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Wells v. United States

October 21, 2009


The opinion of the court was delivered by: Hillman, District Judge


This case concerns the imposition of a penalty for unpaid payroll taxes owed to the United States of America. Presently before the Court is the motion of defendant/counter-claimant, the United States of America, for partial summary judgment on plaintiff's claims against it. For the reasons expressed below, defendant's motion will be denied.


Federal law requires an employer to withhold federal income and social security taxes from employee wages, and to pay those taxes to the United States Treasury. 26 U.S.C. §§ 3102(a), 3402(a)(1), 7501(a) (explaining that the withholding taxes are held in trust for the United States and must be paid over to the United States). If an employer does not pay the government those taxes, the government must still credit employees for the withholdings. The government, however, has no recourse against the individual employee who failed to make the payments. Therefore, in order to recoup the unpaid taxes, the government is permitted by statute to assess a penalty equal to 100% of the unpaid taxes against the individual responsible for collecting and paying the taxes. 26 U.S.C. §§ 6672, 7202. Here, plaintiff challenges the assessment of such a penalty against her.

From 1992 through 2007, plaintiff, Anne Wells, with her husband, W. Steven Wells, owned Wells Care, Inc., a provider of home health care services. Plaintiff, a registered nurse, owned fifty percent of the business and served as the company's vice-president. According to plaintiff, she handled the patient care aspect of the business, and her husband, who served as president, handled all the finances. In October 2007, the IRS assessed a penalty against plaintiff for her failure to collect, account for, and pay over employment taxes for the four tax periods between October 1, 2004 through September 30, 2005.

Plaintiff does not dispute that Wells Care, Inc. failed to make payroll tax deposits. Plaintiff, however, claims that the assessment of the penalty against her is improper because her husband was solely responsible for handling the business's finances, including the payment of payroll taxes, and that she did not know of his failure to do so until the spring of 2007. Further, she claims that even after she became aware of the delinquencies, she was assured by her husband that the tax issues were resolved, even though it turns out that they were not. She has filed this lawsuit against the United States to challenge the government's assessment of a penalty against her. In response, the United States has filed a counterclaim seeking to reduce plaintiff's tax liabilities to judgment. In its instant motion, the United States seeks judgment in its favor on plaintiff's claims.


A. Jurisdiction

Plaintiff brings her case pursuant to 26 U.S.C. § 6672, and jurisdiction is conferred upon this Court by 28 U.S.C. § 1346(a)(1).

B. Summary judgment standard

Summary judgment is appropriate where the Court is satisfied that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986); Fed. R. Civ. P. 56(c).

An issue is "genuine" if it is supported by evidence such that a reasonable jury could return a verdict in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if, under the governing substantive law, a dispute about the fact might affect the outcome of the suit. Id. In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party's evidence "is to be believed and all justifiable inferences are to be drawn in his favor." Marino v. Industrial Crating Co., 358 F.3d 241, 247 (3d Cir. 2004)(quoting Anderson, 477 U.S. at 255).

Initially, the moving party has the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met this burden, the nonmoving party must identify, by affidavits or otherwise, specific facts showing that there is a genuine issue for trial. Id. Thus, to withstand a properly supported motion for summary judgment, the nonmoving party must identify specific facts and affirmative evidence that contradict those offered by the moving party. Anderson, 477 U.S. at 256-57. A party opposing summary ...

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