Opinion
Civil No. 00-2150 (JBS)
June 7, 2002
John R. Crayton, Esquire, Crayton Belknap, Moorestown, N.J., Attorney for Plaintiff.
Christopher J. Christie, United States Attorney, Louis Bizzarri, Assistant U.S. Attorney, Civil Division, Camden, N.J. and Dara B. Oliphant, Lawrence P. Blaskopf, Trial Attorneys, Tax Division, United States Department of Justice Washington, D.C., Attorneys for the United States.
Mr. Edward L. Trueblood, Esquire, Voorhees, N.J., Third-party Defendant pro se.
OPINION
This matter comes before the Court upon motion by third-party defendant Edward L. Trueblood, who appears pro se, for summary judgment against third-party plaintiff, the United States. In its third party complaint, the United States asserts that Mr. Trueblood failed to collect, account for, and pay over income and employment taxes of IE, Inc., rendering him liable for a penalty equal to the total amount of the tax not collected, or a Trust Fund Recovery Penalty ("TFRP"). Mr. Trueblood argues that the IRS failed to provide the 60-day preliminary notice as required under 26 U.S.C. § 6672(b)(1) (2), thus prohibiting the IRS's assessment of the TFRP to Mr. Trueblood, and, further, that he is not a "responsible person" as defined in the Internal Revenue Code, 26 U.S.C. § 6672, and should therefore not be held liable for IE, Inc.'s nonpayment of taxes. For the reasons discussed below, third-party defendant's motion for summary judgment will be denied.
BACKGROUND
The underlying action arises out of plaintiff Daniel K. Scheingold's complaint against the United States, filed on May 4, 2000, for abatement of a penalty of $1,852,312 assessed against him for failure to collect, account for, and remit the employment taxes of IE, Inc. for the last three quarters of 1995, all four quarters of 1996, and the second and third quarters of 1997. (Scheingold Compl.) Plaintiff Scheingold also seeks judgment in the amount of $100, and attorney's fees and costs. (Id.) On October 6, 2000, the United States filed a counterclaim against Mr. Scheingold seeking outstanding tax liability in the amount of $1,883,307.95, plus statutory interest. (USA Answer Compl., at 5-6.)
On October 20, 2000, the United States filed a third-party complaint against Mr. Trueblood, asserting that he is liable for a penalty equal to the amount of tax not collected, accounted for, and paid over from IE, Inc., to the IRS. (USA Third Party Compl.) The United States seeks $100 in the event it is found liable to Mr. Scheingold, as well as $1,190,676.78, representing the amount "equal to the income and employment taxes which were required to be withheld from the wages of the employees of IE, Inc[.] for all four quarters of 1996 and the second quarter of 1997 that were not collected, accounted for or paid over when due." (Id. ¶ 8.) The United States also seek $17,479.92 in interest on the liability, assessed on March 29, 1999, for a total judgment of $1,208,156.70. (Id. ¶¶ 10, 18.) On November 26, 2001, Mr. Trueblood filed the instant motion for summary judgment against third-party plaintiff United States. On March 8, 2002, this Court heard oral argument.
The United States also filed a third-party complaint against third-party defendant IE, Inc., President John Orem on October 20, 2000.
DISCUSSION I. Summary Judgment Standard
A court may grant summary judgment only when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In deciding whether there is a disputed issue of material fact the court must view the evidence in favor of the non-moving party by extending any reasonable favorable inference to that party. See Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1080-81 (3d Cir. 1996); Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n. 2 (3d Cir. 1983), cert.denied, 465 U.S. 1091 (1984). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
Supreme Court decisions mandate that "the moving party may meet its burden on summary judgment by showing that the nonmoving party's evidence is insufficient to carry its burden of persuasion at trial." Brewer v. Quaker State Oil Refining Corp., 72 F.3d 326, 329-30 (3d Cir. 1995) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1987)). However, "the nonmoving party creates a genuine issue of material fact if it provides sufficient evidence to allow a reasonable jury to find for him at trial." Brewer, 72 F.3d at 330 (citing Liberty Lobby, 477 U.S. at 248). Once the moving party has carried its burden of establishing the absence of a genuine issue of material fact, "its opponent must do more than simply show that there is some metaphysical doubt as to material facts."Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Thus, if the non-movant's evidence is merely "colorable" or is "not significantly probative," the court may grant summary judgment.Liberty Lobby, 477 U.S. at 249-50.
II. Analysis
Third-party defendant Mr. Trueblood in his moving brief argues that the TFRP cannot be assessed against him because the United States failed to give him the 60-day preliminary notice as required under § 6672. Mr. Trueblood additionally argues that he is not a "responsible person" under § 6672 and therefore the TFRP cannot be assessed against him.
