Opinion
Case No. 3:01-CV-2046-M
June 12, 2002
MEMORANDUM OPINION AND ORDER
Before the Court is the Plaintiff's Motion for Summary Judgment filed November 14, 2001. The Court also considers sua sponte a partial summary judgment in favor of the Defendant, after providing notice to both parties of its intention to do so. The Court finds there is no material question of fact regarding the validity of the assessment made by the Defendant against Plaintiff pursuant to § 6672 of the Internal Revenue Code. Finding the assessment valid, the Court DENIES the Plaintiff's Motion for Summary Judgment and GRANTS partial summary judgment in favor of the Defendant on this issue. This disposition does not resolve the issue of whether Plaintiff was a responsible person for the underlying taxes.
FACTUAL SUMMARY
Ragnar Pettersson ("Plaintiff") was an investor in International Aviation Services, Ltd. ("LAS"), and served as the Chairman of the Board of Directors for the corporate general partner of LAS. The company's financial position began to deteriorate in 1996. When the company filed for bankruptcy in October 1997, more than a million dollars in outstanding employment taxes were apparently owed.
The Internal Revenue Service ("IRS") determined that Plaintiff was a responsible person under § 6672 and therefore liable for a penalty for nonpayment of the outstanding taxes. By certified letter dated April 17, 2000, the IRS attempted to notify Plaintiff of a Proposed Assessment of Trust Fund Recovery Penalty for the outstanding employment taxes due for LAS in the amount of $1,392,455. The notice included Form 2751, which provides a breakdown of the tax periods from December 1996 to June 1998, including the amount of tax outstanding for each period. Plaintiff never claimed the letter and it was returned to the IRS. On June 20, 2000, a Trust Fund Recovery Penalty was assessed against Plaintiff for $1,392,455. This penalty is the same amount as the total tax liability for employment taxes owed by LAS.
The IRS prepared several documents in connection with the penalty assessment. On April 17, 2000, a Recommendation for Trust Fund Recovery Penalty Assessment (Form 4183) was prepared, which describes the applicable tax periods, by quarter, from December 1996 through June 1998. On June 20, 2000, the IRS prepared a Request for Trust Fund Recovery Penalty Assessment (Form 2749), which also shows the tax periods by quarter, and the amounts owed for each. Three other documents, the Request for Quick or Prompt Assessment (Form 2859), the Certificate of Assessments and Payments (Form 4340), and the Notice of Tax Due on Federal Tax Return (Form 3552), were prepared in conjunction with the penalty assessment, but the amount due is not broken down by quarter on such forms. Instead, June 1998 is the period shown on each form, and the full amount of $1,392,455 is listed for that period instead of by the various quarters that preceded it. The Summary Record of Assessments (Form 23C) does not include a reference to the applicable tax period.
On February 21, 2001, Plaintiff paid $1000 to the IRS and simultaneously filed a Claim for Refund and Request for Abatement (Form 843). In the Request, Plaintiff cited December 1996 to June 1998 as the applicable tax period and argued he was not liable because he did not meet the statutory definition of a "responsible person." On March 5, 2001, the Plaintiff's Claim and Request was denied by the IRS.
On May 2, 2001, Plaintiff filed a second Claim for Refund and Request for Abatement. In that claim, Plaintiff cited Form 3552 and Form 2859 as establishing that June 1998 was the tax period for which Plaintiff was assessed, and challenged the assessment as invalid because no outstanding employment taxes were due for the tax quarter ending June 1998. On June 18, 2001, the Plaintiff's second Claim and Request was denied by the IRS. On October 11, 2001, Plaintiff filed this action.
ANALYSIS
The Plaintiff claims the assessment against him is invalid for failure to identify a period for which he is liable for outstanding taxes. In Stallard v. United States, the Fifth Circuit held an assessment invalid for failure to identify an appropriate tax period because "[t]he predicate for that assessment — a reference to a tax period for which [plaintiff] was liable — [was] missing." 12 F.3d 489, 495 (5th Cir. 1994). According to Plaintiff, the Stallard decision is dispositive on the validity issue before the Court. The Court cannot concur. The facts of the present case are distinguishable from Stallard.
Before imposing liability under § 6672, the IRS must properly assess the penalty against a party, and the assessment must correctly identify the tax period for which the assessment is made. Stallard, 12 F.3d at 493-95. None of the assessment documents in Stallard did that. In this case, the assessment against Plaintiff was created on June 20, 2000, when the IRS issued a Summary Record of Assessment (Form 23C). The requirement of the Internal Revenue Code is that "[t]he summary record, through supporting records . . . provide identification of the taxpayer, the character of the liability assessed, the taxable period, if applicable, and the amount of the assessment . . ." Treas. Reg. § 301.6203.1 (emphasis added). Although the Treasury Regulations are silent on the issue of what documents may be considered supporting records, judicial gloss guides the Court's analysis.
