United States v. Witkemper

• Decision Date: 31 March 2021
• Docket Number: No. 1:18-cv-00873-JRS-TAB,1:18-cv-00873-JRS-TAB
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. RICHARD E. WITKEMPER, ELLEN F. WITKEMPER, Defendants.
• Court: U.S. District Court — Southern District of Indiana

UNITED STATES OF AMERICA, Plaintiff, v. RICHARD E. WITKEMPER, ELLEN F. WITKEMPER, Defendants.

No. 1:18-cv-00873-JRS-TAB

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

March 31, 2021

Findings of Fact and Conclusions of Law

This case came before the Court for a one-day bench trial on October 5, 2020. Plaintiff United States of America ("United States" or "Government") brought this action to reduce to judgment certain unpaid tax liabilities of Defendant Richard E. Witkemper ("Mr. Witkemper") (Count I); to enforce the federal tax liens on Mr. Witkemper's interest in certain real property (Count II); and to obtain a money judgment against Defendant Ellen F. Witkemper ("Mrs. Witkemper") (Count III), whom the Government alleges received the proceeds of the sale of certain real property to which the federal tax liens had attached and that Mr. Witkemper had caused to be fraudulently conveyed to her. Having heard and carefully considered the evidence, the Court enters its Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52(a)(1).

I. Procedural Background

On March 16, 2018, the Government initiated this litigation against Defendants Mr. Witkemper; Mrs. Witkemper; Chad Witkemper, the son of Mr. And Mrs. Witkemper; and Pia O'Connor. (Compl., ECF No. 1.) The Government amended its Complaint on May 8, 2018. (Am. Compl., ECF No. 19.) The Amended Complaint alleged that Mr. Witkemper failed, neglected, or refused to pay trust fund taxes in full and therefore owes the Government $385,705.54.¹ (Id. ¶¶ 28-29.) It further alleged that Mr. and Mrs. Witkemper purported to transfer their interest in their residential property, which was at the time subject to federal tax liens, to their children and that after several purported transfers of the residential property, those transfers were made subject to the federal tax liens or, in the alternative, that those transfers are void or voidable. (Id. ¶¶ 30-46.) Moreover, the Amended Complaint alleged that Mr. Witkemper fraudulently conveyed a parcel of real property, which was subject to federal tax liens, to Mrs. Witkemper and that the Government is therefore entitled to the proceeds she received from the sale of that real property. (Id. ¶¶ 47-73.)

On May 22, 2018, Chad Witkemper answered the Government's Amended Complaint. (Chad Witkemper Answer, ECF No. 21.) On June 19, 2018, Mr. Witkemper and Mrs. Witkemper answered the Government's Amended Complaint, raising a statute of limitations affirmative defense. (Witkemper Answer, ECF No. 26.) As noted,the parties filed a joint stipulation on August 19, 2020, in which the Government agreed to no longer seek a judgment against Mr. Witkemper for the TFRP liabilities assessed against him for the unpaid employment taxes of Maximum Engineering Inc. (Joint Stipulation ¶ 5, ECF No. 65.) On August 20, 2020, the Court granted the Government's motion to voluntarily dismiss Defendants Chad Witkemper and Pia O'Connor, (Order, ECF No. 68), and a final pretrial conference was held between the remaining parties on September 16, 2020, (see Minute Order, ECF No. 95).

The Government was present at the October 5, 2020, bench trial via videoconference by counsel, Samuel Jones and Angela Foster. Defendants Mr. Witkemper and Mrs. Witkemper were present in person and by counsel, Jason Smith and W. Brent Gill. Mr. Witkemper and Mrs. Witkemper were the only witnesses called to testify. At the conclusion of trial, the Court took the matter under advisement and requested the filing of proposed findings of facts and conclusions of law from both parties. This Order reflects and embodies the Court's final decisions on all pending issues of fact and law. To the extent that any findings of fact are more properly construed as conclusions of law, or vice versa, they should be construed as such.

II. Findings of Fact

A. MAXIMUM SPINDLE UTILIZATION INC

1. Mr. Witkemper was the sole shareholder and president of Maximum Spindle Utilization Inc. ("Maximum Spindle"), a corporation based in Bartholomew County, Indiana. (Stipulated Facts ¶ 1, ECF No. 82.)

2. Maximum Spindle was in the business of manufacturing, assembling, and testing a variety of diesel engine parts and machinery. (Id. ¶ 2.)

3. From 2004 through 2006, Maximum Spindle had employees. (Id. ¶ 3.)

4. Maximum Spindle, and Mr. Witkemper's other business, Maximum Engineering, Inc., were both located at 1141 South Walnut Street, Edinburgh, Indiana ("Commercial Property"), and 635 S. Mapleton Street, Columbus, Indiana ("S. Mapleton Property"). (Mr. Witkemper Aff. ¶ 3, Trial Ex. 3.)

5. As an employer, Maximum Spindle was subject to the federal employment tax obligations imposed by the Internal Revenue Code ("IRC"), including the duties to: (1) withhold from each employee's paycheck, and pay over to the United States, an estimated amount of income tax for each employee; (2) withhold from each employee's paycheck, and pay over to the United States, the employee portion of tax imposed upon wages by the Federal Insurance Contributions Act ("FICA"); and (3) pay the employer portion of the tax imposed upon employee wages by the FICA (collectively, "employment taxes"). (Stipulated Facts ¶ 4, ECF No. 82.)