Mr. Trueblood further argues that because he was given no notice, no tax may be assessed against him because such action is out of the three-year statute of limitations provided under 26 U.S.C. § 6501(a). The statute of limitations in 26 U.S.C. § 6501(a), provides that "the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed . . . and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period." 26 U.S.C. § 6501(a). Because this Court precludes granting of summary judgment due to the existence of a genuine issue of material fact whether Mr. Trueblood received the notice, this argument need not be addressed.
A. 60-Day Notice under § 6672
In the instant matter, Mr. Trueblood argues that summary judgment should be granted because he "did not receive the 60-day preliminary notice before the assessment of the Trust Fund Recovery Penalty." Trueblood Br. at d; Trueblood Aff. ¶ 2. The government argues that it complied with the Internal Revenue Code procedures for sending out a 60-day notice and sent notice to Mr. Trueblood via certified mail. See Frank Decl. The Preliminary Notice Requirement under 26 U.S.C. § 6672(b) requires that "[n]o penalty shall be imposed under subsection (a) unless the Secretary notifies the taxpayer in writing by mail . . . or in person that the taxpayer shall be subject to an assessment of such penalty." 26 U.S.C. § 6672(b)(1). It further provides that "[t]he mailing of the notice described in paragraph (1) . . . shall precede any notice and demand of any penalty under subsection (a) by at least 60 days." 26 U.S.C. § 6672(b)(2).
Mr. Trueblood does allege that he received a preliminary notice regarding a pending assessment for a related company, Street Holding Company. Street Holding Co. Notice, Trueblood Br. Ex. 1.
26 U.S.C. § 6672(a) provides that
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.26 U.S.C. § 6672(a).
Mr. Trueblood asserts that the notice of deficiency was not sent by certified or registered mailing to the taxpayer's last known address as required under Delman v. Comm'r of Internal Revenue, 384 F.2d 929 (3d Cir. 1967), cert. denied, 390 U.S. 952 (1968), and D'Andrea v. Comm'r of Internal Revenue, 263 F.2d 904 (D.C. Cir. 1959). The Third Circuit inDelman expanded on the "last known address" requirement of 26 U.S.C. § 6212(b), not the provision regarding certified or registered mail. Subsection (b) of § 6212 provides that "notice of a deficiency in respect of a tax imposed . . ., if mailed to the taxpayer at his last known address, shall be sufficient. . . ." 26 U.S.C. § 6212(b)(1). The Delman court affirmed the tax court's dismissal of taxpayers' petition for redetermination of income taxes as untimely, holding that subsection (b) of § 6212 is inapplicable because notice was sent by ordinary mail to taxpayers at the address of their attorney and by certified mail to their accountants, the addresses being those which taxpayers had used before and could reasonably be reached.
Section 6212 of the IRS Code provides that "[i]f the Secretary determines that there is a deficiency in respect of any tax imposed . . ., he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail ." 26 U.S.C. § 6212(a) (emphasis added).
Furthermore, the court expounded on the purpose of the notice of deficiency:
Its purpose is to notify the taxpayer that a deficiency has been determined against him. The mailing of a notice, unlike the filing of a complaint, does not commence an action in any court. It does not subject the taxpayer to the jurisdiction of the Tax Court. It merely allows the taxpayer, if he so desires, to commence an action in the Tax Court within the statutory period. . . . Where, however, the notice is mailed to a correct, albeit not the last known address, and is received in a timely fashion by the taxpayer or his authorized agent, no statutory scheme or purpose would thereby be violated. The purpose of the notice has been served when it is actually received.Delman , 384 F.2d at 933-34 (citations omitted).
The principle of Delman is inapplicable here, where the accuracy of Mr. Trueblood's address was never in question. Mr. Trueblood's argument instead implicates subsection (a) of § 6212, which refers to the certified mailing method by which the Secretary "is authorized to send notice of deficiency." 26 U.S.C. § 6212(a). The Third Circuit inBerger v. Commissioner of Internal Revenue specifically considered whether notice by regular mail satisfied § 6212. Berger v. Comm'r of Internal Revenue, 404 F.2d 668, 675 (3d Cir. 1968) (holding that notices of deficiency sent by regular mail were "adequate and effective," and affirming the tax court's dismissal of taxpayers' petitions as untimely filed), cert. denied, 395 U.S. 905 (1969). The Third Circuit, noting that subsection (a) of § 6212 was changed from mandatory form to its present form in which the Commissioner "is authorized" to use registered or certified mail, specifically stated that Subsection (a) authorizes a notice of deficiency to be sent by registered or certified mail. In authorizing such method of notice it does not forbid any other method. If a revenue agent personally delivers by hand a notice of deficiency to the taxpayer it could not rationally be suggested that the notice was invalid because it violated a requirement of subsection (a). Id. at 673. Here, Mr. Trueblood's argument that the IRS violated the IRC because it did not send notice to him via certified or registered mail fails. Under the Internal Revenue Code, the IRS was "authorized" to do so, not required, as specified by the Third Circuit in Berger.
