Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

McLean v. Dept. of Revenue

November 28, 2001

DANIEL MCLEAN, PLAINTIFF-APPELLEE AND CROSS-APPELLANT,
v.
THE DEPARTMENT OF REVENUE, DEFENDANT-APPELLANT AND CROSS-APPELLEE.



The opinion of the court was delivered by: Justice South

UNPUBLISHED

Appeal from the Circuit Court of Cook County. Honorable Alexander P. White, Judge Presiding.

Defendant, Illinois Department of Revenue, issued a notice of penalty tax liability for the period of March 1991 through April 1992, excluding May 1991, against plaintiff, Daniel McLean, the chairman and majority stockholder of Chicago Kitchen Corporation (Corporation), in connection with the Corporation's unpaid taxes, penalties and interest under section 13½ of the Retailers' Occupation Tax Act (ROTA) (Ill. Rev. Stat. 1991, ch. 120, par. 452½). Plaintiff divided his tax liability period into two periods, the first, covering the period between March 1991 and January 1992, and the second tax period covering February to April 1992. Defendant claimed taxes, penalties and interest in the amount of $200,000 for the first period and $80,000 for the second. On January 22, 1998, an evidentiary hearing was held before an administrative law judge. A recommendation for disposition was prepared, which defendant accepted on June 8, 1998, as the final administrative decision. Defendant issued a final assessment against plaintiff for $256,814.91. Plaintiff filed a complaint for judicial review of defendant's final assessment with an administrative appeal bond for the full amount of the final assessment.

The trial court reversed defendant's assessment against plaintiff for the first tax period, holding that plaintiff was not a "responsible person" who had acted "willfully" in failing to pay the Corporation's taxes. However, the trial court affirmed defendant's assessment for the second tax period. The trial court granted in part and denied in part credits that plaintiff claimed should have been set off against his outstanding tax liability and entered judgment against plaintiff for $70,874.72 representing unpaid taxes, interest and penalties due as of May 1, 2000, for the second tax period, less plaintiff's credits. On June 1, 2000, the trial court also granted plaintiff's motion to reduce the administrative appeal bond, reducing it to $75,000. Defendant and plaintiff filed their notices of appeal and cross-appeal.

Plaintiff has invested in numerous businesses varying in industry. The Corporation is one of the businesses in which he invested. Belmont Racine Building Materials (Belmont), another company which plaintiff invested in, is located next door to the Corporation. Plaintiff initially wanted to buy the Belmont building, but the owner would not sell the property unless plaintiff also purchased the business. Plaintiff bought the business only after presenting the opportunity to and hiring Robert Umans, his brother-in-law, to run Belmont. The purchase of Belmont occurred a year before the Corporation was incorporated.

On October 26, 1988, plaintiff owned 650 shares of the Corporation, Umans owned 300 shares, and David A. Grossberg owned 50 shares. Each of the shareholders made small contributions to the Corporation. Umans also obtained a $50,000 loan from Cosmopolitan Bank for operating expenses, which plaintiff co-signed. The Corporation sells kitchens at retail to homebuilders and homeowners. Belmont is an allied business. A group of investors, including plaintiff and Umans, owned the buildings that housed both the Corporation and Belmont.

Plaintiff was chairman of the board of the Corporation and its sole director; Paul Russo was its president; Umans was its vice president and secretary; Marilyn Walsh was its treasurer and controller; and Grossberg was its assistant secretary as well as the attorney who had incorporated both the Corporation and Belmont. Upon its incorporation plaintiff had been the Corporation's president. The Corporation's bookkeeper was Jennifer Teeter. The Corporation held annual meetings which were run by Grossberg.

Umans hired Russo, who handled the day-to-day operation of the Corporation. Russo later resigned at Umans' request, and Umans ran the day-to-day operations of the Corporation. Plaintiff never met Russo and was not consulted regarding his hiring or firing. On December 13, 1990, Umans became the president of the Corporation and joined plaintiff as a director. Umans retained his position as secretary, and Gary Holtz replaced Umans as the Corporation's vice president. Plaintiff remained chairman of the board, and Walsh and Grossberg retained their respective offices.

