United States v. Mitchell, Civil Action No. 00-45 (JBS) (D. N.J. 6/28/2002), Civil Action No. 00-45 (JBS).
| Decision Date | 28 June 2002 |
| Docket Number | Civil Action No. 00-45 (JBS). |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. LAWRENCE A. MITCHELL, Defendant. |
| Court | U.S. District Court — District of New Jersey |
GREGORY S. HREBINIAK, Trial Attorney, Civil Trial Section, Eastern Region, Tax Division, United States Department of Justice Washington, DC, Attorney for the United States.
GARY P. LEVIN, Esquire Northfield, NJ, Attorney for Defendant Mitchell.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Court, sitting without a jury, tried this case on April 16 & 23, 2002. The principal issue is whether the United States has proved that defendant Lawrence A. Mitchell ("Mitchell") is a responsible person under the Internal Revenue Code, 26 U.S.C. § 6672, against whom a tax assessment against Mitchell Construction Co. may be reduced to judgment.
For the following reasons, the Court finds that defendant Mitchell is a responsible person with respect to his corporation, Mitchell Construction Co., for the periods at issue from 1986 and 1987, with liability to pay the assessment of unpaid taxes in the amount of $196,428.08, plus interest and penalties, amounting to a total of $463,168.83 as of December 13, 1999.
The following constitute the Court's findings of fact and conclusions of law pursuant to Rule 52(a), Fed. R. Civ. P.
1. This is an action to reduce federal tax assessments made against defendant/taxpayer Lawrence A. Mitchell ("Mitchell") to judgment. The assessments are for withholding taxes not paid over to the IRS from Mitchell Construction Co., Inc. Jurisdiction is based on 26 U.S.C. § 7402(a) and 28 U.S.C. §§ 1340 and 1345.
2. Mitchell Construction Co. failed to pay over income taxes and social security taxes withheld from the wages of employees for the fourth quarter of 1986 through the third quarter of 1987, inclusive.
3. On January 9, 1990, a delegate of the Secretary of the Treasury made an assessment against defendant for a trust fund recovery penalty in the amount of $196,428.08, pursuant to Section 6672 of the Internal Revenue Code. This amount represented the sum total of the amounts the corporation withheld from the wages of the employees and failed to pay over to the Internal Revenue Service.1 By December 13, 1999, according to the IRS Certificate of Official Record (Ex. G-3), the amount due, including accrued interest, has grown to $463,168.83.
4. In 1986, Mitchell helped to found Mitchell Construction Co., which was to be an electrical contractor on a condominium project in Brigantine, New Jersey. He was also employed in electrical and mechanical contracting from 1972 to 1998, doing business under the name of Mitchell Mechanical and Electrical Contractors, which he operated out of his home. (Tr. 181-183, 193-194.) Mitchell was a licensed mechanical and electrical contractor, and in 1986, he was asked by Thomas Pauley if he "would be interested in furnishing my licenses for that particular job for a fee." (Tr. 183.) Mitchell also lent his name to the new corporation — Mitchell Construction Co. — because he was a known contractor in the Atlantic County area.
5. The corporation was formed by attorney James Aaron, Esquire. Mitchell was President, Pauley was supposedly Chairman of the Board of Directors, and Richard McConagly was Vice President. (Tr. 186.) Mitchell denied he had a stockholder interest in Mitchell Construction Co. (Tr. 187).
6. Defendant was the highest ranking officer (president) of the Corporation, and he was a member of the Board of Directors. He had substantial authority directing the construction work at the project.
7. Defendant signed payroll tax returns on behalf of the Corporation during the relevant periods, namely for the Fourth Quarter of 1986, the First Quarter of 1987, and the Third Quarter of 1987. (Ex. G-10).2 His testimony that his signature is forged on these returns is not credible, for reasons discussed momentarily. He also knew about the requirements for paying over trust fund taxes to the IRS, since his other business, Mitchell Mechanical & Electrical Contractors, had also previously experienced IRS enforcement due to unpaid withholding tax liability. (Tr. 245.)
8. Defendant had signature authority on significant Mitchell Construction Co. corporate accounts and while the Corporation failed to pay over the trust fund amounts during the periods in question in 1986 and 1987, the defendant signed corporate checks payable to entities other than the IRS with the knowledge that the trust fund taxes were not paid over to the IRS. He also authorized transfer of substantial funds among the corporation's accounts. Checks signed by defendant amounted to hundreds of thousands of dollars.