Mr. Trueblood alleges that Revenue Officer Frank D. Clark III's declaration "falsely alleges that the requisite notice was sent to [Mr. Trueblood] by certified mail." See Trueblood Sur-Reply Br. at 3. Under Berger , which does not require certified mailing, this allegation thus has no consequence.
Viewing the evidence in the light most favorable to the non-moving party, here the United States, and extending any reasonable favorable inference to it, the United States has proffered sufficient evidence that would allow a reasonable jury to find that Mr. Trueblood and Mr. Sapinski, Mr. Trueblood's attorney of record, received the notice of deficiency directed to Mr. Trueblood regarding IE, Inc. The United States proffers a letter addressed to the Internal Revenue Service in which Mr. Sapinski states, "Mr. Trueblood has forwarded to me a copy of your June 16, 1998 letter addressed to him proposing to assert the "Trust Fund Recovery Penalty" (IRC §§ 6671- 6672) against him with respect to employment taxes owed by IE, Inc. for the periods ended 3/31/96 through 6/30/97." Sapinski Letter, 7/15/98, USA Sur-Reply Br. Ex. 3. Subsequently, Mr. Sapinski sent a letter to the Internal Revenue Service in which he states, "Enclosed please find a Protest submitted on behalf of Mr. Trueblood disputing your proposed assertion of the Trust Fund Recovery Penalty against him with respect to I.E., [I]nc." Sapinski Letter, 8/20/98, USA Sur-Reply Br. Ex. 4. These letters strongly suggest that Mr. Trueblood received the notice of deficiency, and that he responded to it in the form of a protest. The IRS nevertheless did not accept the protest because it was received 2-3 days beyond the time in which to file a protest. See Trueblood Sur-Reply Br. at 3 Ex. 1.2 at ¶ 2; Clark Decl. ¶ 3. Mr. Trueblood's further efforts to appeal the denial of his protest demonstrates that Mr. Trueblood was indeed made aware of the notice of deficiency, but acknowledged that he was late in his response. Mr. Trueblood states that "[i]n spite [of Mr. Trueblood's] repeated request to IRS personnel for an Appeals conference . . . it was never granted." Trueblood Br. at d.
The reasonable inference from Mr. Sapinski's letter of July 15, 1998, is that his client, Mr. Trueblood, received timely notice of the IRS' deficiency claim, as required by 26 U.S.C. § 6672(b), on or about June 16, 1998. Indeed, given the IRS' records and Mr. Sapinski's written confirmation of such receipt of the IRS' letter from Mr. Trueblood, it is just about impossible to infer otherwise.
Accordingly, because the nonmoving party here has created a genuine issue of material fact, third-party defendant's motion for summary judgment will be denied on this ground.
Mr. Trueblood asserts in passing in his reply brief that the assessment notice did not sufficiently indicate the correct period for the assessment, nor the amount. The Court, noting the inconsistency of this contention in light of the argument that such notice was never received, will not address this argument due to the Court's conclusion that a genuine issue of material fact exists to preclude summary judgment on the notice issue.
B. Responsible Person under 26 U.S.C. § 6672
Mr. Trueblood chiefly argues that he is not a "responsible person" as defined under the Internal Revenue Code and therefore a Trust Fund Recovery Penalty ("TFRP") cannot be assessed against him. A responsible person, for purposes of § 6672, is one who is "required to collect, truthfully account for or pay over any tax due to the United States."United States v. Carrigan, 31 F.3d 130, 133 (3d Cir. 1994) (quotingBrounstein v. United States, 979 F.2d 952, 954 (3d Cir. 1992)). Responsibility is a matter of status, duty, or authority, not knowledge.Carrigan, 31 F.3d at 133 (quoting Quattrone Accountants, Inc. v. IRS, 895 F.2d 921, 927 (3d Cir. 1990)). "While a responsible person must have significant control over the corporation's finances, exclusive control is not necessary." Greenberg v. United States, 46 F.3d 239, 243 (3d Cir. 1994) (quoting Brounstein, 979 F.2d at 954). "A person has significant control if he has the final or significant word over which bills or creditors get paid." Carrigan, 31 F.3d at 133 (quoting Quattrone, 895 F.2d at 927). In determining whether an individual is a person responsible for paying over withholding taxes, courts consider the following factors:
(1) duties of the officer as outlined in the corporate by-laws;
(2) ability to sign checks on the company's bank account; (3) signature on the employer's federal quarterly and other tax returns; (4) payment of other creditors in lieu of the United States; (5) identity of the officers, directors, and principal stockholders in the firm; (6) identity of individuals in charge of hiring and discharging employees; and (7) identity of individuals in charge of the firm's financial affairs.Greenberg, 46 F.3d at 243-44 (citing Brounstein, 979 F.2d at 954-55).