Umans and Teeter prepared and signed the Corporation's tax forms for the period March 1991 through January 1992. Umans and his bookkeeping staff turned in the results of the business to the Corporation's accounting firm, which prepared the income tax returns. Umans used the same accounting firm that he used for Belmont. He was also responsible for the Corporation's issuance of purchase orders, payments to the company's creditors, as well as interacting with the customers and suppliers of the company, and all other day-to-day operations. The Corporation's accounting firm also did work for plaintiff's other corporations. The firm mailed a copy of the Corporation's income tax returns to an accountant who worked for plaintiff. Plaintiff saw the prepared income tax returns and the Corporation's year end figures for the years 1989-90 in which the Corporation's business increased. Umans informed plaintiff of the increase in business. During 1989-90, plaintiff personally loaned the Corporation money at Umans' request. A bank loan was also obtained during this period. In late 1990, plaintiff told Umans that he could no longer lend financial assistance to the Corporation and that he could not become involved in the business of the Corporation due to other more involved investments. During this time, plaintiff had no day-to-day involvement with the Corporation, and at no time did he sign its tax forms, retailers' occupation tax or otherwise. As a director, plaintiff had a right to look at the Corporation's financial records but never intended to run Belmont or the Corporation. Prior to April 1992, plaintiff had seen neither the Corporation's sales tax returns nor the notices of tax deficiency that had been sent to the Corporation.

After one of plaintiff's other companies, Montana Homes Corporation, had purchased four kitchens from Canac Corporation of Canada (Canac), Canac's national sales manager approached plaintiff and Umans about using the Corporation as a distributor for Canac's kitchen cabinets. A distributorship agreement was signed. In February 1992, Canac mailed plaintiff a letter informing him that the Corporation was in default under the distributorship agreement for nonpayment of inventory received. Plaintiff spoke with Umans, who admitted that the Corporation was behind in paying its sales taxes, federal taxes, Canac, as well as its other suppliers. A meeting was held between plaintiff, Umans, and representatives of Canac, including its president, Carl Marcus, its vice president of operations, and Jeff Goldman. The Canac representatives stated that they wanted someone from Canac to operate the Corporation, otherwise they planned to terminate the distributorship agreement. Plaintiff and Umans agreed to Canac's terms, and Goldman stayed to operate the Corporation.

Goldman assessed the viability of the business during his time at the Corporation. He did not have signature authority for the Corporation, so he took all the documents that he wanted executed to Umans, who maintained responsibility for the checks and tax returns. Plaintiff would sign checks under Goldman's direction when Umans was unavailable, which he did in late January 1992 or early February 1992. Goldman, Umans and Teeter determined who the checks were written to and the amount. During this time, Goldman, Umans, Teeter and Walsh handled the day-to-day business of the Corporation. Umans continued to inform plaintiff of the extent of the Corporation's unpaid bills.

In April, Canac determined that the Corporation was not a viable business and terminated the distributorship agreement. Canac was the secured creditor of the Corporation with accounts receivable pledged to it. Canac took the accounts receivable and the books in exchange for its payables and cancelled the distributorship agreement.

Defendant raises several issues on appeal: (1) whether its decision that plaintiff failed to present sufficient evidence to rebut the presumption that he was a "responsible person" within the meaning of section 13½ of ROTA throughout both tax periods should be affirmed; (2) whether its decision that plaintiff failed to present sufficient evidence to rebut the presumption that he "willfully" failed to pay the Corporation's taxes within the meaning of section 13½ of the ROTA throughout both tax periods should be affirmed; and (3) whether the circuit court lacked authority to approve an administrative bond in an amount less than that of the final assessment.

On his cross-appeal, plaintiff raises the following issues: (1) whether defendant's decision and final assessment finding plaintiff to have "willfully" failed to pay taxes in accord with ROTA for the second tax period was clearly erroneous; and (2) whether the trial court erred ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.