The opinion of the court was delivered by: Will, District Judge.
In 1972, defendant, Associates Capital Corporation
(hereinafter "Associates"), first began advancing money to Dot
Engravers, Inc. (hereinafter "Dot") pursuant to a continuing
accounts receivable financing agreement. Under that
arrangement Associates advanced Dot cash equal to a fixed
percentage of the face amount of Dot's accounts receivables,
taking in return such receivables as collateral.
Having encountered severe financial difficulty by mid-1974,
Dot, on September 14, 1974, entered into two contracts with
Color Associates (hereinafter "Color"), a company which, like
Dot, was engaged in the graphic arts business. Under these
contracts Color took over complete control of the management
of Dot and also loaned Dot $50,000. Pursuant to the management
agreement Color basically directed the affairs of Dot until
the end of October 1974, when, despite the fact that the
management agreement technically remained in force, Color
ceased its active role in the management of Dot.
Following Color's departure, Dot's former management resumed
managing the operations of Dot. Associates subsequently
stopped advancing the funds to Dot, which ceased operations
and filed a voluntary petition in bankruptcy under Title 11 of
the United States Code on December 19, 1975. An adjudication
of bankruptcy was made by the Court on March 13, 1976.
On December 22, 1975, the United States made an assessment
against Dot for its failure to pay over withheld federal
income taxes and Federal Insurance Contribution Act taxes for
the third quarter of 1975 (July 1, 1975 to September 30,
1975). On March 15, 1976, the United States made a further
assessment against Dot for its failure to pay over to the
United States such taxes for the fourth quarter of 1975
(October 1, 1975 to December 31, 1975). Dot was properly
given, in a timely manner by the Internal Revenue Service,
formal notice and demand for payment of such taxes.
On March 8, 1982, the United States first commenced action
against Associates with regard to the still outstanding
balance due (plus interest) which Dot failed to pay the
government, alleging liability against Associates pursuant to
§ 3505(b) of the Internal Revenue Code of 1954, as amended. The
United States brought the instant action against the defendant,
alleging that the defendant advanced funds to Dot during this
period with the knowledge that Dot would not pay the employment
taxes.
The defendant has now filed a motion to dismiss this action
for the reasons that the defendant was given no formal notice
with respect to this liability and that the statute of
limitations has allegedly expired on the liability relating to
the third quarter of 1975. The United States opposes this
motion.
II. NOTICE UNDER SECTION 6303
Defendant's first contention is that the government's
failure to provide it with notice under section 6303(a) of the
Internal Revenue Code and the applicable regulations of the
assessment made against Dot on December 22, 1975 covering
Dot's failure to pay withheld federal income taxes and
F.I.C.A. taxes for the third and fourth quarters of 1975
precludes this action to recover the tax imposed by section
3505(b). Sections 3505(b) and 6303(a) provide:
"SEC. 3505. LIABILITY OF THIRD PARTIES PAYING OR
PROVIDING FOR WAGES.
(b) Personal Liability Where Funds Are Supplied.
— If a lender, surety, or other person supplies
funds to or for the account of an employer for the
specific purpose of paying wages of the employees
of such employer, with actual notice or knowledge
(within the meaning of section 6323(i)(1)) that
such employer does not intend to or will not be
able to make timely payment or deposit of the
amounts of tax required by this subtitle to be
deducted and withheld by such employer from such
wages, such lender, surety, or other person shall
be liable in his own person and estate to the
United States in a sum equal to the taxes (together
with interest) which are not paid over to the
United States by such employer with respect to such
wages. However, the liability of such lender,
surety, or other person shall be limited to an
amount equal to 25 percent of the amount so
supplied to or for the account of such employer for
such purpose.
(c) Effect of payment. — Any amounts paid to the
United States pursuant to this section shall be
credited against ...