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GITCHO v. UNITED STATES

July 27, 1995

B.C. GITCHO, Plaintiff and Counter-Claim Defendant
v.
UNITED STATES OF AMERICA, Defendant and Counter-Claimant, vs. JAMES G. SILL, Additional Counter-Claim Defendant.



The opinion of the court was delivered by: GERALD B. COHN

 Pursuant to 28 U.S.C. § 636(c), the parties have consented to final entry of judgment by a United States Magistrate Judge. An Order of Reference was entered by Chief Judge J. Phil Gilbert on November 15, 1993.

 Plaintiff, filed this cause of action pursuant to Title 28, United States Code § 1346 on August 13, 1991.

 Before the Court is defendant's Motion for Judgment as a Matter of Law, filed June 21, 1995, pursuant to Fed. R. Civ. P. 50, which the Court will construe as a Motion for Summary Judgment, pursuant to Fed. R. Civ. P. 56(b). The Court, at the request of the parties, will rule on this motion without hearing.

 The task before this Court is necessarily a limited one when ruling on a motion for summary judgment. It has been firmly established by the Seventh Circuit that a grant of summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Wainwright Bank and Trust Co. v. Railroadmens Federal Savings and Loan, 806 F.2d 146, 149 (7th Cir. 1986). Furthermore, to preclude summary judgment, the non-moving party must show the disputed fact to be outcome determinative under the applicable law. Id. at 149. However, the mere existence of a disputed fact is not, in and of itself, enough to withstand a motion of summary judgment. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). The Seventh Circuit clarified the standard further in Collins v. Associated Pathologists, Ltd.,

 
The existence of a triable issue is no longer sufficient to survive a motion for summary judgment . . . the test for summary judgment is whether sufficient evidence exists in the pre-trial record to allow the non-moving party to survive a motion for directed verdict.

 844 F.2d 473, 476 (7th Cir. 1988), cert. denied, 488 U.S. 852, 109 S. Ct. 137, 102 L. Ed. 2d 110 (1988). The burden is upon the moving party to show, on the basis of the pleadings and supporting documents, that there is no genuine issue of material fact in dispute. Rose v. Bridgeport Brass Co., 487 F.2d 804, 808 (7th Cir. 1973).

 On June 8, 1987, the plaintiff, B.C. Githcho, formed a corporation under Illinois law known as ACG development, Inc. The corporation was formed to develop and operate two Mazzio's Pizza Restaurants at the urging of counterclaim defendant, James G. Sill. In forming this corporation, the plaintiff was the sole incorporator, sole shareholder, registered agent and one of the directors. After incorporating, ACG Development established four bank accounts with the plaintiff as a signatory on each of the accounts.

 After forming the business, the plaintiff delegated day-to-day operation of the business to James G. Sill. Sill was delegated responsibility for hiring, firing and training of employees; handling all purchases; payments to suppliers and employees; cash management; paying taxes and filing tax returns. Despite delegating all these responsibilities, the plaintiff still retained final control of the corporation.

 Beginning in 1988, ACG Corporation incurred unpaid withholding tax liabilities for the second, third and fourth quarters. In 1989, ACG also failed to pay withholding taxes for the second, third and fourth quarters. Finally, ACG failed to pay the withholding taxes for the first quarter of 1990. According to records submitted to the Court, ACG failed to pay withholding taxes in the amount of $ 129,137.69.

 On October 27, 1989, the plaintiff met with a representative of the Internal Revenue Service, Brenda Boyer. During that meeting, the plaintiff was informed about ACG's outstanding employment tax liabilities. Plaintiff claims that Ms. Boyer stated the amount owed at the meeting as between $ 80,000 and $ 90,000 and that James Sill, as the manager of ACG would be liable for all employment taxes owed prior to the meeting on October 27, 1989.

 It is unquestioned that subsequent to the meeting of October 27, 1989, ACG continued to operate its pizza businesses. After that date, ACG received over $ 700,000 in gross receipts from November 1, 1989, through December, 1989, from pizza, beer and sandwich sales. During that same time period, ACG paid in excess of $ 130,000 dollars to other creditors despite the outstanding tax liabilities. As a result of the payment of other creditors in preference to the claims of the United States, the Internal Revenue Service assessed the plaintiff for the unpaid tax liabilities pursuant to 26 U.S.C. § 6672.

 A taxpayer is responsible within the meaning of § 6672 if he retains the power within the corporate structure for seeing that the withheld taxes are remitted to the Government. Monday v. United States, 421 F.2d 1210, 1214 (7th Cir. 1970). Authority turns on the scope and nature of an individual's power to determine how the corporation conducts its financial affairs; the duty to ensure that withheld employment taxes are paid overflows from the authority that enables one to do so. See United States v. Running, 7 F.3d 1293 (7th Cir. 1993); Bowlen v. United States, 956 F.2d 723, 728 (7th Cir. 1992); Purdy Co. of Ill. v. United States, 814 F.2d 1183, 1188 (7th Cir. 1987). See also, Raba v. United States, 977 F.2d 941, 943 (5th Cir. 1992).

 The existence of such authority, irrespective of whether that authority is actually exercised, is determinative. Muck v. United States, 3 F.3d 1378 (10th Cir. 1993); Kizzier v. United States, 598 F.2d 1128, 1132 (8th Cir. 1979). Similarly, an otherwise responsible person does not avoid liability under section 6672 by delegating his authority to another. Bowlen, supra; E.g. Thomsen v. United States, 887 F.2d 12, 17 (1st Cir. 1989); Kizzier, supra ...


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