Applying the foregoing principles to the instant case, the Court finds that there is a genuine issue of material fact concerning whether third-party defendant Mr. Trueblood had significant control over IE, Inc.'s financial affairs. Mr. Trueblood claims that he contracted with IE, Inc., to perform legal services in IE's ongoing relations with the IRS, see Trueblood Br. Ex. 6, was remunerated on a monthly basis pursuant to the legal services agreement with IE, Inc., and reported the same as such on his personal tax return. Mr. Trueblood was brought on to help with payroll tax issues of IE, as well as other financial aspects and accounting issues of the corporation, due to company president John Orem's stroke in July 1995. See Orem Depo. 5/23/01, at 15, 18, 29, USA Br. Attach.; Orem Depo. 8/2/01, at 8, USA Br. Attach.; Scheingold Depo. 4/26/01, at 48-49, USA Br. Attach.
Further, Mr. Trueblood states that he was never issued a W-2, which would have indicated that he was an employee of IE, Inc.
Although Mr. Trueblood asserts that he was neither an employee, officer, nor shareholder of IE, Inc., and had no duty that would result in the imposition of the TFRP, the evidence proffered suggests that Mr. Trueblood originally was corporate counsel, then became the Chief Financial Officer of IE, Inc. Deposition testimony by Chief Operating Officer Daniel Scheingold indicated that "[a]t first, [Mr. Trueblood] was the attorney with IE, Inc., and then eventually he became the CFO, Chief Finance Officer." Scheingold Depo. 4/26/01, at 15:17-19, USA Br. Attach. Scheingold's deposition testimony indicates that Mr. Trueblood was made the Chief Financial Officer of IE, Inc., in 1996. See id. at 42:25-43:11. Mr Scheingold testified further that when IE President John Orem informed him of Mr. Trueblood's new position, Mr. Orem told him that "[Mr. Trueblood] would be taking over the financial stuff of the corporation. . . . He would be in charge of taking care of the general ledger and making sure everything was in balance." Id. at 48:24-49:7. In addition, the United States provides a letter dated February 27, 1997, written by Mr. Trueblood, in which he states "I am the Chief Executive Officer for IE, Inc. and it has recently come to my attention that the program that was offered to and accepted by our company will not become effective as March 1, 1997 as was agreed upon." See Trueblood Letter, 2/28/97, USA Br. Ex. FF.
John Orem, President of IE, Inc., testified that Mr. Trueblood became CFO of IE in 1995. Orem Depo. 8/2/01, at 7. Caesar Foti, Controller of IE, Inc., although not aware of Mr. Trueblood actually becoming CFO or CEO, was aware of discussions regarding Mr. Trueblood assuming the title of CFO. Foti Depo. 8/8/01, at 52.
The Court notes that the time periods mentioned here, 1996 to at least March 1997, are compatible with the period of time for which the IRS seeks assessment, or "the quarters ended March 31, 1996 through June 30, [1997]," as indicated in the alleged Protest submitted on Mr. Trueblood's behalf in August 1998. See USA Br. Ex. D. See, e.g . , Vinick v. United States , 205 F.3d 1, 7 (2d Cir. 2000) ("Because the trial court made its findings of fact based on a misunderstanding of the legal standard for what constitutes a responsible person under § 6672 in that it considered Vinick's conduct over the entire period he was involved with Jefferson Bronze rather than his activities during the quarters in question, . . ., we do not defer to its conclusion that Vinick was a responsible party within the meaning of the statute.").