9. Mitchell had signature authority as President of Mitchell Construction Co. on the corporate accounts at First Jersey Bank, including Account Nos. 0300-67053 (Ex. G-12) and 0300-69102 (id. ), which he acknowledged in his testimony. (Tr. 204 & 211). The first account (0300-67053) was the general account for Mitchell Construction and it required two signatures, with the authorized signatories being Tom Pauley, Richard McConagly and Mitchell. (Tr. 204; Ex. G-12.) Large sums of money passed through these general account, such as a deposit for $306,000 on October 17, 1986 (Tr. 211; Ex. G-13C.) Deposits in November, 1986 to this general account included $99,000 on November 3, 1986, $70,000 on November 19, 1986, and $12,000 on November 24, 1986, and a total of $217,935.94 in deposits for the month ending November 28, 1986. (Id.) This account received deposits and other credits of $112,185.61 for the month ending December 31, 1986; deposits and other credits of $94,982.96 for the month ending January 30, 1987; $ 155,588.26 for the month ending February 27, 1987; $93,036.93 for the month ending March 31, 1987; $133,917.23 for the month ending April 30, 1987; $70,821.50 for the month ending May 29, 1987; $146,130.27 for the month ending June 30, 1987; $23,324.71 for the month ending July 31, 1987; $27,854.00 for the month ending August 31, 1987; and finally, $7,154.42 in deposits and other credits for the month ending September 30, 1987. (Id.) This demonstrates that Mitchell Construction Company's general account during the four quarters at issue here itself had significantly more than enough cash to have paid the Internal Revenue Service for these quarterly trust funds.
10. The second account above, upon which Mitchell acknowledged his signature authority, namely Account No. 0300-69102, was described as the petty cash account (Tr. 204), upon which Mr. Mitchell was also a signator. (Ex. G-12.) The account statements for this account are not in evidence.
11. A third large account, Account No. 0300-67746, was used extensively by Mitchell Construction Co. during this period, and the relevant account statements are in evidence. (Ex. G-13G.) The bank's signature card for this account (Ex. G-22) is not filled in with the names, titles, or signatures of the authorized signators (id.), and Mr. Mitchell testified he does not know whether he was an authorized signator. (Tr. 205.) Mr. Mitchell thought this account may have been Mitchell Construction Co.'s payroll account. (Tr. 206.) This payroll account (0300-67746) likewise had substantial activity during the relevant periods, since the following monthly deposits and other credits are reflected in the bank's monthly statements (Ex. G-13B):
Period Ending Deposits
10/31/86 $119,106.00
11/28/86 38,000.00
12/31/86 75,200.00
01/30/87 82,042.44
02/27/87 71,858.83
03/31/87 67,413.73
04/30/87 58,774.58
05/29/87 51,737.63
06/30/87 54,684.62
07/31/87 25,197.23
08/31/87 (Missing)
09/30/87 20,215.00
This account (0300-67746) itself had substantially more funds than would have been needed to satisfy Mitchell Construction Co.'s trust fund obligations for the four relevant quarters. As shown below, Mr. Mitchell has signature authority for this account.
12. Mitchell Construction Co. also had a fourth significant bank account at a relevant time, principally the Fourth Quarter of 1986, namely Account No. 3010-810-8 at National Community Bank of New Jersey, for which the bank statements are also in evidence. (Ex. G-13A.) Mr. Mitchell did not recall whether he was an authorized signator on this account (Tr. 207), and there is no signature card in evidence. (Tr. 258.) This account (3010-810-8) received deposits and other credits of $165,247.82 for the month ending October 31, 1986; $261,090.53 for the month ending November 28, 1986; and $16,032.89 for the month ending December 31, 1986. (Ex. G-13A.) In 1987, the account had minimal declining balances starting with only $746.00 on January 1, 1987 to $3.48 as of May 29, 1987. (Id.) No copies of checks drawn upon this account are in evidence.
13. Mr. Mitchell has taken the position that he resigned from Mitchell Construction Co. on December 16, 1986, and that "Defendant has no knowledge concerning the actions of Mitchell Construction Co. after defendant's date of resignation." (Def. proposed Findings of Fact ¶ 2.) If so, he argues that he cannot be a responsible party for this 100 percent penalty, nor could his failure to have paid these taxes be willful. Contrary to Mr. Mitchell's allegations, the Court finds that he remained substantially involved in Mitchell Construction Co., that he continued to enjoy check writing authority, and that he continued to exercise major management responsibilities even after his purported "resignation," for the reasons now discussed.
14. Mr. Mitchell claims that on December 16, 1986, there was a meeting called by him to tender...
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