The opinion of the court was delivered by: MILTON I. SHADUR
This action has followed the typical pattern of cases that deal with the imposition of individual penalties under 26 U.S.C. § 6672(a),
arising out of a corporate employer's failure to pay withholding taxes to the United States:
1. Robert Anderson ("Anderson") originally paid a small portion of the assessed penalty and has sued for refund of that amount, conferring District Court jurisdiction under 28 U.S.C. § 1346(a)(1).
2. In addition to answering Anderson's Complaint, the United States filed a counterclaim against Anderson for recovery of the rest of the penalty assessment (which aggregates $ 117,631.74)--see also the jurisdictional provision of Section 7402(a).
At issue in the case is whether, during the calendar quarters at issue (those ended June 30, September 30 and December 31, 1986), Anderson (then the President and a 50% shareholder of the employer, Diamond Limousine Manufacturing Corporation ("Diamond")) and Pusateri (then Diamond's Vice-President and 50% shareholder) were "responsible persons"
under Section 6672(a) so as to be liable when Diamond did not pay the withheld taxes.
Following the parties' joint submission of a proposed Final Pretrial Order ("FPTO") to provide the backdrop for trial of the case, the United States announced its intention to file a motion in limine to bar certain evidence as inadmissible. After considerable tugging and hauling, the parties have also filed a stipulation of agreed facts calculated to focus the issues posed by the motion in limine. That motion has now been fully briefed, and this opinion explains the reasons for granting the motion.
It is undisputed that Diamond failed to pay over the withheld employment taxes (income taxes and social security taxes) in the manner required by statute for the calendar quarters at issue. And at least for current purposes, it may be assumed that both Anderson and Pusateri were responsible persons as to Diamond throughout that period.
In any event, there is no question that Diamond's continued operation during that period involved the payment of other obligations to other creditors--that is, Diamond's funds were used to finance its operations and not to lodge the withheld taxes with the United States.
What instead serves as the predicate for Anderson's claim and for the Anderson-Pusateri defense to the United States' Counterclaim and Crossclaim--the evidence that the United States seeks to bar via its motion in limine--stems from events after Diamond had paid the wages to its employees and had withheld from those payments the employment taxes that were not thereafter turned over to the government. Toward the end of the third of the three calendar quarters (in December 1986) Diamond had something over $ 250,000 in its checking account, but its bank latched onto those funds to pay Diamond's bank indebtedness in that month.
With Diamond thus placed in deep financial distress, it entered into an agreement on December 23, 1986 to sell its assets to newly-formed Sterling Limousine Manufacturing Corporation ("Sterling"). As part of that transaction Sterling agreed to assume Diamond's unpaid withholding taxes in an amount not to exceed $ 180,000. After Sterling took over, discussions ensued between Sterling and the Internal Revenue Service, but the United States would not accede to Sterling's proposed limitations on its rights to collect the taxes. Consequently the transaction ultimately unraveled, with the amount now at issue still unpaid.
"Responsible Person" Liability
To protect the fisc against losses if employers fail to remit those trust fund taxes to the government, Section 6672(a) provides another source of responsibility--the persons who are required to collect and pay over for the employers. And Section 6671(b) defines a "person" for that purpose as "including an officer or employee of a corporation. . .who as such officer [or] employee. . .is under a duty to perform the act in respect of which the violation occurs." Section 6672(a) ...