a party [to] move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). “In deciding a Rule 12(c) motion, [the Court] ‘employ[s] the same standard applicable to dismissals pursuant to Fed.R.Civ.P. 12(b)(6).'” Hayden v. Paterson, 594 F.3d 150, 160 (2d Cir. 2010) (quoting Johnson v. Rowley, 569 F.3d 40, 43 (2d Cir.2009) (per curiam)).
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Courts undertake a “‘two-pronged approach' to evaluate the sufficiency of a complaint.” Hayden, 594 F.3d at 161. First, the court must accept all of the factual allegations in the complaint as true, and draw all reasonable inferences in favor of the non-moving party. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) () (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); LaFaro v. N.Y. Cardiothoracic Grp., PLLC, 570 F.3d 471, 475 (2d Cir. 2009) () (citations and internal quotation marks omitted). The facts alleged must be more than legal conclusions. Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”) (citing Twombly, 550 U.S. at 555) (“[A] plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”) (alteration and citation omitted)). In evaluating the complaint, a court considers “any written instrument attached to the complaint as an exhibit or incorporated in the complaint by reference, as well as documents upon which the complaint relies and which are integral to the complaint.” Subaru Distributors Corp. v. Subaru of Am., Inc., 425 F.3d 119, 122 (2d Cir. 2005).
Second, the court must determine whether the allegations, accepted as true, “plausibly give rise to an entitlement to relief.” Iqbal, 556 U.S. at 679. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). Determining whether a complaint states a plausible claim to relief is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. If a plaintiff has “not nudged their claims across the line from conceivable to plausible, [the] complaint must be dismissed.” Twombly, 550 U.S. at 570.
Defendant does not deny that he was responsible under the law to collect, truthfully account for and pay over AAC's employment taxes, or that he willfully failed to pay over such taxes. See, e.g., United States v. Rowe, 858 Fed.Appx. 405, 406 (2d Cir. 2021) (summary order); see also 26 U.S.C. § 6672. Instead, Defendant maintains that he is entitled to judgment on the pleadings because the Complaint was not timely filed. Specifically, Defendant states that the IRS willfully violated the Bankruptcy Code's prohibition against actions taken to collect on an assessment by filing the NFTL in Westchester County during the pendency of the bankruptcy proceedings. (Docket No. 18 at 3-4). Plaintiff counters that: (1) the IRS's filing of an NFTL during the pendency of Defendant's bankruptcy proceedings has no bearing on whether the statute of limitations was tolled during that time; and (2) the action was timely filed. (Docket No. 19 at 5). Plaintiff further asserts that any remedy for an alleged violation of an automatic stay should be brought before the bankruptcy court pursuant to the Bankruptcy Code, 11 U.S.C. § 362(k). (Id. at 5-6). The sole issue for this Court to resolve is whether the statute of limitations expired before this action was filed.
The Internal Revenue Code provides that a “civil action for the collection or recovery of taxes, or of any fine, penalty or forfeiture, shall be commenced [if] the Secretary...
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