Under the second factor, it is unclear whether Mr. Trueblood had the ability to write company checks, although Mr. Trueblood, in dealing with the IRS, "had arranged for certain payment structures with the IRS agent." See Foti Depo. 8/8/01, at 15:14-15, USA Br. Attach. Deposition testimony of Caesar Foti, Controller of IE, Inc., indicates that he and Dan Scheingold had access to the company's checkbooks, and that Dan signed all of the checks. See id. at 17:18-19. In addition, IE President John Orem testified that Mr. Trueblood was not a signatory on any of the company's bank accounts, see Orem Depo. 8/2/01, at 52:3-5, USA Br. Attach., and Mr. Scheingold testified that Mr. Trueblood did not have authorization to call the bank to inquire about the company bank accounts. See Scheingold Depo. 4/26/01, at 89:13-24, USA Br. Attach. Although Mr. Trueblood argues that he was never involved with the payment processes or decisions regarding payment to creditors, the United States asserts that Mr. Trueblood directed Mr. Scheingold to make payments to various creditors, including tax payments to the IRS beginning in 1996.See USA Br. at 11; Scheingold Depo. at 71-72, USA Br. Attach. Specifically, the deposition testimony indicates that Mr. Trueblood directed Mr. Scheingold to make $100,000 payments to the IRS in 1996.See Scheingold Depo. at 71-72, USA Br. Attach.
As for the third factor, Mr. Trueblood was involved in the preparation and filing of the company's payroll tax returns and was responsible for ensuring that the payroll tax deposits were made. See id. at 15-16, 18, 21. Although Mr. Trueblood asserts that he did not sign any tax returns, IE's tax returns were signed by John Orem and bore the identification and signature of Mr. Trueblood as the preparer. See IE Tax Return, Trueblood Br. Exs. 5 5b.
Mr. Trueblood also maintains that he did not have the ability to hire or fire, and that he merely participated in the preliminary interview of one employee, but had no authority to extend an offer of employment. Mr. Scheingold testified that Mr. Trueblood hired Mr. Foti as Controller of the company, as well as the other accountant of the company. See Scheingold Depo. 4/26/01, at 103-04, USA Br. Attach. In addition, Mr. Scheingold testified that Mr. Trueblood fired another accountant named "Eves." Id. at 104.
Viewing the evidence in the light most favorable to the non-moving party, here the United States, and extending any reasonable favorable inference to that party, this Court finds that reasonable finders of fact could find Mr. Trueblood to have maintained significant control over the financial affairs of IE such that he would be deemed a responsible person under § 6672 for the relevant quarters. Considering the factors for determining the "person responsible" under § 6672, Mr. Trueblood was brought on to help IE institute a payment structure to the IRS, and directed others in the company to make payments to the IRS. He may also have held the title of Chief Financial Officer, and he referred to himself as "Chief Executive Officer." There is no indication, however, that Mr. Trueblood wrote checks to pay other creditors while knowing that tax liabilities to the United States remained unpaid. On the other hand, while Mr. Trueblood did not appear to have check-signing capability, as Chief Financial Officer of IE, he was in charge of the financial affairs and accounting issues of the company. Cf. Greenberg, 46 F.3d at 243-44 (holding that taxpayer who was in charge of the accounting department, an authorized signatory on all corporate checking accounts, and determined which creditors should be paid, is a responsible person); Quattrone, 895 F.2d at 927 (concluding that debtor who had significant control over finances, had authority to pay monthly bills without prior approval, and provided daily financial advice to company is a responsible person). In such a capacity and having such a knowledge of the company's finances, it is possible that Mr. Trueblood could have directed or advised Mr. Foti or Mr. Orem to write checks to other creditors, keeping in mind the payment structure he had instituted with the IRS. In addition, a previous IE tax return did bear Mr. Trueblood's signature and information as the preparer of the form. Cf. Carrigan, 31 F.3d at 133 (holding that district court erred in granting summary judgment to government when officer was not responsible for financial affairs of company, did not have access to corporate books, and did not prepare or sign any company tax returns) . Furthermore, as for Mr. Trueblood's capability to hire and fire employees, he fired an employee and participated in an employee hire interview, which he asserts was taken under the direction of Mr. Orem, who had been physically weakened by a stroke. Such action indicates that he had some meaningful degree of control within the company.
Accordingly, because there is a genuine issue of material fact regarding whether Mr. Trueblood was a responsible person under § 6672, this Court will deny summary judgment on this ground.
CONCLUSION
For the reasons discussed above, the Court will deny third-party defendant Edward Trueblood's motion for summary judgment against the United States. The accompanying Order is entered.
ORDER
THIS MATTER having come before the Court upon third-party defendant Edward L. Trueblood's motion for summary judgment against third-party plaintiff United States; and the Court having considered the parties' submissions; and the Court having heard oral argument on March 8, 2002; and for the reasons stated in the Opinion of today's date; and for good cause shown;
IT IS on this day of June, 2002, hereby
ORDERED that third-party defendant Edward L. Trueblood's motion for summary judgment [Docket Items 18 19] be, and hereby is, DENIED .