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United States v. Grello

October 19, 2010


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


Before the Court are two Motions for Summary Judgment pursuant to Federal Rule of Civil Procedure 56(c) by the United States of America ("Plaintiff") and Joseph Grello and Darlene Grello*fn1 ("Defendants"). This Court has jurisdiction pursuant to 28 U.S.C. §§ 1340 and 1345 and pursuant to 26 U.S.C. § 7402. Venue is proper pursuant to 28 U.S.C. § 1396. The Motions are decided without oral argument pursuant to Federal Rule of Civil Procedure 78. For the reasons discussed below, Plaintiff's Motion for Summary Judgment is granted and Defendants' Motion for Summary Judgment is denied.


Defendant Joseph was the owner, president and sole officer of Icon Mechanical Inc. ("Icon"). (Ex. 504, J. Grello Dep., 10:15-24; 11:10-12:6.) As the sole corporate officer, Joseph testified that he was the only person who had the authority to write checks, pay the bills, pay taxes and pay creditors. (Id. at 21:22-25.) Pursuant to 26 U.S.C. §§ 3102 and 3401, Icon had an obligation to withhold income and social security taxes from its employees' wages ("trust fund taxes") and remit the withheld taxes to the United States Treasury. However, Plaintiff alleges that Joseph failed to remit the trust fund taxes for certain quarters. (Compl. ¶ 15.) During the relevant quarters at issue, Icon filed tax returns using Form 941 which indicated the amount Icon owed in taxes. (Exs. 201, 201(a).) As a result, Plaintiff assessed tax liabilities against Joseph pursuant to 26 U.S.C. § 6672. The quarters in question and the amounts assessed are:

Period EndingAssessment DateAssessment September 30, 2002October 4, 2004$6,521.55 September 30, 2002April 14, 2005$3,569.94 December 31, 2002*fn2April 14, 2005$2,977.84 June 30, 2003April 14, 2005$2,745.49 September 30, 2003October 4, 2004$10,120.10 September 30, 2003April 14, 2005$2,659.41 December 31, 2003October 4, 2004$250.35 March 31, 2004October 4, 2004$10,314.22 March 31, 2004April 14, 2005$2,696.03 June 30, 2004April 14, 2005$180.22 September 30, 2004April 14, 2005$1,474.99

(Compl. ¶ 11.) On July 6, 2004, Plaintiff sent a letter to Joseph notifying him of Icon's failure to pay the trust fund taxes. (Ex. 240.)*fn3 Joseph asserts that after he received the notice, he and his accountant met with two IRS agents and paid the taxes at issue. (Defs.' Statement of Facts ¶ 10.) However, other than this bare assertion, Defendants do not provide any evidence to support their assertion.

Subsequently, on January 28, 2005, Icon filed for bankruptcy. (Id. at ¶ 2.) At this time, Joseph's main asset was a house he co-owned with his wife, Darlene, valued at $700,000. (Ex. 504, J. Grello Dep., 106:14-107-1; Ex. 503, D. Grello Dep., 17:7-11.) Joseph admits that after Icon filed for bankruptcy, he made payments to some of Icon's creditors. The payments he made included: about $6,000 or $7,000 to suppliers, (Ex. 504, J. Grello Dep., 111:10-25); $1,200 to Johnstone Supply, (Id. at 114:4-14); and about $800 to Caldwell Plumbing. (Id. at 115:5-10.) Furthermore, he paid the balance of Icon's New Jersey payroll taxes. (Id. at 123:8-20.) As a result of Joseph's failure to pay the overdue trust fund taxes the IRS filed a Notice of Federal Tax Lien against Defendants' house on August 9, 2005, in the amount of $50,228.03.*fn4 (Ex. 500.)

The Sale of Joseph's Interest in the House

On April 6, 2005, Defendants refinanced their house and Joseph sold his interest in the house to Darlene for $1.00. (Ex. 226.) Darlene testified that other than the $1.00 no other consideration was given for the transfer. (Ex. 503, D. Grello, 22:19-22.) Joseph testified that he sold his interest in the house to his wife for estate planning purposes under the advice of his attorney even though he and his wife owned the house as tenants by the entirety under N.J. Stat. Ann. § 46:3-17.2 (West 2010). (Ex. 504, J. Grello Dep., 93:16-20; 94:21.) At the time of the sale, Joseph testified that Darlene, who is a nurse working on a per diem basis, was not working. (Id. at 20:17-23; Ex. 503, D. Grello Dep., 10:18-20.) Consequently, although Darlene is listed as the borrower on the mortgage, (Ex. 225), a document produced by the mortgagee, First Franklin, in relation to this case notes that her current earnings were not used to secure the mortgage. (Ex. 503, D. Grello Dep., 15:1-9.) Additionally, Joseph signed the note and the accompanying Rider as a borrower, (Ex. 224; Ex. 225) and Darlene testified that after the sale, Joseph's income paid the mortgage and that "he [Joseph] was still on the mortgage." (Ex. 503, D. Grello Dep., 13:16- 20; 15:18-19; 21:13-19.) Joseph also admitted that even though he had transferred the house to his wife, he was still responsible for the current mortgage. (Ex. 504, J. Grello Dep., 96:6-97-4; 99:8-10.) Moreover, Joseph testified that other than the change in title, nothing had changed, and he continued to reside at the house. (Id. at 110:2-6.)


Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The "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). A fact is only "material" for purposes of a summary judgment motion if a dispute over that fact "might affect the outcome of the suit under the governing law . . . ." Id. at 248. A dispute about a material fact is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. The dispute is not genuine if it merely involves "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the non-moving party to carry its burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

Once the moving party meets its initial burden, the burden then shifts to the non-movant who must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. Shields v. Zuccarini, 254 F.3d 476, 481 (3d Cir. 2001). "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. Indus. Crafting Co., 358 F.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).


A. Liability Under 26 U.S.C. § 6672

Employers are required to withhold federal social security and income taxes from their employees. 26 U.S.C. §§ 3101 and 3401. The employer holds the withheld funds in trust for the government and is required to turn over those funds to the IRS. 26 U.S.C. § 7501. Failure to remit the withheld funds to the IRS may result in the imposition of a penalty. 26 U.S.C. § 6672(a) provides in relevant part:

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade any such tax or the payment thereof, shall, in addition to the penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.

To be personally liable under the statute, an individual has to qualify as a "responsible person," United States v. Vespe, 868 F.2d 1328, 1332 (3d Cir. 1989), and "his or her failure to pay the tax must be 'willful.'" Greenberg v. United States, 46 F.3d 239, 242 (3d Cir. 1994). If both of these criteria are met, the IRS may assess personal liability on the individual under § 6672. Id. at 242; see also Slodov v. United States, 436 U.S. 238, 244 (1978). "An assessment by the government is presumptively correct and . . . , the burden shifts to the defendant to show that he was ...

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