6. During 2004, 2005, and 2006, Maximum Spindle failed to pay its employment taxes in full. (Id. ¶ 5.)

7. Mr. Witkemper was responsible for collecting, truthfully accounting for, and paying over to the United States the employment taxes withheld from the wages of employees of Maximum Spindle from 2004 through 2006. (Id. ¶ 6.)

8. Mr. Witkemper was the sole person responsible for making decisions to pay over Maximum Spindle's employment taxes from 2004 through 2006. (Id. ¶ 7.)

9. Mr. Witkemper paid other creditors, including employees, while the unpaid employment tax obligations of Maximum Spindle continued to accrue from 2005 through 2006. (Id. ¶ 8.)

10. In 2005, Mr. Witkemper began working with Internal Revenue Service ("IRS") Agent Nancy Archer, including meeting with her on September 8, 2005, after he was notified by the IRS of his tax delinquencies—via an IRS Notice of Tax Delinquency dated on or about August, 25, 2005 (see Trial Tr. 143:1-144:16, ECF No. 100; see also Trial Ex. 4 at 4 (referencing "Aug IRS Letter"); Trial Tr. 66:13-67:2, ECF No. 100.)—regarding Maximum Spindle. (Trial Tr. at 143:14-144:18, ECF No. 100; see also Trial Ex. 4.)

11. After the September 8, 2005 meeting, Mr. Witkemper attempted to work with Agent Archer, his former counsel, and other creditors to resolve the issues. (Trial Tr. at 145:11-15, ECF No. 100.)

12. However, on January 30, 2007, Maximum Spindle sought protection from its creditors, including IRS, by filing a petition for relief under Chapter 11 of the Bankruptcy Code. (Stipulated Facts ¶ 9, ECF No. 82.)

13. Maximum Spindle was not able to present a successful plan of reorganization and the Bankruptcy Court dismissed the case on April 4, 2008. (Id. ¶ 10.)

14. The IRS was not able to collect in full the unpaid employment taxes during Maximum Spindle's bankruptcy case. (Id. ¶ 11.)

15. Maximum Spindle is no longer in operation. (Id. ¶ 12.)

B. TRUST FUND RECOVERY PENALTY

16. On March 1, 2007, Archer sent Mr. Witkemper an 1153 letter informing him that to collect the outstanding federal employment taxes due from MSU the IRS proposed "to assess a penalty against you as a person required to collect, account for, and pay over withheld taxes for the above business." (Trial Ex. 42 at 6.) The letter noted that, under section 6672, "[t]he penalty we propose to assess against you is a personal liability called the Trust Fund Recovery Penalty." (Id.) Detailed instructions on how to appeal or protest the action, including the requirement to "mail us your written appeal within 60 days from the date of this letter" where provided. (Id.) Rather than mailing a written protest to the IRS as instructed, Mr. Witkemper, via counsel, faxed a "Formal Protest and Appeal of Proposed Assessment of Civil Penalties" to Archer at an unknown fax number. (Id. at 2-10.) No fax confirmation sheet is provided, nor is any indication that the fax was ever received by the IRS, entered into the Certificate of Assessments, Payments, and Other Specified Matters transcripts (see, e.g., Trial Ex. 8), or otherwise acknowledged, processed or acted upon by the IRS. The transcripts do detail Collection Due Process (CDP) matters including timely request for hearing, issuances of notice determination, levy notice, and notice of lien filed. (Trial Ex. 8 at 2-3; see Trial Ex. 52; see also Trial Ex. 53.) On February 18, 2008, a delegate for the Secretary of the Treasury ("Secretary") made TFRP assessments against Mr. Witkemper for the trustfund portion of the unpaid employment taxes of Maximum Spindle. (Form 4340, Trial Ex. 8 at 3, 18, 24, 29, 33.)

17. That is, the portion of the unpaid employment taxes representing the employees' share of employment taxes and income taxes withheld from employees' wages.

18. The TFRP assessments were for the tax periods ending on June 30, 2005; December 31, 2005; March 31, 2006; June 30, 2006; and September 30, 2006. (Id.; see Report of Business's Unpaid Tax Liability, Trial Ex. 42 at 11; Trial Ex. 11 at 20.) The IRS sent statutory notice of the balances due and demand for payment to Mr. Witkemper on February 18, 2008. (Form 4340, Trial Ex. 8 at 13, 20, 26, 30, 34.)

19. The TFRP liabilities for each of these periods remain unpaid. (Murray Decl. ¶ 6, Trial Ex. 9.)

20. As of August 24, 2020, Mr. Witkemper's TFRP liabilities for Maximum Spindle total $385,705.54. (Id.)

C. THE OFFER-IN-COMPROMISE

21. On August 5, 2008, the IRS processed an "Offer in Compromise" Form 656, from Mr. Witkemper. (Form 656, Trial Ex. 11 at 1-5; Trial Ex. 8 at 4, 19, 25, 29, 33.)

22. The form indicated, as is evident by Mr. Witkemper checking the TFRP box, that Mr. Witkemper submitted this offer-in-compromise ("OIC") for a "TrustFund Recovery Penalty as a responsible person of . . . 'Maximum

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