United States District Court, D. Idaho
WILLIAM R. SHORE, Plaintiff,
UNITED STATE OF AMERICA, (Internal Revenue Service) Defendant.
MEMORANDUM DEICISION AND ORDER
EDWARD J. LODGE, District Judge.
Plaintiff filed this action after paying the amount allegedly due under a trust fund recovery penalty for unpaid payroll withholding taxes for Bear River Equipment, Inc. ("BRE"), assessed against him pursuant to 26 U.S.C. § 6672. Plaintiff seeks a refund of employee payroll taxes and penalties he was required to submit for seven tax periods in 2006 and 2007. This matter is before the Court on the Motion for Summary Judgment filed by Defendant United States of America. (Dkt. 20.)
The parties have submitted their briefing on the motion and the matter is now ripe for the Court's review. Having fully reviewed the record herein, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, the motions shall be decided on the record before this Court without oral argument. For the following reasons, the Court will grant Defendant's motion for summary judgment.
Plaintiff William Shore ("Shore") owned real property (the "property") he leased to Countryside Repair & Equipment ("Countryside"), a farm equipment seller, until late 2004, when Countryside closed. At the time Countryside ended its lease with Shore, a representative for McCormick Tractors, a line of tractors sold by Countryside, proposed that Shore start his own business on the property and become a McCormick dealer. Shore was initially uninterested in starting a business because he was retired and lived far away from the property. The McCormick dealer then suggested the manager of Countryside, Tom Lewis ("Lewis"), had 25 years of experience buying and selling tractors, and could run the business for Shore.
Shore met with Lewis and ultimately decided to form BRE. Shore and Lewis verbally agreed that Lewis would run the business and would have the option to purchase the business at any time by repaying Shore's initial $150, 000 investment in the company with interest. Although they did not sign any agreements or formally memorialize any terms, both Shore and Lewis believed that Lewis would eventually purchase BRE.
Pursuant to their verbal agreement, Shore hired Lewis to manage every aspect of the business, including day to day operations, financial management, purchasing of product lines, paying all of BRE's bills, and other duties required to run an equipment sales business. Lewis was responsible for supervising, hiring and firing employees, as well as for submitting all tax forms for BRE and paying its payroll taxes. Shore viewed his role in BRE as an investor, and essentially treated the company as if it belonged to Lewis. Lewis and his wife, Maureen Lewis, also treated BRE as their own company, and held themselves out to others, such as an accountant they hired to work for BRE, as the owners of the company. However, Lewis never exercised the option to purchase BRE.
While Shore played a very limited role in the operation of BRE, he signed the Articles of Incorporation as President of BRE, owned all of the shares in BRE,  signed various contracts on behalf of BRE as its president,  and personally guaranteed an operating line of credit eventually obtained by BRE from Ireland Bank. Shore had telephone calls with Lewis once or twice a month to discuss operations at BRE,  and made quarterly visits to BRE to check inventory and generally assess the business.
Shore also reviewed balance sheets and annual statements Lewis sent him for BRE. Prior to incurring the payroll tax liability at issue in this suit, Shore noticed and directed Lewis to satisfy unpaid payroll obligations from 2005. Shore ensured Lewis paid the payroll obligations from 2005 by the January 2006 deadline. Finally, Shore had authority to sign checks on the Ireland Bank account, though he did not write any checks on the account, and was listed on the Ireland Bank check signature card as "owner" of BRE.
In August 2007, Shore received notice from an Internal Revenue Service Agent that there were some serious issues with BRE's employment taxes for 2006 and 2007. This notice was the first time Shore became aware that BRE's 2006 and 2007 payroll taxes had not been paid. Shore subsequently learned that Lewis had been embezzling from BRE, failing to pay creditors or pay BRE's taxes, and stealing BRE's assets. Upon discovering Lewis' fraud, Shore fired Lewis and took over management of BRE. Shore ultimately decided to close BRE because he believed he could not pay all of the liabilities and contribute sufficient working capital to keep the company going. Before closing the company, however, Shore allowed more than $120, 000 from BRE's checking accounts to be paid to unsecured creditors other than the United States. Although Shore believed he should not be held liable for BRE's unpaid payroll taxes because he was not a responsible party and did not willfully ignore tax obligations, Shore ultimately paid $101, 583.09 in trust fund recovery penalties to the United States, and later filed the instant suit to obtain a refund.
A. Standard of Review
Summary judgment is appropriate where a party can show that, as to any claim or defense, "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). One of the principal purposes of the summary judgment rule "is to isolate and dispose of factually unsupported claims or defenses." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). It is not "a disfavored procedural shortcut, " but is instead the "principal tool by which factually insufficient claims or defenses [can] be isolated and prevented from going to trial with the attendant unwarranted consumption of public and private resources." Id. at 327.
"[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). Material facts are those "that might affect the outcome of the suit." Id. at 248. "Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." T.W. Elec. Serv., Inc. v. P. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987).
The moving party is entitled to summary judgment if that party shows that each material fact cannot be disputed. To show that the material facts are not in dispute, a party may cite to particular parts of materials in the record, or show that the adverse party is unable to produce admissible evidence to support the fact. Fed.R.Civ.P. 56(c)(1)(A) & (B). If the moving party meets its initial responsibility, then the burden shifts to the opposing party to establish that a genuine dispute as to any material fact actually does exist. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). When making the summary judgment determination, the court must view the evidence, and all justifiable inferences from the evidence, in the light most favorable to the non-moving party. T.W. Elec. Serv., Inc., 809 F.2d at 630-31.
B. Liability under 26 U.S.C. § 6672
The Internal Revenue Code requires employers to withhold federal income and social security taxes from the wages of their employees. See 26 U.S.C. §§ 3102(a), 3402(a). The employer holds the withheld taxes "in trust" for the United States and must pay them over to the government on a quarterly basis. 26 U.S.C. § 7501(a). The withheld amounts are known as trust fund taxes. Davis v. United States, 961 F.2d 867, 869 (9th Cir. 1992). If an employer withholds the taxes from its employees but fails to remit them, the government must nevertheless credit the employees for having paid the taxes, and seek the unpaid funds from the employer. Id. Under 26 U.S.C. § 6672(a), the IRS may assess a 100% penalty on responsible persons who willfully fail to collect, account for, and pay over the taxes to the United States. United States v. Jones, 33 F.3d 1137, 1138 (9th Cir. 1994).
In order for the United States to assess the 100% penalty under § 6672, two requirements must be met: (1) the party assessed must be a "responsible person, " i.e., one required to "collect, truthfully account for and pay over the tax, " and (2) the party assessed must have "willfully refused to pay the tax." Id. at 1139. The individual against whom an assessment is made "bears the burden of proving by a preponderance of the evidence that one or both [of the elements of responsibility and willfulness] is not present." Id. (quoting Hochstein v. United States, 900 ...