In United States v. McCallum, the Fifth Circuit held that if the summary record is properly supported by Form 4340, then the assessment is presumptively valid. 970 F.2d 66, 71 (5th Cir. 1992). The Form 4340 prepared in connection with the assessment in this case identifies the applicable assessment period as the period ending June 30, 1998, a period during which no new tax liability accrued.
However, this does not end the Court's inquiry. In United States v. Watson, the court sanctioned the use of alternative documents as the "supporting records" necessary to validate an assessment. 102 F. Supp.2d 351, 355 (S.D. Tex. 1999). The Watson court considered the document prepared by the IRS recommending the assessment as proof of the IRS's intent to assess the taxpayer for five tax quarters, rather than the single tax quarter referenced on Form 4340. Thus, under the reasoning in Watson, Form 4340 alone does not control in this instance. Instead, other supporting documents are relevant in the determination of whether a valid assessment was made.
Here, the Court finds the necessary predicate required by the Stallard decision was established by supporting documentation prepared both contemporaneously with and after the assessment was made. Contemporaneously with the assessment, the IRS prepared Form 2749 (Request for Trust Fund Recovery Penalty Assessment), dated June 20, 2000, which breaks down the assessment by quarter from December 1996 through June 1998, and correctly identifies the tax quarters for which Plaintiff is liable. Further, by letter dated March 5, 2001, the IRS responded to Plaintiff's first Claim for Refund, and identified December 1996 to June 1998 as the applicable assessment period. Thus, post-assessment correspondence with the Plaintiff also identified a period of assessment including tax quarters for which Plaintiff is liable. In combination, this documentation sufficiently identifies the IRS's intent to assess Plaintiff for tax liability that accrued during multiple tax quarters from December 1996 through September 1997.
The district court in Stallard refused to consider the information included in Form 2749 as relevant to the determination of the applicable tax period because the document was prepared before the assessment was made against the taxpayer. Stallard v. United States, 806 F. Supp. 152, 159 (W.D. Tex. 1992). The Court of Appeals did not address that issue. Here, Form 2749 and the assessment were both made on June 20, 2000.
While Plaintiff urges the Court to only consider documentation prepared contemporaneously with the assessment to determine the period for which the assessment is made, the Stallard decision clearly indicates that post-assessment documentation may also be considered. 12 F.3d at 493-94. In Brafman v. United States, 384 F.2d 863 (5th Cir. 1967), the Fifth Circuit held that the "assessment certificate" must be timely signed by the appropriate official within the limitations period; however, in Stallard, the Fifth Circuit clarified that the "assessment certificate" refers only to the summary record creating the assessment. 12 F.3d at 493. The Fifth Circuit noted, "to extend Brafman to require that the supporting record must also be prepared within the prescriptive period would place Brafman in direct conflict with the plain language of [the applicable Treasury Regulation]." Id. at 494.
In allard, the IRS failed to offer any documentation, either prepared contemporaneously with the assessment or following the assessment, that identified a tax period for which the Plaintiff was liable. Stallard, 806 F. Supp. 152, 159. The lack of documentation was particularly troublesome to the court because the plaintiff "did not `lay behind the log' waiting for the limitations period to expire and then claim no valid assessment had occurred." Id. Instead, the Stallard plaintiff went to great effort to resolve the matter, even agreeing to extend the statute of limitations period for the IRS after revealing to the IRS internal errors favorable to him. Id. In this case, in contrast, the Plaintiff did not even question the applicable time period for the assessment until his second claim for refund, having acknowledged the correct period in his initial claim. Quite simply, the facts before the Court are quite different from those found in Stallard.
CONCLUSION
The Court finds the IRS made a valid assessment against the Plaintiff pursuant to § 6672 of the Internal Revenue Code. Although the Certificate of Assessments and Payments (Form 4340) identifies a tax period for which no new tax liability accrued against Plaintiff, supporting documents prepared contemporaneously with the assessment and after the assessment verify an assessment against Plaintiff for the tax quarters ending December 31, 1996 through September 30, 1997, periods for which Plaintiff is liable. For all of the reasons stated above, the Court DENIES the Plaintiff's Motion for Summary Judgment and GRANTS partial summary judgment in favor of the Defendant that the Trust Fund Recovery Penalty assessment against Plaintiff is valid.